According to a study from IDC, U.S. companies will spend more than $17.6 billion on offshore outsourcing in 2005. India remains by far the most widely used country for offshore outsourcing. A recent survey by the Indian National Association of Software and Service Companies (NASSCOM) found that almost two out of five Fortune 500 companies currently outsource some of their software requirements to India. The reason is simple: this approach saves time and money. Moreover, it has been growing steadily over the past five years; companies have begun to outsource many of their internal IT services, such as help desks, software support, and software development. 

Labor accounts for more than 75 percent of the cost of developing software, but the market for highly skilled IT professionals remains low in the United States. Recruiting, hiring, and training people to meet the constantly changing needs of the IT environment, not only costs a great deal of money but can also delay the completion of projects.

The Gartner Group reports that because of high turnover the average stay of a programmer in any one job is only 11 months and companies spend more than 10 percent of their IT budgets recruiting and training new staff. Although local outsourcing to software firms in the United States (or other developed countries) may be possible, companies can gain a strategic advantage from the lower wages and benefits prevailing in countries such as India, where hourly, fully loaded programming rates can be 40 to 60 per-cent below those in the United States.

Companies that use offshore partners to do their non discretionary programming (maintenance and enhancements of legacy systems, for example) also find that lower offshore costs free up capital for new development efforts such as mobile-commerce applications.

The areas that strongly recommend offshore outsourcings include rewrites of core systems, re-architecture efforts, the maintenance of legacy systems, data cleansing, and release updates. Offshore outsourcing is a particularly important option for maintaining legacy systems-often a large and onerous part of an IT organization's workload and one that is getting harder to accomplish given the relative rarity of legacy skills and the unattractiveness of the work.