Lower Cost Domestic Sourcing: A Niche Opportunity for the US
| August 1, 2007 |  View for printing |
Executive Summary:
Offshoring of IT-related services has become one of the most dominant industry trends over the past decade and a half. Having started with commodity software functions performed remotely in India, the global delivery model for IT related services now encompasses higher-end application functions as well as a wide array of other IT-related activities (contact/call centers, back office transaction processing, infrastructure, et. al). The widespread availability of telecommunications and Internet technologies has made it possible for IT employers to utilize globally distributed virtual teams.
Global sourcing of IT services has become a key strategic initiative for many US enterprises and is fast becoming the standard way to deliver IT solutions. Absent a significant shift in the geopolitical scene or increased country level protectionist behaviors, a distributed, globalized IT labor supply chain will become the dominant IT sourcing model used by G2000 companies.
Today, US corporations are in the forefront of this shift, driven by their need to stay competitive in today’s global marketplace. The key benefit to date has been significant cost reduction — with savings estimated at roughly 20-40% for applications related projects. However, global sourcing also poses challenges for the US. This has led to vigorous debate among industry, government and the media on the impact of globalization on US innovation and the socio-economic effects on the US workforce, as well as what steps might be needed to protect US jobs, intellectual property and security. Some politicians have called for legislation to limit, or even prohibit, IT offshoring, particularly for public sector entities.
In response, IT services providers focused on public sector customers, which in many cases are restricted from using offshore resources, have been examining ways to deliver more cost effective IT solutions domestically. Concurrently, some dissatisfaction with current offshore efforts and concerns over the sustainability of the offshore labor arbitrage advantage are causing some enterprises to reconsider their global strategies and look afresh at new US locations as potential sourcing destinations. This includes lower cost mid-sized metropolitan areas and rural communities that can provide a significant cost improvement over Tier 1 IT hubs such as Silicon Valley, generally in the range of 30%. This is termed lower cost domestic (LCD) sourcing.
In order to inform the discussion, ITAA commissioned this new, independent study on the global trends for cost effective sourcing of IT services over a strategic planning horizon of 3-10 years. The goal is to help policy makers, business leaders and others answer the following question — Is there a viable niche opportunity for lower cost domestic (LCD) sourcing?
This report synthesizes those opinions and provides a view of how the US can become a more cost effective global sourcing destination by encouraging and nurturing job creation in smaller, often economically disadvantaged American communities, thereby enabling more cost effective IT services delivery in the US.
SPONSORED BY: Information Technology Association of America
Full Executive Summary: http://www.itaa.org/upload/news/docs ... m_Final.pdf
(Many thanks to Monica Lynn Babine at the WSU Center to Bridge the Digital Divide for passing this along. Russ)
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