Broadband Growth Helps Rural Areas Compete With Offshore Outsourcers

When thinking about outsourcing IT-related jobs, the first destination that probably comes to mind is India. Perhaps China is next, followed by the Philippines, and then a few eastern European countries such as Russia.

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.