Information Age: News, analysis & insight for IT & business leaders

Movements in the IT recruitment market act as a bellwether for the overall state of the industry. So the stringent controls that have been placed on IT budgets in recent years suggest that recruitment activity should be down - and it has been. But market watchers caution that offshore outsourcing is distorting current recruitment trends.

It used to be widely accepted that the level of activity in the recruitment market was a good reflection on the overall levels of IT spending. Demand for particular skillsets was a good measure of corporate IT activity. But that may no longer hold true.

Financial analysts at Shore Captial Stockbrokers recently reported that a higher proportion of new IT projects are getting the green light - yet this is not reflected in recruitment activity. George O'Connor, an analyst at Shore, says the impact of outsourcing, especially to offshore locations, has made the recruitment market unpredictable and patchy.

Recently it has been hard to establish any meaningful trends from recruitment data. IT recruitment specialist Harvey Nash reports that demand for permanent IT staff is "very strong". But others, such as the Spring Group, say that macro-economic concerns had caused delays to technology investment and hiring decisions.

The major reason for the change in recruitment patterns has been the impact of offshore outsourcing. With companies shipping particular IT functions offshore, there is an immediate impact on the job market. But the reliance on offshoring is also changing the nature of the relationship between recruiters and their clients. "Recruiters are looking for long-term HR and recruitment outsourcing contracts, as these improve visibility but create short-term revenue hiatus," says O'Connor.

A recent study by analysts Frost and Sullivan, reported that IT job exports increased by a compound annual growth rate (CAGR) of 5.9% between 2002 and the end of 2004. In 2004 alone, a total of 826,540 IT jobs were exported by France, Germany, Hong Kong, Japan, the United Kingdom and the United States to lower cost countries, amounting to a combined value of $51.6 billion.

The inexorable shift towards outsourcing will redefine the IT department, according to analysts at research company Gartner. It predicts that by 2010 the number of IT staff will shrink by 15%; those left will have radically different functions within the business.

"The information system (IS) organisation will need to either reinvent itself to create and manage assets of business processes and relationships, or it must choose to focus on the sourcing and execution of IT services," says John Mahoney, worldwide chief of research for IT services and management at Gartner. "Our advice to IS leaders is that although they have some very difficult decisions to make over the fate of their department, they need to act now as the transition will take a number of years," he adds.

But some IT recruiters believe that the threat of offshore outsourcing is overblown. "Demand for contract staff is continuing on last year's upward trend as more and more projects are being commissioned," says Richard Nott, sales director at CW Jobs. The market may still be unpredictable and volatile, but it appears to be returning to health, despite the threat of outsourcing.