On March 31, 2004, the Information Technology Association of America (ITAA) released a report that predicts that spending for global outsourcing of computer software and services is expected to grow at a compound annual rate of almost 26%, increasing from approximately $10 billion in 2003 to $31 billion in 2008. During this same time period, 516,000 new IT jobs will be created worldwide, according to Global Insight, Inc, the company that wrote the report. Of those half-million jobs, 272,000 will go offshore and 244,000 will be within the United States.

The report, entitled "The Impact of Offshore IT Software and Services Outsourcing on the U.S. Economy and the IT Industry," was sponsored by the ITAA in response to growing concerns that the domestic economy within the U.S. will continue to orphan thousands of highly trained IT workers, while corporations reap the windfall of cheap offshore IT labor.

But the real benefactors of this trend are the members of the ITAA itself, who provide flawed analysis to further their global business models.

According to the report...

"While global IT software and service outsourcing displaces some IT workers, total employment in the United States increases as the benefits ripple through the economy. The incremental economic activity that follows offshore IT outsourcing created over 90,000 net new jobs in 2003 and is expected to create 317,000 net new jobs in 2008."

Funny Math

By any measure, this is a highly controversial statement. Consider that the trend of global IT outsourcing has been increasing since 2000, when the economy was reaching new ground and driving an unprecedented demand for trained IT workers. Suddenly, the bottom fell out of the IT employment market, sending many IT workers to the unemployment roles.

Yet since 2000--when the dot-com investment bubble burst--IT in the U.S. has actually lost 372,000 jobs, according the report's authors. This means that, even if the rate of domestic IT growth follows their predictions--generating 244,000 new jobs by 2008--IT in the U.S. will have shrunk by 128,000 jobs.

And though the authors estimate that the total net job increase created by IT outsourcing within the U.S. economy--IT and non-IT combined--will top 317,000 jobs by 2008 (with a dollar value of $33.6 billion in 2003 alone), there is no calibration of the statistics for what the total economic growth rate might have been had the trend in IT outsourcing been abbreviated. For instance, though the authors believe that the GDP increase with outsourcing will be at $124.2 billion by 2008--above what it would be without outsourcing--they are basing those figures on statistics accrued in 2003, after the outsourcing trend was in full swing, after the dot-com bubble had burst, and after the economy was in recession.

Is What's Good for the Goose Really What's Good for the Gander?

Why is this kind of statistical recalibration important? Because the IT industry as a whole is not just a "service industry" but a bottom-line contributor to the GDP: It creates new software and hardware products, builds new media infrastructures with those products, and stimulates new opportunities for economic growth. IT is an industry that builds infrastructure and expands the bandwidth of the domestic economy. By comparison, sending this infrastructure overseas actually limits the ability of the domestic economy to be resilient and responsive to new domestic opportunities for business.

Yet, from the jaded perspective of the ITAA, IT global outsourcing looks like a good thing--creating new jobs in the domestic market and increasing overall economic growth, while reducing operating costs. But this appraisal has some serious flaws.

For instance, the report details how IT offshore outsourcing increased by 32% between 1998 and 2003. But up until 2000, the U.S. economy was also growing in various sectors at a heady 4-6%, with the IT industry as one of the leaders. At that time, corporations used IT offshore outsourcing as a means to fill a shortage in the domestic IT workforce.

But when the economy hit the skids, sliding into recession in April, companies were faced with a dilemma: How do you reduce the bottom line expense of IT and still sustain the manpower to maintain the massive IT infrastructure that had been built? Corporations latched onto a Machiavellian tactic of outsourcing, removing the higher-paid infrastructure of domestic IT workers and expanding the number of lower-paid offshore workers, using U.S. domestic outsourcing service providers as the medium.

Meanwhile, because many of these offshore outsourcing organizations are headquartered in the U.S., (EDP, IBM, and General Electric, among others), the actual U.S. GDP rose while the domestic IT employment base declined.

