Rural outsourcing on the rise in the U.S.

Computerworld - For years, U.S. companies have been shipping development work and other IT tasks offshore to take advantage of low labor costs. Now a growing number of organizations are tapping lower costs closer to home, by hiring outsourcing providers with operations in rural areas of the U.S.

Hard numbers on the growth of rural outsourcing are difficult to come by because none of the leading IT and sourcing research firms breaks out data specifically on rural outsourcing. But Mary Lacity, professor of information systems at the University of Missouri-St. Louis College of Business Administration, who has been conducting extensive research on the market, says that in the past year or two, there has been huge demand for the services.

One indication of the growth in demand, Lacity says, is that the service providers are quickly expanding their staffs. "Suppliers are scrambling to get enough qualified people to make sure they can meet the surge in demand," she says. "So many clients I've heard from are interested in this model." Lacity estimates that there are about 20 rural outsourcing providers in the U.S. and, based on her analysis of the providers, the total market size is about $100 million.

Pros and Cons

Rural outsourcing provides the same basic benefits as other outsourcing arrangements: ready access to technology expertise and resources that the client lacks internally.

But the model offers both advantages and disadvantages when compared with other outsourcing options. On the plus side, rural outsourcing can provide the same or similar cost benefits as offshoring. Because the service providers operate in areas of the country where the cost of living is lower, they can pay lower salaries and thereby keep costs down. That's something that, in many cases, IT service providers operating in more metropolitan areas of the U.S. couldn't do.

And when U.S. companies do business with rural outsourcers, neither party has to grapple with the big time-zone gaps or language and cultural differences that can complicate offshoring relationships.

While it can take up to 18 months to work out all the issues related to offshoring, "with some of the rural outsourcing approaches we're seeing, the proximity to the client can mitigate these challenges," says Steven Hall, a partner and managing director at TPI, a Houston-based consultancy that helps clients handle a variety of sourcing issues. In other words, the advantage of working with a rural outsourcer isn't just that doing so can save time, but that it can help the client avoid the potential hassles of an overseas engagement.

Another big advantage is that hiring a U.S.-based firm may be more politically acceptable for many organizations, and it can be more compatible with an enterprise's mission statement or corporate values. Indeed, public sector agencies can be legally bound to do business with U.S. partners, unless there aren't any that provide the services they need.