Rural outsourcing on the rise in the U.S.

The rural option offers better intrateam communication than offshoring, better pricing than the huge outsourcing firms

For years, U.S. companies have been shipping development work and other IT tasks offshore in pursuit of low labor costs. Now a growing number of organizations are taking advantage of 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's College of Business, 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 ramping up staff. "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 United States and, based on her analysis of the providers, the total market size is about $100 million.

One such provider is Rural Sourcing Inc., based in Atlanta, with development centers in Jonesboro, Ark., and Durham, N.C.

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

And unlike with offshore service providers, rural outsourcing companies in the U.S. -- and their clients -- don't have to grapple with the time zone, language and cultural issues that can often 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, partner and managing director at TPI, a Houston firm that consults on a variety of sourcing issues. In other words, it's not so much a matter of saving time, but rather avoiding the hassles related to many offshoring engagements.

Another big advantage is that hiring U.S.-based firms is more politically acceptable for many companies, and it can be more compatible with a firm's mission statement or corporate values. In the case of local or state government IT, agencies can be legally bound to do business with U.S. providers unless none can be found.

On the negative side, rural outsourcing providers in general don't have the financial resources and broad array of skills that large global outsourcing providers have. They also don't have the same level of experience that many years of providing outsourcing services can bring.

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