Across the Digital Nation: Offshore outsourcing draws fire among local governments

Rishi Sood

Over the past 18 months, there has been growing sentiment among public-sector organizations to curb the use of information technology development by non-U.S. citizens or work performed overseas.

This issue is rooted largely in the heightened security concerns after the Sept. 11 terrorist attacks, exacerbated by the dislocation of U.S.-based IT workers during the economic downturn and underscored by the increased use by private-sector organizations.

In many instances, prominent political executives have brought this issue to the state floor, seeking to constrain the emergence of offshore services within government contracts. At present, four states -- New Jersey, Maryland, Connecticut and Washington -- are considering new legislation to ban outright the use of offshore services or non-U.S. citizens.

Despite all this, offshore outsourcing is flourishing in the private sector. From telecommunications to financial services to retail companies, private-sector firms have embraced offshore development and support of key business functions.

Many global 500 firms, such as Citibank, General Electric and Prudential, use offshore services for front-end customer support functions, business specific processing services and back-office maintenance. The depth and breadth of these services have grown over time.

Although most offshore services are in India and China, newer countries, such as South Africa, Mexico and Malaysia, have secured major contracts.

In many respects, the debate over offshore outsourcing in the public sector is healthy; it's analogous to the use of outsourcing in general and the key obstacles inherent in that issue.

Certainly, there are critical services that public-sector entities must prioritize to safeguard daily government operations. Given the importance of information technology in areas such as homeland security, there are understandable questions that must be asked and resolved before embarking on specified IT initiatives. Because government is the final line of defense, this approach is not only a prudent but a mandatory course of action.

However, there certainly are non-critical areas of government service delivery that may be better served in an alternative model. Given the economic environment and the internal skills shortages that many states face, outsourcing in general and offshore outsourcing in particular may be key pathways to increasing services while managing costs.

Offshore services may range from the mundane, such as document imaging and archiving, to the support of high-volume, transaction-oriented services. As seen in the private sector, there are tangible cost savings associated with offshore services as well as improved service levels in many business support functions.

In the end, public-sector organizations likely will need to find a compromise between the overt use of offshore services and banning them completely. The partnerships that tier-one vendors have already created in the marketplace and prominent offshore firms highlight the possibility that parts of future technology projects may be developed offshore, yet tested and approved by U.S.-based vendors.

Clearly, the politicized nature of this issue will forestall any major developments in this regard over the short term. *

Rishi Sood is a principal analyst with Gartner Dataquest in Mountain View, Calif. His e-mail address is

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