Rural Outsourcing Trend Harvests Tech Talent Back Home
| 28 | Sep 2010 |
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Corn isn't the only thing they're growing in rural America. There's also an abundance of IT talent waiting to be harvested. Increasingly, companies large and small are finding they don’t have to go offshore to find IT employees at reasonable costs. Rural sourcing lets them hire the talent they need in their own backyards.
Rural sourcing is a fancy name for what is, in essence, domestic labor arbitrage— sending jobs from high-wage areas to areas where salaries are lower. Also known as “rural outsourcing ” and “onshoring,” rural sourcing farms out IT work, such as software development, to parts of the United States where wages are lower than the total cost of shipping jobs overseas.
Businesses that outsource jobs to workers in rural areas find they can achieve a savings of 30 percent to 60 percent from what they would have to pay workers in major U.S. metropolitan areas.
“Rural sourcing offers cost, marketing, language and cultural benefits, making it an attractive alternative to offshore and other onshore models for some organizations,” according to a recent study by Gartner, an IT research and advisory company.
The concept is gaining traction with U.S. companies. Nearly two-thirds of chief financial officers at technology businesses say they'll outsource services or manufacturing this year, but more plan to outsource in the U.S. rather than abroad. A survey by accounting and consulting firm BDO Seidman LLP showed that 22 percent of CFOs say the United States is the outsourcing destination they were most likely to consider last year, compared with 16 percent for China and 13 percent for India.
One of the pioneers in rural sourcing is the fittingly named Rural Sourcing Inc., based in Atlanta. Its strategy is to open its centers in midsize cities near colleges and universities that have a concentration of workers with IT skills.
“We look for places where there is a low cost of life and a high quality of living,” Monty Hamilton, Rural Sourcing’s CEO, told BusinessNewsDaily.
Rural Sourcing, founded in 2004, employs 70 people, the majority of whom are in Jonesboro, Ark. The company has another center in North Carolina and is in the process of finalizing the location of a third center scheduled to open in October. Clients include such marquee names as Glaxo SmithKline, Harte-Hanks and R.J. Reynolds.
Win-win situation
This approach is beneficial both for the companies that turn to rural sourcing and for the communities that provide the workers. For companies, it’s an economic and competitive advantage .
For the communities, it’s a new lease on life and the ability to retain talented workers. Much has been written about the “brain drain” affecting rural America. Students graduate from colleges and universities in these areas but can’t find work in their fields. Feeling marginalized, they are frequently forced to move to larger metropolitan areas to find work. Rural sourcing gives these workers the opportunity to stay where they are in an area with a high standard of living and make a decent salary in their chosen career.
“We take the work that’s out there and give people an opportunity to not move away,” Hamilton said. “I’m very excited about the potential. It’s a wonderful win-win situation.”
The cost advantages of rural sourcing compared with hiring talent in high-cost metropolitan areas are transparent. Not so transparent are rural sourcing’s advantages over historically low-cost offshoring centers in the $60 billion outsourcing industry such as India and China. How does Rural Sourcing stack up?
“We are certainly in a competitive price position when you factor in the hidden overhead of offshoring,” Hamilton said.
Cheaper than going offshore
Those costs, he said, often get lost in the translation. That hidden overhead includes such things as cultural dissonance, language problems, the cost of transportation and supervision, lack of understanding of American business practices and the inevitable problems that come from trying to communicate and coordinate across multiple time zones.
When those costs are factored in, Hamilton said, rural sourcing offers a very competitive total cost of ownership (TCO). TCO is the universal standard for looking at costs in the software world.
Hamilton hopes to continue to expand his company. It is currently profitable and is experiencing an annual growth rate of 300 percent.
“We hope to be able to cover all U.S. geographies,” Hamilton said. “The toughest one is the Northeast. There’s a great talent base and high quality of life, but it still has a high cost of living.”
If the fledgling rural sourcing industry could capture 10 percent of the jobs currently being sent offshore, Hamilton said, it could keep 50,000 to 60,000 people employed in this country. His company’s goal is to open 30 centers and create 3,000 new U.S. IT jobs .