US outsourcing grows in tech industry, with China as top destination

A majority of CFOs at US-based technology companies plan to outsource some jobs in 2013, but companies that don't already outsource are much less likely to start doing so.

Outsourcing in the tech industry increased for the first time in three years, according to a survey by accounting and consulting firm BDO USA – 63% of finance chiefs plan to outsource or manufacture products outside the US. BDO said this percentage is the highest since the survey began in 2008.

The outsourcing doesn’t necessarily mean the companies are cutting jobs in the US, BDO said; 43% of respondents expect to increase their total of US employees, and 45% expect that number to remain the same.

“While the drive to remain competitive has led technology companies to maintain outsourcing contracts, many are working in tandem to grow their US workforce to develop new and innovative products and solutions in the US while outsourcing traditional back office operations,” Aftab Jamil, partner and director of BDO’s Technology and Life Sciences practice, said in a news release. 

Among companies not already using overseas workers, 84% said they were not likely to do so this year, BDO’s research showed.

Other highlights of the survey:

• Sixty-one per cent of CFOs said manufacturing will be the most heavily outsourced function for tech companies, followed by research and development (R&D) at 56%, distribution (42%) and IT services and programming (30%).
• China is the top outsourcing destination currently, with 38% of CFOs saying they had operations there. India is next (29%), followed by Eastern Europe and Russia (16%) and Southeast Asia (15%).
• China (29%) is the top choice for future outsourcing, and the second choice is “none/no other countries” at 24%.
• Technology companies are reining in the number of regions for outsourcing. In last year’s survey, eight countries or regions were listed as outsourcing spots. This year, six were listed.
• Sixty-one per cent of CFOs do not believe the US tax system is hindering their ability to compete globally. However, the top concern in the area of tax reform, picked by 39% of CFOs, is the US corporate tax rate.

Related CGMA Magazine content:

“Risk-Related Earnings Uncertainty Sparks Market Expansion, Efficiencies”: Companies are investing in efficiencies, expanding into new markets and altering risk-management processes to combat the uncertainties, according to a new survey of North American finance professionals.

“Ten Top Topics on the Minds of Investors”: Some companies are beginning to rethink outsourcing as wages rise in emerging markets.

—Neil Amato (namato@aicpa.org) is a CGMA Magazine senior editor.