In late 2003, a series of critical newspaper articles prompted Indiana Gov. Joseph Kernan to abruptly cancel a state contract that may have sent some systems development work overseas. The uproar convinced Kernan to launch an initiative encouraging use of homegrown talent in state agency contracts.

Indiana isn't the only place where anti-offshore sentiment is brewing. Bills in 28 state legislatures now seek to ban offshore outsourcing in state agency contracts. Sending technology work overseas may not be new, but it has become a political hot potato for many jurisdictions as more IT tasks are performed beyond U.S. borders.

Opponents contend offshore outsourcing steals high-paying jobs from skilled U.S. workers during a painful economic downturn. Proponents counter that offshoring provides better IT talent at a lower cost to taxpayers.

That debate won't end anytime soon. Analysts predict steady growth for offshore outsourcing over the next few years. And in states such as Texas, where contracts using offshore labor were awarded with little public outcry, it's a tool that might prove tough to ignore for cost-conscious agencies.

Outsourcing Under Fire

The decision by some states to ban offshore outsourcing in state contracts isn't surprising, given the sudden shift in public perception, said Martin Clague, CEO of Covansys, which offers various technology services, including application maintenance and development, through U.S.-based or offshore IT talent.

"That's just the emotion of the time," he said, adding that reviewing state RFPs over the last six months reveals that practically all RFPs now specify where a project must be completed, though some RFPs indicate a willingness to consider offshore outsourcing.

Some states have asked the company to submit two bids for comparison, Clague said -- one using in-state labor, and one with an out-of-state component.

Offshore outsourcing will see less consideration from states in the short term because of negative press, he said. But if one state acknowledges the value of offshore outsourcing and varies from the anti-offshore course, other states will consider it.

"State and local governments nationwide are facing severe budget shortfalls," Clague said. "At the same time, they are struggling to meet the service needs of an increasingly Internet-savvy constituency demanding e-government services. This will ultimately seek its own level, based on economics, causing states to reconsider offshore involvement."

Reasons Why

In early January, Intel CEO Craig Barrett set everybody on edge -- he said the era of the United States' lock on white-collar and high-tech jobs is over because U.S. IT professionals are losing their competitive advantage.

Recent research from the National Association of Software and Service Companies (NASSCOM), which promotes India's IT industry and fosters a business-friendly environment for companies setting up shop in that country, shows a significant increase in the number of IT professionals in India.

From 1986 to 2002, India increased its skilled IT workers from 6,800 to 522,000, NASSCOM said. Of those, 170,000 work in the IT software and services export industry; approximately 106,000 work in IT-enabled services; and more than 220,000 work in user organizations.

Based on current rates of high-school graduates going on to higher education, NASSCOM's research predicts the Indian IT industry will have a labor pool of approximately 17 million skilled workers by 2008.

Can the United States catch up? It could be difficult, observers say. The growing number of IT professionals abroad is one problem, and skill sets of the offshore work force are another.

"For at least six years, the curricula at the well known U.S. schools were teaching people how to design what the computer screen looks like graphically, how to draw people into the site, how to sell over the Web and intuitive computing," Clague said, arguing those skills aren't necessary now, and a lot of people are

Shane Peterson  |  Associate Editor