Offshore IT Outsourcing Rates Low and Unchanging Among American Companies Says Survey

The majority of U.S. companies are not engaged in the practice of overseas outsourcing, according to a survey by Robert Half Technology. Ninety-four percent of chief information officers (CIOs) surveyed said their company does not outsource information technology (IT) jobs outside the United States. Among companies that once sent IT jobs overseas but discontinued the practice, nearly six in 10 (59 percent) respondents cited management challenges as the top reason.

The study, developed by Robert Half Technology, and conducted by an independent research firm, is based on telephone interviews with 1,400 CIOs across the United States.
CIOs were asked, "Does your company currently outsource technology jobs outside of the United States (i.e., do you engage in offshore outsourcing)?" Ninety four percent said no, five percent yes and one percent don't know.

These percentages appear unlikely to change significantly in the near future, as most survey respondents expected a continuation of the status quo.

Outsourcing Barriers

According to the survey, management challenges are a common obstacle to successful offshoring. More than half (59 percent) of CIOs whose companies had stopped offshore outsourcing cited management and oversight requirements among the reasons they had done so. Unrealized cost savings and quality control also were factors, cited by 30 percent and 23 percent of respondents, respectively.

"Challenges such as language, culture and time-zone barriers can sometimes outweigh the potential benefits of outsourcing," said Katherine Spencer Lee, executive director of Robert Half Technology. "Smaller companies, in particular, may lack the resources to commit to an effective long-term offshoring strategy."

Lee further explained that many companies are keeping IT functions in-house to preserve the close collaboration that helps build nimble work teams. "IT professionals are taking on more complex roles that require frequent interaction with colleagues outside the department, including company executives. Hiring managers seek professionals with strong communication skills and business acumen, who are able to collaborate with technical and nontechnical coworkers and customers alike."

The survey shows that large companies (those with 500 or more employees) are much more likely to engage in overseas technology outsourcing than small ones (those with fewer than 500 employees). In companies with more than 500 employees, 11 percent of CIOs reported that they currently engage in outsourcing, compared to 5 percent overall.

"Researching viable vendors, and teaching them about the company and its products, management style and quality control require a substantial investment," Lee said. "Large companies may be better positioned to absorb the costs of both initial setup and ongoing oversight, and to benefit from economies of scale."

In the near future, growth in offshore outsourcing is likely to come primarily from companies already outsourcing, not from those that are new to the practice: 43 percent of respondents from companies that currently engage in offshore outsourcing said they plan to increase their level of offshore outsourcing in the next two years, versus 13 percent who said they expect levels to decrease.

To Outsource or Not?

For firms contemplating offshore outsourcing, Lee pointed out some strategies to consider:

• Look for stability. Choose a vendor that has a track record of measuring staff turnover and retaining employees. Seek a company that has a succession plan in place, as well as defined career paths for their IT professionals.
• Setup time and costs. New jobs or even departments may need to be created to handle vendor selection, manage contracts, train workers and oversee remote work teams.
• Management challenges. Dispersed IT work teams may require a different level and type of oversight from management. Consider offering training for managers who will lead overseas teams and will likely be managing individuals who may be very different from them, in terms of culture, background and experience. Some companies may find that they need a full-time project manager to oversee the offshore vendor.
• Security and privacy concerns. Intellectual property risks such as the enforcement of patents, copyrights and trade secrets may require additional oversight and resources. Benchmark best practices in the areas of security and proprietary technology, for example, from similar companies that have done it successfully.