In the last decade, IT offshoring has been a tremendous boom to high-tech companies and enterprises alike, as a way to keep innovation flowing without breaking the bank.
Highly-skilled workers in India, the Philippines and newer spots such as Eastern Europe have helped take the burden off US-based software companies and IT departments by providing low-cost application development, maintenance, and support. Silicon Valley companies, in particular, have been huge customers of these offshore providers. Yet offshoring, despite all its benefits, has suffered a few setbacks of late, raising questions among technology executives as to its future role in the U.S. market.
The overarching setback, of course, is the economy: CIOs and CTOs simply don't have as many projects as they did a year ago to source, given budget cuts and the general climate of fiscal conservatism. Then there is the financial scandal concerning major Indian outsourcing company Satyam, in which the company founder and CEO admitted to overstating profits and reporting $1 billion in fictitious cash and assets. The scandal has rattled the nerves of companies outsourcing to that region.
The Obama Administration, accused of fostering protectionism, included a "buy America" incentive in the national economic stimulus package passed on February 17th. Finally, growing terrorism in several global outsourcing hot spots, particularly the large-scale attack in Mumbai in November 2008, is another reason for concern.
In Silicon Valley, traditionally a major purchaser of offshoring services, the outlook is a mixed bag, says Peter Bendor-Samuel, CEO of Everest Group, a Dallas-based outsourcing and research firm. "Discretionary spending is down," he says. "Most offshore work is project work such as developing and customizing applications. As projects finish, there are no new projects coming along.