Economy driving firms to outsource: UN

Companies in the US and Europe will continue to move information technology work offshore even though they don't fully understand the costs and benefits of doing so, according to a report released by the United Nations this week.

The study, released by the UN Conference on Trade and Development (UNCTAD) on Thursday, found that companies in the US and Europe are looking for competitive advantages and cost-cutting measures when they look to developing countries for IT outsourcing.

And to some degree, they're finding it, even though the level of service in many countries is still low. The UN agency said offshore outsourcing has been successful in India. Services providers are also starting to gain a foothold in other developing countries, including Bangladesh, Brazil, China, the Philippines, Romania, Russia, Singapore, Thailand, Venezuela and Vietnam. As those countries improve their service levels, outsourcing business there should rise, the study found.

With an increasing number of developing countries offering low-cost skilled labor for services, primary BPO (business process outsourcing) vendors need to upgrade the scope and level of their services," the report said.

Governmental and international support is necessary to ensure that the "benefits of developing a BPO industry actually materialise," it added. Building up telecommunications infrastructure, education, a legal framework and tax incentives to attract overseas clients are all important steps governments need to take, according to the report.

Dinesh C. Sharma writes for CNET News.com