U.S. Technology Outsourcing to Reach Record Levels in 2013

Outsourcing in the U.S. technology industry has increased for the first time in three years, according to data released by BDO USA, LLP. Among the 100 U.S. technology chief financial officers polled, 63 percent plan to outsource or manufacture products outside of the U.S. This marks the highest level of outsourcing by U.S. technology companies since the inception of the survey in 2008. Interestingly, of the companies who are not currently outsourcing, 84 percent said they are not likely to do so this year.

“While the drive to remain competitive has led technology companies to maintain outsourcing contracts, many are working in tandem to grow their U.S. workforce to develop new and innovative products and solutions in the U.S. while outsourcing traditional ‘back office’ operations.”

Despite the growth in outsourcing, technology executives surveyed also anticipate growth in the U.S. technology job market in the year ahead. Overall, 43 percent anticipate the total number of U.S. employees will increase in 2013, while an additional 45 percent expect their workforce to remain stable.

“Despite an unemployment rate still hovering near 7.7 percent, the technology industry is rapidly growing, thanks to new technologies and trends like big data, mobile applications and cloud-collaboration,” said Aftab Jamil, partner and director of the Technology and Life Sciences practice at BDO USA, LLP. “While the drive to remain competitive has led technology companies to maintain outsourcing contracts, many are working in tandem to grow their U.S. workforce to develop new and innovative products and solutions in the U.S. while outsourcing traditional ‘back office’ operations.”

Sixty-one percent of CFOS say manufacturing will be, once again, the most heavily outsourced function for U.S. technology companies despite recent rises in U.S. manufacturing in other industries. There have been a few notable examples of technology companies – including Apple, Lenovo and GE - bringing manufacturing back to the U.S. Southeast Asia maintains its position as the leading outsourcing destination despite supply chain interruptions that plagued the region over the past few years. Following manufacturing, R&D is the second most expected outsourced function (56 percent) followed by distribution (42 percent) and IT services and programming (30 percent).

These findings come from the sixth-annual BDO Technology Outlook Survey, which examined the opinions of 100 chief financial officers at leading technology companies throughout the United States. The survey was conducted from December 2012 to January 2013.

Other major findings from the 2013 BDO Technology Outlook Survey include:

• The U.S. tax environment is not hindering international growth. Though technology companies are using outsourcing to gain a competitive advantage, 61 percent of U.S. technology executives surveyed do not believe that the U.S. tax system is hindering their ability to compete in a global marketplace. In fact, domestic tax concerns, including corporate tax rates (39 percent) followed by taxation of overseas activities (21 percent), are the primary concerns related to the U.S. corporate tax reform. However, technology CFOs do not believe that a repatriation tax holiday would incentivize them to bring outsourced services and operations back to the U.S.: 72 percent of executives surveyed said it would not change their plans in 2013.
• China remains top outsourcing destination. China (38 percent) is still top-of-mind for technology CFOs surveyed, however many are condensing the regions to where they outsource. In 2012, CFOs reported they were outsourcing to 8 different counties; in 2013, CFOs surveyed only noted outsourcing to six countries, excluding Western Europe and Latin America in this year’s results. Most outsourcing dollars are still directed toward Asia, with India as the second most popular destination followed by Eastern Europe and Russia (29 and 16 percent, respectively).
• Sales and marketing, research and development are key areas for employment growth in 2013. As U.S. technology companies increase hiring in 2013, sales and marketing (32 percent) and research and development (30 percent) are the leading positions employers are looking to fill. Manufacturing is also on the rise, with 27 percent of CFOs saying they will add the most new positions in that area this year.

Material discussed in this release is meant to provide general information and should not be acted on without professional advice tailored to your firm’s individual needs.

To subscribe or visit go to:  http://www.riskcenter.com

http://riskcenter.com/articles/story/view_story?story=99915160