Issues Relating to IT Offshore Outsourcing WITSA Public Policy Meeting Hanoi, Vietnam November 26, 2005 David A. Olive General Manager, Fujitsu Limited WITSA Public Policy Chairman
IT Offshore Outsourcing While India and China have long been recognized as centers for U.S. offshore outsourcing, other nations also are moving to tap into this lucrative market. Ghana, South Africa, Israel, Russia, Romania, and several Eastern European countries all are vying for jobs and money in the sector. Offshore outsourcing is just one small part of a (US)$5 trillion global outsourcing market. This market is growing by more than 15 percent per year, and the offshore component is certainly among the fastest growing," Michael Corbett, president and CEO of New York-basedMichael F. Corbett & Associates
IT Offshore Outsourcing Recently, the U.S. labor organization , the AFL-CIO -- citing a report by Gartner -- reported that by the end of next year, one out of every 10 jobs with U.S.-based information technology vendors and service providers will be exported. By 2004, according to the 2002 Gartner report, more than 80 percent of corporate boards of directors will have considered offshore outsourcing, while 40 percent of corporations will have finished an outsourcing pilot program or be actively involved in outsourcing technology services.
IT Offshore Outsourcing Indeed, for workers displaced by offshore outsourcing, it makes little difference whether their jobs are going to India or China. The end result is more competition for fewer positions, increased demand for sophistication and specialization -- and the knowledge that corporations likely will outsource even the remaining functions someday. Several U.S. states are considering legislation to prohibit or severely restrict their state governments from contracting with companies that move jobs to low-wage developing countries, and labor unions, notably the Communications Workers of America, are lobbying the U.S. Congress to prevent offshore outsourcing.
IT Offshore Outsourcing But focusing the offshore outsourcing debate on job losses may miss the most important point: Offshore outsourcing creates value for the U.S. economy by creating value for U.S. companies and freeing U.S. resources for activities with more value added. It creates value in four ways: 1. Cost savings 2. New revenue 3. Repatriated earnings 4. Redeployed labor
IT Offshore Outsourcing A McKinsey Global Institute study reveals the extent of the mutual benefits. ‘In this way, offshoring, far from being bad for the United States, creates net value for the economy. It directly recaptures 67 cents of every dollar of spending that goes abroad and indirectly might capture an additional 45 to 47 cents--producing a net gain of 12 cents to 14 cents for every dollar of costs moved offshore.” Offshoring and beyond The McKinsey Quarterly, 2003 Number 4
IT Offshore Outsourcing Moderator - David Olive Australia – Rob Durie, Executive Director, AIIA Philippines – Claro Parlade, Chair, ITAP International Committee United States – Harris Miller, President, ITAA India – Ashank Desai, Past Chairman, NASSCOM
IT Offshore Outsourcing • How is this issue viewed in your Association? • Are there groups critical of such activities? • What has been the government’s reaction? Are there proposal to limit or restrict such activities? • What advice would you give to industry leaders and government officials on this topic? Is it a cause for concern or not? • What additional steps need to be taken at this stage by the information technology industry?
WITSA 2003 Global Public Policy Activities “…providing a voice for the global IT industry.” HTTP://WWW.WITSA.ORG David A. Olive General Manager, Fujitsu Limited WITSA Public Policy Chairman