Economic downturn will increase offshoring, Gartner says

While the U.S. IT sector has shown signs of resiliency in recent months, a new report by Gartner predicts the current economic slowdown will accelerate the offshoring of IT jobs to countries such as India.

In the report, Gartner notes that many U.S. companies are  taking steps to speed up their offshoring programs in order to contain their labor" by sending more of their IT jobs offshore. In the worst-vase scenario, the slowdown will turn into a prolonged recession that will indefinitely delay noncritical projects and lead to enhancement and innovation projects being cancelled, Gartner says.

The research firm also says that India, which has long been a staple country of IT offshoring, has been losing some of its luster as an offshore destination because of rising wages, which have recently seen annual increases between 10% to 15%. Gartner recommends that companies considering offshoring work to India either look at branching out their offshoring facilities to more countries, or that they negotiate multiyear annuity-based outsourcing contracts with vendors that let them raise rates by between 3% and 5% per year to account for employee salary increases.

But even with its increasing wages, Gartner thinks that India is still a very valuable asset for countries looking to offshore their labor, as the country is "central to the entire IT sector today, both in terms of indigenous, India-centric service providers that have a wide-ranging impact on the IT services sector, and a vast and growing IT labor pool being trained to support a global client base." Additionally, says study author Allie Young, employing an Indian IT worker costs about a third of what it costs to employ an American IT worker.

"India still remains the most proven country with the greatest scale and the most sophisticated service providers," she says. "In China, there is still a large gap in terms of language, and Latin America and Mexico do not have the scale that India has."