Report: Some IT outsourcing is moving back onshore

While cost is generally the main consideration, the war in Ukraine and global political tensions are prompting companies to shift their IT outsourcing strategies, according to a new report.

A persistent talent shortage has led nearly 70% of IT leaders to increase their need to outsource, with some opting to source talent back onshore, according to a newly-released study by software development agency JetRockets.

This is being driven by “extraordinary pressure as the need to digitize operations and create differentiated experiences for both customers and employees continues to increase,’’ the study found. In addition to global uncertainty, widespread budget cuts are also forcing a change in the strategies organizations use to outsource talent, the study said.

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Global factors are disrupting outsourcing strategies

The war in Ukraine and political tensions around the globe, namely in India, China and Russia, have also impacted the IT outsourcing landscape, the report said. These issues could prompt IT leaders to rethink their outsourcing plans.

“This is because over half (51%) of U.S. businesses today outsource IT to other countries exclusively, including nearly a quarter (24%) who outsource offshore (in a distant country),’’ the report said. “In fact, just 27% outsource exclusively onshore, and 22% use a combination of both.”

Already, 67% said their IT outsourcing strategy has been at least somewhat impacted by the war in Ukraine, with 36% admitting that it has been “significantly” impacted. This means that at a time when there’s a growing need for IT leaders to look to outsourcing to find talent, “they’re also experiencing a decrease in access to some of their top outsourcing locations,” the report said.

The report posits that “American organizations are beginning to look more at domestic partners after years of them predominantly outsourcing overseas.”

The three main areas companies plan to outsource

The top three areas where respondents plan to outsource this year are web development and maintenance (33%), infosecurity (30%) and data center operations (30%).

Due to a dearth of web developers, it comes as no surprise web development is the top area for outsourcing, the report noted. It cited an IDC prediction that there will be a global shortfall of four million developers by 2025, while the U.S. Bureau of Labor Statistics indicated that about 162,900 developer jobs will need to be filled every year through the end of the decade. According to the JetRockets report, about 80% of tech leaders report they are looking to fill in-house developer roles.

This shortage comes during the growth of DevOps, which has pushed the need for more web developers to deliver collaborative technologies, the report said.

Meanwhile, “effective infosec and streamlined data center operations have skyrocketed in importance these last few years,’’ due to the rise in cybercrime, the report noted. “As organizations scale their digital transformation plans, they’re having to significantly tighten their data security protocols.”

As a result of these factors, 35% of respondents said outsourcing will play a significant role in allowing them to fulfill their responsibilities this year.

How organizations should approach IT outsourcing

Outsourcing IT needs has always been a means for tech leaders and their organizations to access a larger talent pool, fill positions quickly and cost-effectively, and save money on labor costs. However, this strategy is changing in light of persistent and unforeseen challenges, according to the report.

“The cost benefits of outsourcing IT are traditionally what’s driven organizations to do it, and send work overseas to countries like Ukraine, Russia and India where talent is less expensive,” said Natalie Kaminski, co-founder and CEO of JetRockets. “But I think the sheer scale of the digital transformations organizations are going through today is actually pushing cost down the priority list.”

The cost-driven model is shifting to a partnership-driven model, “which essentially means they’re looking for vendors that will work as an extension of their team versus choosing based on who can do the job for the cheapest,’’ Kaminski said.

Overall, the report recommended that organizations partner with vendors that understand their organization, keep their data safe, and deliver high-quality products and services. This will enable them to pursue their digital transformation goals.

Survey methodology

JetRockets said its study findings were based on responses from more than 400 U.S. based IT leaders in CIO and CTO roles to analyze their views on IT outsourcing and how they plan to leverage third-party vendors in the year ahead.

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