Outsourcing Is Not a Dirty Word

State and local governments have just now climbed out of a pronounced economic downturn between fiscal years 2001 and 2003. While the previous economic crisis befalling state and local governments in the early 1990s was countered with increased taxation, the most recent fiscal downturn has been addressed with government cost-cutting measures. And, unfortunately, some of those costs include the replacement of in-house personnel with more efficient service outsourcing. The thought that governments would cut jobs and relinquish control of critical IT functions to outside vendors is, at the least, politically sensitive. Even worse is the specter that unemployment rates could be further exacerbated by "profit-minded" companies shipping contract work internationally.

Naturally, the idea of outsourcing is alternately met with surprise, incredulous contempt or outright rage. But too often, hard facts and realities do not accompany the debate.

Input projects that the state and local government outsourcing market will grow from approximately $10 billion in fiscal year 2003 to approximately $23 billion by fiscal year 2008. But the facts supporting this growth are worth detailing. While some impetus for that outsourcing growth comes from government attempts to improve cost efficiency within government technology, still more significant is that the tremendous growth is being facilitated by dramatic shortages expected in the aging, seasoned government workforce. Further, expected government workforce shortages are being accelerated by early voluntary retirements within government jurisdictions as a means to reduce personnel rolls.

In short, competitive market forces and economic dynamics are prompting the growth of government outsourcing--a guiding principle of a capitalist society.

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Some individuals, therefore, may come to the accurate conclusion that outsourcing growth is being driven by market supply and demand and as a necessity for improved efficiency in government operations. Unfortunately, outsourcing still retains particular distaste when coupled with the word "offshore."

Public perception of a global economy is often accepted as an enlightened and inevitable principle in the electronic age of a single, integrated world. Unfortunately, the reality of a developing global labor market is more difficult to accept. Increasingly, outsourcing opponents cloud offshore debates as not only profitable cost-saving measures, but also invitations for security concerns. Perhaps it is instructive, then, to review exactly what is being outsourced offshore in the government IT market. The most common functions highlighted are not high-tech system design or software coding, as you would believe. They are, in fact, customer-service centers and service support. The reality is that, driven by tight margins in government contracts, vendors are frequently challenged to investigate any means necessary to support profitable operations. Even more important, risks of intellectual- property theft or compromised system security far outweigh the marginal gains in profitability that offshore outsourcing may bring, forcing a logical limitation on growth.

It is troubling, then, to see a dynamically increasing introduction of legislation by state and local government officials that would limit, or outright prohibit, offshore outsourcing. Few historical examples can be produced that demonstrate where political actions effectively altered an economy. Successful examples are far less likely when considered within the complex context of the developing international economy of the 21st century.

The growth of outsourcing is an idea the American public must grow to accept as an economic reality. In fact, were the economic explosion of the late 1990s to continue, far less scrutiny and political interest would be placed on outsourcing. In short, the economic forces that fostered the growth of outsourcing are the same that should be trusted to determine its future.

No new legislation need apply.

James Krouse ([email protected]) is Input's manager of state and local IT market analysis.