January 6, 2005 11:58 AM PST

Offshore-outsourcing spending to creep up

Spending on information technology projects farmed out to low-cost places like India should grow by 1 percent this year, according to a report Thursday from investment firm Merrill Lynch.

The report, based on a December survey of 50 United States-based chief information officers, also found that spending on offshore IT services represents a small but growing chunk of budgets allocated to IT services. In 2004, offshore IT services accounted for 1 percent of the budgets, but CIOs indicated that that figure will increase to 1.4 percent in coming years.

"We expect U.S. companies to increase jobs sent offshore in the next two to three years as they try to drive costs down and improve operating margins," the report said.

Merrill's survey is the latest data point in an as-yet-incomplete picture about the scope and effect of so-called offshore outsourcing. Comprehensive data about the controversial trend has been lacking, but a $2 million government study is in the works.

Business leaders have defended shipping work abroad as ultimately good for the U.S. economy and its workers. Critics claim that the practice eliminates well-paying jobs and threatens the nation's long-term technological leadership.

The Merrill Lynch survey suggests that tech workers should not fret much about job cuts in the short run. Asked about their near-term IT staff-hiring picture, 14 percent of respondents indicated that they are actively hiring, 34 percent answered they are selectively hiring, and 46 percent do not see a change in their internal staff. Six percent indicated that they are selectively cutting back positions.

"After several quarters of building up internal staff, we believe hiring by user organizations has hit capacity and will not change much for the rest of the year," Merrill Lynch said.

 

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