Monday, December 27, 2004

Separating Outsourcing Fact from Hysteria

TCS: Tech Central Station reports the debate over outsourcing and its impact on the US economy reached a high level of what can only be described as irrationality, and even hysteria.

Outsourcing is not a new phenomenon, of course. Strictly speaking, the term refers to the subcontracting of any business function to an outside supplier, but in the current debate outsourcing to other companies within the home country is rarely mentioned. It is the offshore component that is controversial.

Estimates of the number of jobs involved vary wildly. The head of strategy at IBM, Bruce Harreld, has estimated that the world's companies now spend $19 trillion per year on sales and other administrative costs, and of this only $1.4 trillion is outsourced. The McKinsey Global Institute suggests that offshore outsourcing may increase by 30-40 per cent a year for the next five years, while Forrester Research predicts that 3.3 million white-collar jobs may be relocated overseas by 2015. The potential cost savings involved are certainly very large. McKinsey has suggested the multinational companies can lower their costs by 50-70 per cent through the reorganization of their production and administrative activities. In the white-collar area, IT services are likely to be the most affected. Already some 16 per cent of such work is done remotely, and perhaps half of such jobs may move overseas in the near future.

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