Forrester adjusts outsourcing numbers upward

Forrester Research says the number of jobs moving offshore is accelerating in the short term, and it now expects that 830,000 jobs will move offshore by the end of 2005. That’s a 40% increase from a previous estimate made by the Cambridge, Mass., research firm.

But Forrester said its long-term estimate has changed little. It expects that 3.4 million jobs will be moved offshore by 2015; it had previously estimated 3.3 million.

One of the reasons for this short-term surge is the political backlash over offshore work. In a twist of the public relations adage that any publicity is good publicity, the political furor has “increased the awareness of offshore outsourcing, and increased the awareness of the value of offshore outsourcing,” said Forrester analyst Stephanie Moore.

Other factors contributing to the short-term acceleration are the expanding range of offshore options to other tasks beyond application development and maintenance, such as infrastructure support, and growing use of business-process outsourcing. Moreover, U.S.-based companies such as IBM and Accenture are rapidly expanding offshore operations.

In addition, IT departments are being asked to do more as the economy recovers, “yet the IT budget is still flat or declining, so companies are looking at offshore as a way of potentially doing more with less or the same amount,” said Forrester analyst John McCarthy during a teleconference today.

But the long-term projection is holding steady because the complexity of going offshore “is still going to hold back companies,” McCarthy said, as is the “skill restraints” among offshore workers.

Although there are occasional reports of companies pulling back from offshore outsourcing, Forrester analysts said offshore development will continue to see steady growth.

Forrester said its projections were gleaned from a variety of sources, including its own surveys and vendor and customer discussions, as well as third-party numbers.

One obvious sign of the interest in offshore work is in the bottom line of some of the major India-based vendors, where most of the work will continue to go.

For example, Bangalore-based Wipro Ltd. last month said its revenue for the fiscal year that ended March 31 increased 36% from the previous year to $1.35 billion. In its 2000 fiscal year, the company reported $280 million in revenue.

Another Bangalore-based company, Infosys Technologies, reported a year-to-year revenue gain of 41% to just over $1 billion. In its 1999 fiscal year, the company earned $121 million in revenue.