In a small development shop in Karachi, a team of programmers watches their project pipeline shrink. Thousands of miles away in Manila, an IT outsourcing firm retrains its entire staff in AI integration. Meanwhile, in Bangalore, a major tech consultancy automates tasks that once required dozens of developers. This is the new reality of global tech outsourcing, which is experiencing its most significant transformation since the digital revolution of the 1990s.

Software outsourcing has been the backbone of economic growth in emerging markets for decades. Countries like India, the Philippines, and Pakistan have leveraged their skilled, affordable workforce to become global IT powerhouses. But today, artificial intelligence isn’t just changing the game, it’s rewriting the rules entirely.

The numbers tell a compelling story. India’s outsourcing sector employs 5.4 million people directly and contributes 7.7 per cent to the country’s GDP, according to the Indian IT trade association NASSCOM’s 2024 Strategic Review.

Research from Upwork shows a 27pc decline in traditional programming job postings since ChatGPT’s launch, while AI-related development roles increased by 36pc

According to American technological research and consulting firm Gartner, the global IT outsourcing market is set to exceed $580 billion this year. Yet beneath these impressive figures lies a shifting landscape where traditional coding jobs are giving way to AI-augmented development roles, forcing a fundamental rethinking of what software outsourcing means in the AI era.

AI as a disruptive force for software development

AI has evolved from a futuristic idea to a practical tool. Modern AI now automates code generation, testing, deployment, and maintenance. This shift challenges the need for large human teams. As AI handles routine work, companies are adjusting outsourcing strategies to cut costs and improve efficiency.

Recent research from Upwork’s “Future Workforce Report 2024” shows a 27pc decline in traditional programming job postings since ChatGPT’s launch, while AI-related development roles increased by 36pc. Similarly, Fiverr’s Digital Economy Index reported a 42pc drop in basic coding tasks, offset by a 95pc surge in AI integration projects.

The human cost of this transformation is significant. A 2024 study by the International Labor Organisation found that 42pc of IT workers in emerging markets fear job displacement within five years. In Bangladesh, where industry estimates report that the IT sector employs over 600,000 people, small outsourcing firms are increasingly struggling to compete with AI-powered alternatives.

Balancing opportunities and challenges

Local industry leaders have noted that basic development work is rapidly being overtaken by automated solutions, and many warn that retraining the entire workforce remains a complex, long-term challenge.

On the other hand, AI integration offers significant opportunities for the outsourcing industry through productivity gains and AI agents. They can help outsourcing companies reduce operational costs while enabling rapid workforce reskilling. The companies can enhance their services by strategically augmenting AI agents with their human expertise.

For example, Indian IT services giant TCS has demonstrated this approach through its GenAI platform where over 300,000 employees are trained to deliver AI-augmented services.

Of course this AI adoption comes with significant challenges. According to the World Economic Forum Future of Jobs Report 2024, AI technologies can drive transformative change, but they are not a universal solution. The report warns that a widening digital divide is emerging where large, resource-rich organisations are rapidly advancing their AI capabilities through substantial investments in technology and skills, while smaller firms struggle to keep pace due to limited access to both advanced infrastructure and specialised talent.

The key is finding the right pace of transition. Too fast risks social disruption; too slow risks losing global competitiveness. Organisations must balance AI adoption with employee growth — particularly in emerging markets where skilled workers fuel long-term economic success.

The path forward

The conventional wisdom suggests that emerging markets must simply “adapt or die” in the face of AI disruption. But this oversimplifies a complex reality. The data shows a more nuanced picture: while basic coding jobs are declining sharply, with Upwork reporting a significant drop in traditional programming work, the demand for advanced technical skills has never been higher.

The real threat isn’t AI itself, but the widening capability gap between markets that can harness AI effectively and those that cannot. Major Indian firms like TCS have already invested billions in AI infrastructure, while smaller markets struggle to keep pace. Without coordinated action from governments, educational institutions, and private sector players, this gap threatens to undo decades of progress in tech sector development.

The next five years will likely see a fundamental restructuring of the global outsourcing hierarchy. The markets that succeed won’t be those with the most AI initiatives or the flashiest training programs, but those that can solve the last-mile problem: turning theoretical AI capabilities into practical, reliable, and ethical technology solutions. For most emerging markets, this isn’t just a technical challenge. It’s an existential one.

The writer is the founder & CEO of Alphabase®, an AI-focused venture based in Silicon Valley, USA, with an R&D centre at the National Science & Technology Park in Pakistan.

Published in Dawn, The Business and Finance Weekly, February 24th, 2025