As widely reported, senior managers ? focused on cost-cutting ? have been sending jobs off-shore to places like Bangalore, for more than a decade.
This approach, called off-shoring, threatened almost any job, including customer service, that a corporation deemed a “non-core” operation.
Frequently, the foreign companies that offered those services could charge less because they hired untrained people and cut corners.
Then, a predictable backlash occurred.
Customers began complaining that service wasn’t what it ought to be.
They began seeking out competitors who could provide better service. Sales suffered.
Companies gradually awoke to the hidden costs of off-shoring.
That led to the reverse trend, forecasted by the Trends editors: bringing the jobs back home so that companies could exert more quality control over how they were executed.
Already, Dell, Hewlett-Packard, and others have brought jobs back to the U.S.
But the question now becomes: How do companies cut costs when the jobs are returned to America, where wages are higher and labor markets are tight?
The answer is being found in places like Lebanon, Virginia; Twin Falls, Idaho; Cheyenne, Wyoming; and even on a South Dakota Indian reservation.
The fact is that not every place in America is as expensive as New York, Chicago, and Los Angeles. In many small towns, prices and salaries are still very reasonable.
For example, Lebanon, Virginia has a population of about 3,300 and was once a coal-mining town on the mid-Appalachian plateau.
Now it’s home to the information technology operations of CGI-AMS and Northrup-Grumman.
According to The Christian Science Monitor,1 they have created more than 700 jobs in the town with salaries averaging about $50,000 a year.
That’s a big increase from the average pay in Lebanon, which was previously just $27,000 a year.
DaimlerChrysler, meanwhile, has outsourced its Web design to a company called Lakota Express on the Lakota Indian Reservation in South Dakota.
And, Dell Computer is locating some of its operations in Twin Falls, Idaho.
At the moment, Appalachia is one of the hottest areas for this trend, which is being called “farm-shoring.”
It was kick-started when Russell County, Virginia received more than $4 million from the Department of Commerce, along with money from the tobacco settlement fund, and used it to wire the countryside with broadband fiber optics cable.
Efforts like this are changing the area’s “hillbilly” image and revitalizing its economy. The state of Virginia is helping by offering tax breaks to corporations and giving contracts to them.
Lebanon also benefits from being strategically located within an hour’s drive of a number of colleges, which have seen more than 4,000 students graduate in computer science in the last 10 years.
In addition, Lebanon High School is preparing the workforce by offering certificates in building and maintaining Internet sites.
But Virginia isn’t the only state that’s taking farm-shoring to heart.
According to a recent article in Computerworld,2 Kathy Brittain White, former CIO of Cardinal Healthcare in Dublin, Ohio, has started a company to establish IT services in small towns across the nation.
Her company, Rural Sourcing, boasts a Fortune 500 management team and delivers high-quality IT services at a 30 to 50 percent savings.
Her executive team members come from such companies as Baxter Healthcare, Allegiance, Union Carbide, Wal-Mart, and Neiman Marcus.
Founded in 2003, Rural Sourcing already has facilities in Rock Port, Missouri; Jonesboro, Arkansas; and five other small towns.
All of the locations are in close proximity to universities to draw top talent.
In addition, White has leveraged her corporate connections to direct IT business to rural areas and to ensure the high quality of her service work.
Companies like Sarnoff, a defense and electronics company, which previously would have sent development work off-shore, are now sending it to Rural Sourcing.
With just 50 full-time employees, $1 million in 2005 revenue, and 20 clients, Rural Sourcing is still small.
But White, who was on Forbes’ list of Top American Businesswomen in 2001, is well-known for delivering on her promises, and she already has some blue-ribbon clients like Mattel and Cardinal Health.
In addition, she has a big incentive to succeed: According to Wired News, she started the company with $2 million of her own money.
Her fledgling company recently attracted the attention of the State of New Mexico, which sought out White to begin opening facilities there. The company now has a presence in Portales, New Mexico, on the campus of Eastern New Mexico University.
Meanwhile, Aurora Consulting Group has opened a 51-employee IT contracting firm to test the low-cost, non-urban model outside Buffalo, New York.
There, costs are roughly 60 percent of what they would be in the city. This has already attracted customers like toy-maker Fisher-Price.
Similarly, Eagle Creek Software Services, which manages front-office software, has farm-sourced its IT jobs to Valley City, North Dakota.
And, when we’re talking about farm-shoring, we’re not always talking about truly rural locations.
IT services are also moving into the more low-cost urban areas, as well. For example Capgemini has located a 500-employee site in Kansas City.
Also consider Pittsburgh, another low-cost city, where Ascent Systems is starting to undercut the prices being charged by IT contractors on Indian reservations.
In light of this compelling trend, we offer five forecasts for your consideration:
First, farm-shoring is here to stay. The wealth of untapped talent in small- and medium-sized towns in America is staggering in its size and capacity for productivity.
Since prices across the board are lower in those locations, people who choose to work there can actually enjoy a higher standard of living, despite being paid lower salaries than workers in big cities.
Farm-shoring companies and the IT departments of larger companies are already seeing the wisdom of locating operations there. We expect this trend to accelerate rapidly.
Second, the competition is going to be fierce.
Early start-ups like Rural Sourcing, along with innovative local governments, such as Russell County, Virginia, will have a head start but will rapidly face competition as new players emerge.
This will keep prices low and quality high, as service providers and local areas vie for business.
Watch for Rural Sourcing to emerge as a leader with an expected IPO if it doesn’t stumble in the midst of its own rapid growth.
Third, the first wave of off-shoring will come to an end.
Even now, companies are recognizing that the true costs of off-shoring are mostly hidden in endless hassles, ranging from time zones to language and cultural barriers. For most companies, it’s not worth it once you factor in unhappy customers.
With a rich variety of service offerings within U.S. borders, and a competitive atmosphere that keeps prices low, it will become the exception rather than the rule to outsource IT services or customer service to places like India.
And, it will be even rarer to locate them in New York City.
Fourth, this ground-up movement will sweep more students into computer sciences programs at small rural colleges throughout the country, which in turn will produce graduates to satisfy the local IT business needs.
This will tend to keep people closer to home rather than scattering them to the large cities, which will serve the dual purposeof enriching family life and keeping unemployment low in these areas ? and for the nation overall.
Fifth, the boost to the nation’s economy that this new business sector will provide will raise corporate profits, which will increase the need for such IT services, and a self-reinforcing cycle will ensue.
Watch for certain areas like Russell County, Virginia, and other forward-looking locations to experience high-tech booms and become mini-Silicon Valleys in the coming years.
References List :
1. The Christian Science Monitor, February 23, 2006, “Jobs on Farms, Not Abroad,” by Patrik Jonsson. ⓒ Copyright 2006 by The Christian Science Monitor. All rights reserved.
2. Computerworld, March 8, 2006, “Small Towns, Big IT Talent,” by Ellen Fanning. ⓒ Copyright 2006 by Computerworld, Inc. All rights reserved.
