Thomas White Global Investing
U.S.
U.S. Stamp
July 16, 2010
A Postcard from the Americas
U.S.: Domestic Outsourcing Takes Flight

img-domestic-outsourcing

Companies are finding that rural sourcing a smaller project is often more advantageous than traditional outsourcing.

Arkansas is known for being former President Bill Clinton’s home state, and of course, for being the headquarters for the world’s biggest retailer, Wal-Mart. But Arkansas as an outsourcing hub? As a number of rural startups have begun to attract projects destined to go beyond U.S. borders, the state of Arkansas plans to grab a slice of the outsourcing pie.

The issue of outsourcing or offshoring has been a touchy one in the U.S., occupying the attention of Presidents and Senators alike. But amid the hullaballoo over sending U.S. jobs to Bangalore or Gurgaon in India, a quiet revolution is budding in America’s lesser-known towns and states. American firms are discovering the value of outsourcing – not to India, but to domestic companies like Rural Sourcing, a small firm employing just about 20, which offers pretty much the same sort of labor costs of Indian and other Asian companies.

So, what are the advantages these local providers may offer to an American firm keen to cut costs? Based as they are in smaller towns and cities, a lower cost of living immediately means that domestic outsourcing firms can manage with cheaper wages for their workers. The wages may still be around 15% higher than a typical Indian wage, but the benefits of working in the same time zone and the absence of communication difficulties more than offset the slightly higher costs. Also attractive to the American consumer, companies are quick to cite the legal advantages, smaller travel expenses and reduced worry about the security of confidential documents and information.

Not to mention the feel-good factor. With the national unemployment rate hovering at just under 10 at 9.3% in May 2010, domestic outsourcing may provide the necessary fillip to a sluggish job market. And companies now are eager to cash in on the public perception that they are giving something back to the domestic economy, what Rural Sourcing calls as ‘supporting regional economic development.’ That said, Arkansas had a slightly better unemployment figure of 7.5% in April of 2010.

Interestingly, at least one company, Xpanxion shifted from its software testing center in Pune, India to Nebraska, citing ‘lower operational costs.’ At that time, Xpanxion commented that rural centers are certainly cheaper than say, Boston or Chicago or New York, and said that the availability of a strong work ethic in the hinterlands of the U.S., as well as low employee turnover, turned the tables in favor of domestic outsourcing in rural America.

It is clear that the global outsourcing industry, valued at around $60 billion annually, does not view domestic outsourcing as a threat anytime soon and indeed it is not. But as towns from Joplin to Eveleth to Macon start to mushroom information technology centers, it is also evident that domestic outsourcing is not a mere blip on the outsourcing radar screen. It is turning out to be a profitable niche industry in itself, not to mention a way to create jobs right here at home.

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