Offshoring Statistics - Dollar Size, Job Loss, and Market Potential

The offshoring market for business processes is relatively young. As a result, different "guesstimates" often backed by vague assumptions are being thrown around.

After a detailed analysis of various publications over the last two years, we isolated some of the widely quoted statistics on offshoring:

• According to the U.S. Department of Commerce, the value of U.S. exports of legal work, computer programming, telecommunications, banking, engineering, management consulting, and other private services jumped to $131.01 billion in 2003, up $8.42 billion from 2002. Imports of services - a category that encompasses U.S. outsourcing of call centers and data entry - hit $77.38 billion for the year, up $7.94 billion from 2002. Measuring imports against exports, the United States posted a $53.64 billion surplus in 2003 in trade in private services with the rest of the world.
• International Data Corporation (IDC) has predicted that the global IT-enabled services market will account for revenues of $1.2 trillion by 2006.
• By 2015, Forrester Research estimates that as many as 3.3 million U.S. jobs and $136 billion in wages could be moved to such countries as India, China, and Russia.
• Meta Group predicts that offshore outsourcing will grow by more than 20% annually, pushing it from a $7 billion market in 2003 to a $10 billion market in 2005. The group also foresees all application outsourcing services, including the offshore component, reaching $15 billion by 2007.
• A McKinsey and National Association of Software and Service Companies (NASSCOM) study estimates that the information technology and enterprise solutions (ITES) market in India is likely to reach $142 billion in 2009. This estimate contrasts with the current price tag of $532 billion to provide these services in the United States. The difference of $390 billion would be the net savings for the U.S. economy due to offshoring. The ITES sector has the potential to generate job opportunities for more than 1.1 million Indians by 2008.
• According to Deloitte Consulting, 2 million jobs will move from the United States and Europe to cheaper locations in the financial services business alone. The exodus of service jobs across all industries could be as high as 4 million. The consulting firm forecasts that three-quarters of leading financial institutions and investment banks will allocate tasks to developing countries in the next five years and that India will be at the top of the list. Global financial institutions will invest $356 billion in India for outsourcing projects.
• Among the different offshore locations, India has become the number one destination for most companies. Gartner, in its 2002 report titled, "IT Trends in India," wrote that the market opportunity for Indian vendors would grow to $25 billion by 2005. According to Gartner, the global BPO market grew by 13% between 1999 and 2000, to $119 billion, and it will reach $234 billion in 2005.
• Gartner also wrote in a report entitled "U.S. Offshore Outsourcing: Structural Changes, Big Impact" that 500,000 of the 10.3 million U.S. technology jobs could move offshore in 2003-04. Diane Morello, the author of the report, estimated that one in ten software services jobs are at stake at computer vendors and 5% of technology jobs are at stake in the wider corporate world. These assumptions led her to her estimate of 500,000 jobs being moved offshore.
• India's software exports were estimated to be worth $9.5 billion in 2003, and the United States accounted for 60% of that total (almost $6 billion).
• According to Datamonitor, offshore deals made up just 1.4% of total outsourcing contracts in 2003. However, the value of offshore contracts rose 890% from 2002 to $1.66 billion.
• According to the financial services firm WR Hambrecht, offshore service represents a large market opportunity. The offshore BPO market is expected to grow at a CAGR of 79% through 2008 to a size of $24.2 billion. The offshore IT service market is expected to grow at a CAGR of 43% to $56 billion.

The bottom line: By every estimate the offshore outsourcing trend is huge. India expects to create 2 million jobs in the next decade in offshore BPO. Guess where those jobs are going to be coming from.