Smaller Organizations Drive Sharp Rise in Offshore Outsourcing

September, 2009

(Irvine, Calif.) The recession appears to be spawning a sharp rise in the number of small and midsize companies outsourcing to offshore service providers, according to a recently released study by Computer Economics, an Irvine, Calif.-based IT research and advisory firm.

The annual Computer Economics survey of more than 200 IT organizations found that among small and midsize organizations that outsource at least part of one IT function, the percentage using offshore service providers rose from 14% in 2008 to 24% this year.

The bulk of offshore outsourcing to date has been among large organizations, defined as those with more than $1 billion in annual revenue, according to the study. These organizations, however, showed almost no change in the overall percentage of organizations using offshore service providers. Among large organizations that outsource some work, about 46% are using offshore service providers this year compared to 48% the previous year.

“There is a surprisingly sharp increase in the number of smaller companies using offshore service providers, but little or no change among larger companies,” said John Longwell, director of research for Computer Economics. “As larger customers cut back on IT spending, offshore service providers appear to be moving down market. They are doing a better job of connecting with smaller IT organizations.”

While the frequency of offshore outsourcing may be rising, this does not mean the actual size of the market for offshore services is increasing. Along with technology vendors, offshore service providers are experiencing the effects of the slowdown in IT spending. The most widely outsourced function, application development, is being particularly impacted by the slowdown in capital spending by IT organizations, according to the study.

This media alert is abstracted from IT Outsourcing Statistics 2009/2010, our annual study that measures outsourcing frequency, level, trend, and cost experience for 11 IT functions, along with the frequency of offshore outsourcing for each function. The study is designed to give IT executives and service providers a better understanding of outsourcing trends in the current economic climate.

A full description and free sample pages for the study are available on the Computer Economics website.