For years, IT professionals in many large enterprises have used offshore services from India for a range of datacenter tasks, including application development. But researchers say that the market is slowing down, and that there will come a time in the foreseeable future when it will likely dry up completely.
Earlier this year, for instance, Forbes cited a report from the Hackett Group consultancy that stated the flow of IT service jobs to India will actually end within 8-10 years.
This trend affects the leading IT service companies in India, including TATA, Infosys, and Wipro, but it also has repercussions for other sections of the IT industry. It raises questions, for instance, about how cloud services are affecting outsourcing in general and whether the trend in outsourcing jobs to overseas companies, usually in India, means more jobs are returning to the US -- or disappearing altogether.
Cloud services definitely appear to have an impact. In an interview with IE Radio this week, Peter Bendor-Samuel, founder and CEO of the Everest Group consultancy, said that cloud computing is contributing to the slowdown in demand for offshore outsourcing in IT. The cloud model is one that attracts enterprise customers looking for more agility. "With cloud, I only pay for what I want and use," he said. Changes are easy. Traditionally, he notes, enterprise customers have chafed at the inflexibility of some of their outsourcers.
But Bendor-Samuel stresses that the cloud isn't the only factor adding to the slowdown in Indian IT offshoring. A shift in economic priorities and reduced demand for application development also have cut into the growth of what he calls "labor arbitrage" -- the process of sending IT jobs offshore, usually to Indian firms.
The trend downward has some Indian observers nervous. But Som Mittal, president of the Indian trade group Nasscom, recently told an Indian press source that the number of clients for Indian IT outsourcing firms has collectively risen by 7 percent -- though he also acknowledged that represents a drop from the 30 percent growth in this sector in the past.
All discussion of the Indian outsourcing situation comes back to a crucial question: Does the reduction in IT work in India mean jobs are returning to the US, or does it signal that trends like cloud computing are eliminating the need for some jobs entirely?
Answers are mixed. On a LinkedIn group thread this week, the IT analyst Lou Marcoccio pointed to a recent survey of 1,200 execs (presumably his firm's survey -- he doesn't say exactly) that found "insourcing" of IT tasks has increased 35 percent since 2011. But Marcoccio also noted that "offshore development has been ramping down dramatically over the last 5 years," and that IT shops among the Global 2000 companies will reduce their use of Indian resources by more than 70 percent this year and in 2013.
Where are the jobs going, if not back in-house? In a blog last week that referred to political candidates making a platform of the offshoring issue, writers for Bloomberg had a dire view:
Many jobs have been lost to automation, not necessarily to offshoring... Employment in middle-skill and middle-wage occupations is declining rapidly. If the candidates wanted to be constructive, they would tell voters the hard truth -- that most of the mid-level jobs are never coming back. They should talk about their plans to improve math and science education, and how to retrain workers to perform more high-skilled tasks. That's the conversation both candidates are avoiding, but shouldn't.
Despite some confusing signals, the IT offshoring situation in India reflects ongoing change brought on by cloud services and a range of other forces. It's time to re-evaluate the value of outsourced services and reliance on offshore firms.
— Mary Jander , Executive Editor, Internet Evolution