Macro-Economic and Social Impacts of Offshore Outsourcing of Information Technology

Abstract

Offshore IT outsourcing has been gaining acceptance among corporations as a mainstream alternative to in-house operations. Various studies conducted over the last 10 years have shown that outsourcing allows firms to reduce high overhead costs and improve productivity, contribute flexibility, and thus improve overall performance of the firm. However, offshore IT outsourcing brings new challenges and risks. The skeptics believe that outsourcing may weaken the local business competitiveness of the region, investors’ confidence in investing in local businesses, and may create a spiral effect on economic indicators such as unemployment, enrollment in schools, living styles, housing, and construction, etc. Little deliberate research has been conducted to date. This study investigates the macro- and socio-economic consequences of offshore IT outsourcing in the United States using a system dynamics model. The research finds significant effects perceived and experienced by IS professionals. The research also finds significant differences in the perceptions of practitioners and the academy, especially students whose inflated expectations may cause disappointment with the reality of the current IS professions.