Outsourcing may see services sector 'decline'

Outsourcing to low-cost locations such as India could lead to a "marked decline" in areas of the Irish services sector, according to a specialist.

Many western economies are becoming increasingly concerned about the effect that the growing trend of offshore outsourcing will have on local industry and jobs, according to Mr Dominic Conlon, a senior associate with A&L Goodbody.

Irish companies are increasingly looking to outsourcing so they can concentrate on their core business.

To date, the Irish economy has benefited from US- and UK-based companies outsourcing processes such as call centre management to the Republic.

However, companies are also looking to move some of their processes to low-cost locations such as Russia, eastern Europe and the Far East.

"This is a trend which is set to increase. As first-world economies begin to feel the pressure of high wages and a shrinking labour pool, outsourcing to countries such as India, which has a large, well-educated and relatively inexpensive workforce, becomes attractive.

"India has, in fact, witnessed the development of an enormous outsourcing services industry, with many multinationals, such as Dell, Ford, Alta Vista, American Express and GE Capital, benefiting from the lower-cost regime.

"Some companies have gone so far as to establish their own captive operations in locations such as Bangalore," according to Mr Conlon.

He added that some analysts are predicting an "explosion" in such outsourcing. US analysts have pointed out that a €90,000 per annum US computer programmer can be replaced by an equally skilled €15,000 per annum offshore programmer.

He said that as telecommunications and technologies continued to improve and reduce in cost, it could be expected that increasing use would be made of outsourcing by Irish entities seeking solutions in countries that have a lower cost base and a readily available, well-educated workforce.

However, the financial case for offshore outsourcing had to be carefully examined in the light of additional hidden costs which could arise, he warned.