Slower pace, lower wages leave 'rural offshoring' a niche

Rural shoring finds a way to work but not compete with India

Atlanta-based Xpanxion, LLC began as an offshore software development company over a decade ago, but in 2006 it opened a facility in Kearney, Neb. Why Nebraska? The reasons include a cost of living and wages that are lower than in other parts of the country.

Xpanxion has about 300 employees, with about 180 in Pune, India. Its Kearney facility has about 30 workers and is expanding. Its employees provide quality assurance directly to U.S. customers, who don't have to call overseas to collaborate. Working at a distance from major metro centers also helps reduce customer costs. Hiring a quality assurance leader in Atlanta could cost as much $95,000 to $115,000 a year; In Kearney, the pay would be closer to $60,000 or $70,000.

Eric Trettle, an Xpanxion vice president who heads the Kearney office, said Nebraska was picked because the state is "quietly tech savvy" and has good telecommunications infrastructure for businesses. Kearney was particular attractive because of the nearby branch of the University of Nebraska, which is working with the company on course development. For employees, the location offers a slower pace of life in a town of just under 30,000 people, he said.

But what's often called "rural offshoring" is not expected to make much of a dent in the overall push to offshore outsourcing. In India, the salary for a quality assurance leader might be $20,000 -- at most -- said Anand Ramesh, research director at Everest Group in Dallas.

Ramesh believes rural outsourcing will remain a small portion of the overall offshore market, providing direct customer support where needed -- as in the case of Xpanxion -- and for work that requires understanding of the cultural context or knowledge of a specific product that may not be widely available overseas.

Other companies, such as Perot Systems Corp., have built operations in rural areas, such as in Lincoln, Neb., as part of low cost strategy. But Perot has also have shifted work overseas, as well.

Another model that can cut costs is homeshoring. It's used used by Arise Virtual Solutions Inc., a Miramar, Fla. company that has grown as companies bring back work from overseas or shift it from their own centers to Arise's work-at-home or homeshoring model, said CEO Angie Selden. Arise has 9,000 people who provide call center services. That's up from about 5,000 two years ago, said Angie Selden, its CEO.

Arise hires independent contractors to provide call center services, and requires people to incorporate and pay for their training. About 20% of the jobs are technical support jobs, such as DSL support, and may pay $12 to $16 an hour.

Andrew Kokes, a vice president at Sitel Corp, a business process outsourcing company in Nashville, Tenn., said that when the costs associated with salaries and infrastructure to support call centers, including offices, are added up, work can still be done more cheaply overseas. According to Kokes, the 25% to 40% cost difference remains a powerful incentive for offshoring.

Sitel employs 60,000 people worldwide, with 12,000 based in the U.S.

Kokes said he sees no evidence that there's any return of jobs from overseas back into the U.S. "I would say that there is zero reversal and it's growing (offshore) faster than ever," he said.

Copyright © 2009 IDG Communications, Inc.

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