But the United States? Hardly ever.
Mention IT outsourcing to Kathy White, however, and the founder and president of Rural Sourcing Inc., a Durham, N.C.-based IT consulting services firm says, "Why not America?" She has even coined a term for it - "domestic sourcing."
White believes that by paying a little more, IT work can be done competitively in the United States (instead of sending it far away to India and China). In fact, her conviction is so strong, she gave up her CIO job at health-care conglomerate Cardinal Health to pump $2 million of her savings into starting Rural Sourcing. Three years after its inception, Rural Sourcing has established itself as a company with "a reputation for providing high-quality IT services and skills to local, national and international companies."
White is a feisty American entrepreneur who thinks outside the box. Lately a clutch of U.S.-based IT services firms have been competing for outsourced software projects, pitching the merit of low-cost U.S. cities against favorite offshore destinations such as India and China.
These companies include local ventures such as Rural Sourcing, Cayuse Technologies and Northrop Grumman, among others, as well as global names like Google, BearingPoint and Perot Systems - industry titans that have already set up large operations in India.
"Domestic sourcing offers the best of both worlds," White said, "and by hiring and training skilled IT professionals, domestic sourcing can be an alternative to offshore outsourcing."
What's interesting is that both American providers and offshore competitors are pitching costs as one of the primary drivers - albeit with a different twist. Some companies are setting up facilities and creating remote development teams in rural communities across the United States, where it costs 20 percent to 40 percent less than it would in larger cities, such as San Francisco, New York or Chicago. Plus, they are pushing proximity as an added benefit.
"The value proposition for rural sourcing is costs that are much lower than other domestic sources and only about 20 percent to 30 percent more than offshore," White said. "But domestic sourcing also offers close proximity to clients and on-site, off-site capability."
Almost 1,000 universities are in locations considered rural or at least nonmetro, with costs of living 30 percent to 50 percent less than major metro areas, White said. "These areas offer lower-cost housing, quality of life and low crime," she noted. "Many graduates want to remain in these areas."
A report released by the Information Technology Association of America (ITAA) acknowledged that while global sourcing (aka offshoring) is here to stay given the significant profit benefit it delivers to America's corporations and the economy. Recent outsourcing trends by American companies reveal that many U.S. companies are slowly and surely waking up to the benefits of onshore and domestic outsourcing.
"As outsourcing has evolved over the years, customers in the U.S. seeking [to] outsource IT-related work have also become very sophisticated," said Jeff Lande, ITAA senior vice president. "They have come to realize that some work is very easy to manage remotely, but there are some jobs that they want to be based locally. So for many, having something just an hour away is emerging as a much preferred option than something 10 hours [by airplane] away."
The ITAA report says that many U.S. businesses, particularly those in competitive industries, continued offshoring IT services is an economic reality. An equally important issue, according to the report, is whether IT services delivered from U.S. centers can be cost competitive, especially when other variables make offshoring undesirable.
"Their current challenge," said Phillip Bond, ITAA's president and CEO, "is to look objectively at the cost-talent-risk equation and determine whether the level of savings obtained from lower-cost domestic sourcing is good enough when compared against the hassle factor of going offshore."
Undoubtedly lower-cost sourcing is achievable in the United States. A comparative analysis of U.S. cities has revealed tier 1 cities typically carry bill rates of approximately $70 per hour versus $25 per hour offshore. However, there are many cities, such as Pendleton, Ore.; Irving, Texas; Kearney, Neb.; Oklahoma City and Jonesboro, Ark., that have a talented - but less expensive - IT work force that earns less than $50 per hour on average. And in some cases, wages are even lower.
"Depending on the amount and type of work," said Bond, "the onshore financial proposition may become quite compelling."
But it's not just money and convenience driving onshore outsourcing. Technological innovation and the proactive strategies of many state and local governments are also making domestic sourcing a viable option.
Virginia, for example, developed a comprehensive economic development strategy to attract private-sector investment and technology jobs to economically depressed areas. Other states offering similar incentives include Arizona, Mississippi, Texas and Arkansas.
"Maine Gov. John E. Baldacci, too, is providing local IT companies with incentives to set up operation in the rural areas," said Lande, "and he's adding increased telecom and Internet access with such incentives."
Lande argues that extension of high-speed broadband service into rural areas and other new technologies have made setting up of operations much cheaper now, making feasible a rural destination with a talent base of as few as 20 IT workers.
"Earlier it used to be that concentration of talent was needed in order to warrant the setting up of a facility," he said. "But now, state incentives and technology have enabled scattered, small groups with as little as 15 to 20 people to be patched together to form an operational setup."
Nevertheless, domestic sourcing isn't always easy to implement. A July 2007 survey by the ITAA found that 77 percent of U.S.-based clients doing domestic IT sourcing said their biggest challenge is a shortage of qualified talent in the United States.
"Building the initial resource pool and having the whole [domestic sourcing] model in place is the biggest challenge that providers [of IT services] are facing in the U.S. today," said Rakesh Bhatia, vice president of BearingPoint of global development centers. "The other thing is that there is still the difference in costs between offshore locations like India and China, and that difference needs to be justified."
Still, for U.S. IT services seekers, particularly government entities and their suppliers, domestic sourcing can provide upside. Domestic sourcing ensures data privacy and security, offers protection to entities sensitive to adverse publicity, and also reduces the risk of intellectual property leaks.
Experts also say that as the labor component for most IT-related activities decreases over time, the cost advantage of offshoring is bound to decrease. While many companies are still lured by unrealistically low offshore wages, they neglect to consider many other factors that can significantly reshape the financial proposition, such as the complexity of work being outsourced, delivery effectiveness and communications needs.
According to the ITAA, the United States has a unique opportunity to positively impact its economy by emphasizing jobs and skill sets that enable participation in a global economy and promote cost-effective sourcing. Although the country still lags behind many low-cost offshoring destinations in terms of absolute labor costs, many rural and mid-size cities have a talented IT work force, with nearby colleges and universities that are eager to collaborate with prospective employers on IT-oriented curricula. "Thus, there are many niche opportunities for both private- and public-sector entities to utilize lower-cost destinations to obtain cost-effective IT solutions and delivery," according to the ITAA.
"Moreover you can always go to the governor or local mayor and brag about the number of jobs kept or created in the city," said Lande.
Indrajit Basu is international correspondent for Government Technology's Digital Communities.
