Transformative Impacts of IT Offshoring on Developed Countries: An Analysis

Akemi Takeoka Chatfield


Information technology (IT) offshoring or offshore outsourcing is a fast growing trend that is worldwide and continuing. According to an IDC market research report, the estimated market size of IT offshoring will reach US$29.4 billion by 2010. IT offshoring is a business strategy that is (at least initially) focused on IT cost reduction by buying tradable services from offshore IT service providers in India or China who enjoy existing comparative advantage in lower labour cost and skilled labour (see, Appendix). The process of IT offshoring involves the transfer of in-house IT functions and activities to offshore IT vendors, including business processes, non-core back office processing, software application development, consolidation of distributed IT infrastructures, and real-time management of IT assets such as customer database access control rights. Similar to the manufacturing offshoring trend that started in the 1960s and propelled the shift toward services, IT offshoring will have enormous impacts on workforce in wealthy developed countries. Unlike the former which had economic and social impacts on uneducated and unskilled factory workers, however, IT offshoring will have transformative impacts on highly educated and highly skilled IT professionals. Drawing on prior research published by Alan S. Blinder* in Foreign Affairs (March-April 2006), who views offshoring as the next industrial revolution, this research paper reviews the changing IT offshoring landscape and develops an analysis of its transformative impacts on IT professionals in developed countries.

*Gordon S. Rentschler Memorial Professor of Economics at Princeton University and former Vice chairman of the Board of governors of the Federal Reserve from 1994 to 1996