Study: Outsourcing Boosts Jobs, Economy

An IT trade association claim that worldwide outsourcing has boosted U.S. GDP by nearly $34 billion. Another survey, however, suggests that offshor...
Stephen TaubMarch 31, 2004

Offshore outsourcing curbs inflation, increases productivity, and lowers interest rates, contends a study commissioned by the Information Technology Association of America, an IT industry trade association.

The study claims that offshore outsourcing has already supplied a boost to the U.S. economy. Global outsourcing kicked in $33.6 billion to the 2003 gross domestic product, according to the report, which is based on research, analysis, and model simulations.

It also provides a bullish outlook for worldwide IT outsourcing providers: Global sourcing of computer software and services will grow at a compound annual rate of nearly 26 percent, from $10 billion in 2003 to $31 billion in 2008, according to the study, which was done by Global Insight, an economic analysis and forecasting company.

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During that period, total savings from the use of offshore resources will grow from $6.7 billion to $20.9 billion, according to the researchers. By 2008, real GDP will be $124.2 billion higher than it would be in an environment in which offshore IT software and services outsourcing does not occur, the study adds.

In contrast, however, a recently released survey of 182 U.S. companies by DiamondCluster International, a consulting firm, found that the companies expect outsourcing to save only 10 percent to 20 percent of their costs. That’s way down from 50 percent two years ago.

“Now people are being more realistic,” said Tom Weakland, who advises clients on offshoring for DiamondCluster. At the same time, the study found that 86 percent of U.S. companies plan to increase the use of offshore outsourcing firms.

Such increases will decrease unemployment, according to the study done for ITAA. Contrary to the contentions of many critics offshore outsourcing actually increases jobs in the United States because of the benefits it supplies to U.S. economy. They reason that the incremental economic activity that follows offshore IT outsourcing created more than 90,000 net new jobs in 2003 and will spawn 317,000 net new jobs in 2008.

In a global-sourcing environment, the software and services area will produce 516,000 jobs over the next five years; without global sourcing, only 490,000 would be created, according to the survey.

Thanks to the lower inflation and higher productivity that the report’s authors found, real wages were higher in 2003 and will be even higher in 2008.