IDC Vendor Survey Indicates Offshore Sourcing Impact on U.S. IT Services Will be Mixed

FRAMINGHAM, MA – NOVEMBER 20, 2003— Based on a survey of leading IT services vendors, the offshore component in the delivery of U.S. IT services may rise to as much as 23% by 2007, up dramatically from 5% in 2003. While the mainstream press has seized upon the threat of offshore sourcing to U.S. jobs, a new report from IDC finds that such a dramatic shift may not necessarily translate into a doomed outlook for U.S. IT services jobs or U.S.-based services firms. IDC concludes that U.S. services firms will continue to use offshore resources to lower costs while the majority of U.S. workers at risk will leverage their current expertise into new skills that will remain in demand.

“Several facts have been lost in the debate about offshore sourcing,” said Ned May, program manager of IDC’s Worldwide Services research. “One is that much of the spending to date has focused on only a few activities, which limits the impact of offshore on the broader market. Another is that much of the offshore spending will be captured by locally-based vendors, who are currently building up their own offshore delivery resources. But the most important fact being overlooked is that, while there will be a migration of some jobs overseas, it will be coupled with steady growth in a number of service activities on U.S. soil.”

To obtain an estimate of the impact that offshore sourcing may have, IDC applied a supply-side survey to the U.S. IT services market from two perspectives: “macro markets,” which are representative of how IT services contracts are bought and sold, and “activity groups,” which are based on the underlying tasks that are performed. IDC believes that all three macro markets – project-oriented services, outsourcing, and support/training – will be impacted about equally by offshore sourcing, though additional market factors will cause project-oriented services to experience a net decline. When examined by activity group, however, IDC found the impact to be focused on maintenance and support, implementation, and operations, while planning and IT education and training will remain relatively resilient against the offshore trend.

“The activities that will migrate offshore are predominantly those that can be viewed as requiring low skill since process and repeatability are key underpinnings of the work. Innovation and deep business expertise will continue to be delivered predominantly from onshore,” added May.

The IDC study, Offshore Services: The Impact of Global Sourcing on the U.S. IT Services Market (IDC #30356), utilizes a supply-side survey and IDC’s proprietary demand-side spending model

to extrapolate the potential impact offshore sourcing may have on the U.S. IT services market over the next four years. Segmentations by macro market and activity group are provided, as is a detailed table outlining the migration of 45 IT services activities.

This document is published in IDC's Worldwide Services research program, which covers emerging trends in the IT services industry as well as the leading global vendors who operate in these markets. IDC also recently launched the Global Offshore Services research program, which covers related offshore topics and issues on an ongoing basis. The Global Offshore Services program will be producing forecast data pertaining to offshore services in the first half of 2004.

About IDC

IDC is the premier global market intelligence and advisory firm in the information technology and telecommunications industries. We analyze and predict technology trends so that our clients can make strategic, fact-based decisions on IT purchases and business strategy. Over 700 IDC analysts in 50 countries provide local expertise and insights on technology markets. Business executives and IT managers have relied for 40 years on our advice to make decisions that contribute to the success of their organizations.

IDC is a subsidiary of IDG, the world’s leading technology media, research, and events company. Additional information can be found at www.idc.com.

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