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Overseas Outsourcing Hurts U.S. Economy, Says Firm

Runaway outsourcing might be taking a bigger bite out of the U.S. economy than previously thought, Integnology, a Santa Clara, Calif.-based engineering firm, said Wednesday.

As increasing numbers of companies seek out more affordable IT services overseas in places like India, Russia, and parts of Asia, many industry watchers are saying that outsourcing options in the U.S. are being overlooked and many companies are beginning to feel the fallout.

According to Integnology, which provides product design and IT outsourcing services, workers at risk from this industry-wide migration are not only U.S. IT personnel, but highly trained professionals involved in the gambit of high-tech outsourcing services, including human resources and call center operations.

"Why is so much offshore outsourcing taking place or being planned when onshore makes just as much sense in many instances after total project costs are considered?" said Basheer Janjua, CEO of Integnology Corporation.

According to Janjua and his staff, many companies don't even bother looking close to home for cost-efficient alternatives. The result, says Janjua, has a negative impact on the U.S. economy and has taken away the livelihoods of scores of U.S. tech workers.

"Outsourcing is an irreversible trend," said John Lucas of Integnology. "We're not trying to stop it, we're just looking for a little more of a balance when companies are looking at their outsourcing options."

Recent research from Forrester Research indicates that the percentage of offshore outsourcing for U.S. IT budgets took a leap from 12 percent in 2000 to 28 percent in 2003.

META Group, Inc. predicted last month that offshore outsourcing overall would grow more than 20 percent annually.

And while no direct correlation can be made between the growing trend toward outsourcing and industry job loss, the American Electronics Association released a report this week which found that more than half a million U.S. citizens lost their high-tech jobs between January 2001 and December 2002.

"The dramatic shift to outsourcing technology jobs overseas is being felt throughout the economy, while thousands upon thousands of highly qualified U.S. engineers are going wanting even when they're cost competitive in today's market," said Bruce Bernstein, president of the New York Software Industry Association (NYSIA).

The migration began in the early 1990s when some of the technology sector's heavyweights like Oracle Corp. , IBM , Sun Microsystems , Cisco Systems Inc. , and Microsoft Corp . began cultivating outsourcing facilities in India and other parts of Asia as cheaper alternatives to U.S. resources.

To date, American technology companies have contributed an estimated $10 billion to the Indian economy over recent years, according to reports, and many heavily concentrated high-tech cities in India like Hyderabad and Bangalore are said to closely resemble Silicon Valley business culture.

According to David Schatsky, vice president and research director for Jupiter Research, overseas outsourcing has indeed been picking up steam for many years due in part to the array of services that can be had for substantially less cost than the equivalent here in the U.S.

"There has been a dramatic shift in perception among companies," said Schatsky. "There used to be widespread skepticism about offshore development. Now the question is how much?"

According to Schatsky, cost savings in the neighborhood of 30 percent or more are not hard to come by for many companies that choose to farm out business processes like claims management, call centers, and IT services.

However, added Schatsky, the aggregate impact on the overall U.S. tech sector is relatively small.

"Of all the companies that have IT departments on which they spend more than a million dollars a year, more than a quarter of them are doing offshore development," said Schatsky. "But of those companies, only a small share of their IT budget is being used for that purpose."

But according to Integnology, that small percentage is substantial enough to have a severe impact on the high-tech workforce. A cluster of U.S. states like New Jersey, Connecticut, Missouri, Maryland, and Wisconsin are even turning to legislation and labor actions to put restrictions on the increasing use of overseas high-tech resources.

Integnology insists that the answer is not in imposing restrictions on runaway outsourcing, but instead developing a more concerted effort within the tech sector to keep the money pumping into the U.S. as well.

"More creative ways have to be found to take advantage of the vast displaced U.S. technical talent pool, instead of essentially turning our backs on it," said Janjua who has come face-to-face with the personal effects of the outsourcing fallout within Silicon Valley.

On a weekly basis, Junjua receives hundreds of resumes from desperate high-tech workers, many of them with masters degrees from Stanford and Berkeley who have been laid off because of what Janjua says is the direct result of too many companies turning their outsourcing needs away from the U.S. and hiring oversees.

"When they lay off one guy here, they think, 'we can hire two guys in China or three guys in India for that same money. It's really getting very worrisome and it's starting to add up," Janjua told internetnews.com.

The solution, says Janjua, is not an easy one. But if something isn't done, the problem will only snowball and could potentially deter younger generations from pursuing careers in the tech sector.

"There are some products that naturally will be sent overseas, but what are we going to do with the U.S. workers? What are our plans for all of the unemployed?" said Janjua.