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CNet, March 30, 2004

Report: Offshore IT outsourcing helps economy

By Ed Frauenheim, Staff Writer

In the latest salvo in a debate over sending tech work overseas, a report sponsored by an industry group concludes that the practice is good for the U.S. economy and its workers.

Offshore outsourcing of software and information technology services tasks not only is boosting the U.S. gross domestic product but also helping to generate U.S. jobs, including positions in the IT sector, according to the report. Released Tuesday, it was prepared by research firm Global Insight and sponsored by the Information Technology Association of America trade group.

ITAA's members include tech giants IBM, Electronic Data Systems and Accenture. These companies are among those that are locating operations in lower-wage countries such as India.

"While offshore IT software and services outsourcing has displaced and will continue to displace workers in IT software and services occupations, increased economic activity creates a wide range of new jobs--both IT and non-IT," the report states. "As the benefits compound over time, the U.S. economy operates more efficiently, achieves a higher level of output, creates more than twice the number of jobs than are displaced, and increases the average real wage."

The study comes as the practice of farming out high-skilled work to low-wage countries has become a hot-button issue and part of the U.S. presidential campaign. So-called offshoring also is pitting companies against workers. Technology professionals group IEEE-USA recently published a position paper with a dramatically different conclusion from that of the ITAA study. IEEE-USA said the outsourcing of high-wage jobs to low-wage countries poses a serious, long-term challenge to the United States' technological leadership, economic vitality and military security.

According to the new ITAA-sponsored report, 2.3 percent of total IT software and services spending by U.S. corporations in 2003 was devoted to offshore outsourcing activities. That figure will rise to 6.2 percent in 2008, the study says. During that same time period, total savings from offshoring are expected to climb from $6.7 billion to $20.9 billion.

The cost savings and use of offshore resources "lower inflation, increase productivity, and lower interest rates. This boosts business and consumer spending and increases economic activity," the report states.

The study says the benefits of offshore IT outsourcing added $33.6 billion to real gross domestic product in the United States last year. By 2008, real GDP is expected to be $124.2 billion higher than it would be in an environment in which offshore IT software and services outsourcing does not happen, according to the report.

The "incremental economic activity" from offshore IT outsourcing created more than 90,000 net new jobs in 2003, and is expected to create 317,000 net new jobs in 2008, according to the report.

Shipping software and IT services work abroad leads to higher real wages for U.S. workers through lower inflation and higher productivity, according to the study. Real wages were 0.13 percent higher in 2003 and are expected to be 0.44 percent higher in 2008, the study states.

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