US Tech Companies Cutting Back on Offshoring Services

Despite public complaints from economic experts and politicians that offshore IT and BPO is costing American jobs, new data indicates that at least in the case of the US technology industry, offshoring is in the midst of a long-term decline. Results of the recent annual Technology Outlook Survey from consulting firm BDO USA indicate that only 32% of US technology firms are outsourcing manufacturing and services overseas.

The good news for the Nearshore, though, is that tech firm CFOs say they favor outsourcing to Latin America.

The survey number represents a drop of almost 50% from 2009, when 62% of US technology firms were offshoring manufacturing and services. Offshoring of manufacturing has undergone a particularly severe decline in recent years. Manufacturing was the most frequently offshored function by technology companies in 2009 (54%), 2010 (51%). and 2011 (53%). However, in 2012 manufacturing has become the least outsourced function (33%).

BDO analysis suggests supply chain damages inflicted by natural disasters in Japan and Thailand in 2011 are contributing factors to this steep decline in offshore manufacturing. Of the 32% of technology companies that are outsourcing, IT (63%) and R&D (51%) are the top outsourced functions. The percentage of technology companies outsourcing call centers offshore this year (37%) is triple that of last year (12%).

In terms of the general decline in offshore BPO among US tech companies, BDO says pressure from the federal government to hire more US workers, as well as a desire for better quality of service and reduced exposure to international risks, are major drivers.

A drop in offshore BPO should produce benefits for domestic employment. Fifty percent of the 100 technology firm CFOs who participated in the December 2011-January 2012 survey plan to hire more employees this year, and 80% of those not currently offshoring manufacturing or services do not plan to do so in the near future.

India Claims Top Tech Outsourcing Spot

Of course, offshore BPO remains a huge global industry which is experiencing some notable changes. After declining in popularity from 2008-2011, India now leads the list of countries to which technology companies are currently outsourcing. Six in 10 (62%) of technology companies performing offshore BPO report that they source services from India, more than double the 29% who did so in 2011 (29%). Last year’s number one destination China also remains a top destination, increasing in popularity about 10% from 35% to 39%, with both Western & Eastern Europe also gaining in popularity.

Future Looks Bright for LatAm
The CFOs who are currently outsourcing (32%) were asked to choose one country or region that they are considering for future outsourcing. For the first time, Latin America was the most popular option (23%), followed closely by Western Europe (20%) and China (19%). A part of the nearshoring trend, BDO analysis indicates Latin America has become an increasingly attractive option for tech companies, as it affords the advantages of proximity and a skilled labor force.