In other words, U.S. corporations that are the outsourcing service providers--which have few actual domestic IT workers--began to profit. These are the very same corporations that sit at the head of the ITAA, pumping up the perception of an increased GDP, while actually moving the infrastructure and the industry itself to other continents. Thus, economic advisors of the current U.S. administration can say with a straight face that offshore outsourcing is actually "good" for the economy. Why? Because the lobbying arm of the ITAA is pushing this agenda for its members, who actually represent the offshore outsourcing interests themselves.

"Bright Future for IT" Is Unrealistic Appraisal

So what do the authors of the report forecast for the future of domestic IT workers? Lots of doublespeak! According to their estimates...

"Offshore IT software and services outsourcing actually increases average real wages of U.S. workers. With lower inflation and higher productivity, real wages were 0.13% higher in 2003 and are expected to be 0.44% higher in 2008."

But, clearly, this estimate is also predicated upon the flawed logic that uses the base year of 2000 as the starting point, and it is generalized for all workers in the economy, not just IT workers.

More importantly, when you remove higher-paid IT workers from company payrolls, you have reduced the base upon which you calculate pay percentage increases year over year, making the small wage increases for all wage earners appear to be a higher percentage. You've essentially watered down the value of the entire U.S. domestic payroll. So even though the prospects for IT employees continue to diminish, the authors can claim that the future for domestic IT employees is bright because of IT outsourcing.

ITAA--Who Are These Guys?

The ITAA claims to represent the IT industry within the United States. However, its executive membership role primarily consists of global international corporations that have substantial contracts with the U.S. government. As a result, the ITAA has become a lobbying organization that represents neither the domestic IT industry nor the IT workers who find employment within that industry. The membership of its board of directors reads like a "Who's Who" in global technology:

• Dr. Brad Allenby, Environment, Health and Safety Vice President, AT&T, a corporation that is currently focusing upon global network services
• Dr. Renny DiPentima, COO and President, SRA International, Inc., a major government contractor providing information technology services and solutions
• Gary Greenfield, CEO, Global eXchange Services, a major outsourcing enterprise
• Neil Isford, President and CEO, Dell|Plural, Inc., an outsourcing organization purchased by the Dell Professional Services in 2002
• Habib Khoury, President and CEO, Cemprus, Inc., a telecommunications network equipment manufacturer
• Jon Korin, VP, Strategic Development, Northrop Grumman Information Technology
• David Langstaff, President and CEO, Veridian Corporation, a provider specializing in mission-critical national security programs for the intelligence community, the Department of Defense, and government agencies involved in homeland security
• William Sweeney, Vice President, Global Government Affairs, EDS, a global information systems technology company with major government contracts
• Dr. Jim Treleaven, President and CEO, Catalyst International, Inc., a provider of software that optimizes the performance of networked enterprise supply chains

All of these organizations are large, international in scope, and focused upon providing IT services to the U.S. government. Offshore outsourcing makes terrific sense for these corporations, especially if the U.S. taxpayer is paying for them.

In the past, the ITAA has lobbied successfully for increases in the number of H1-B visas for foreign IT workers, even during times when the unemployment numbers of IT workers in this country was rising significantly.

The authors of the report, Global Insight, Inc, specialize in providing consulting analysis of offshore outsourcing facilities. It's not surprising then that many of the more important issues facing IT workers who are working in the domestic economy are omitted or ignored and that the information contained in the report is skewed to the interests of the members of this lobbying organization.

Editor's Note: MC Press and Dice.com! As a service to our subscribers, MC Press, LP has negotiated an arrangement with Dice, Inc., the leading IT employment search service, to provide Dice's comprehensive employment search tools within our MC Press Career Resource Center. Check out the MC Press Career Resource Center now! Take a look at the salary survey to see where you stand within the industry. Find employment trends and hotspots for jobs, and ride MC Press to your personal career success.

Thomas M. Stockwell is Editor in Chief of MC Press, LP.

Thomas M. Stockwell is an independent IT analyst and writer. He is the former Editor in Chief of MC Press Online and Midrange Computing magazine and has over 20 years of experience as a programmer, systems engineer, IT director, industry analyst, author, speaker, consultant, and editor.  

 

Tom works from his home in the Napa Valley in California. He can be reached at ITincendiary.com.

 

 

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