IT outsourcing options sprout up across rural America.

Aelera Corp. CEO Dustin Crane traveled to China, India and Armenia in a quest to buy or start up an offshore IT services company. After six months of searching, he returned to the U.S. and set up operations in the coastal city of Savannah and the smaller town of Fitzgerald, Ga., population 8,758.

McKesson Corp. CIO Cheryl T. Smith estimates that the $8 billion pharmaceutical distributor is saving $10 million annually in salary costs—a percentage of which is reinvested in IT innovation—after relocating its primary data center and about 75 IT jobs from San Francisco to Dubuque, Iowa.

Mattel Inc. CIO Joe Eckroth figures the cost of outsourcing certain Web-based software development to IT professionals at Rural Sourcing Inc. (RSI) in Jonesboro, Ark., is about a third of what he'd pay a comparable IT services firm in a major metropolitan area.

Welcome to the ever-so-nascent world of rural IT sourcing. Both large and small companies are tapping into a highly skilled but often underemployed IT workforce in lower-cost rural areas — frequently as an alternative to shipping work overseas.

"The IT professionals are coming out of some very good universities that just happen to be in rural areas," says Gary Hart, vice president of global outsourcing at Irving, Texas-based Optimal Solutions Integration Inc., which, like Mattel, has contracted IT work to RSI.

The cost of living, and therefore the cost of salaries, is a fraction of those in San Francisco, New York or Chicago, Hart says. Moreover, there are no significant time-zone or cultural issues. "There's not much difference between my Texas accent and the one you get in Arkansas," he adds. "On every level, it makes sense."

Staying Home

Kathy Brittain White certainly thinks so. White, former CIO at Baxter Healthcare Corp. and Cardinal Health Inc., invested $2 million of her own money to launch RSI in Jonesboro, home of her alma mater, Arkansas State University.

White says the idea for RSI came while she was still at Baxter, which had launched a virtual IT internship program at ASU. University computer science students were given network and systems access to work 12 hours a week on live IT projects at Baxter. "The goal was when they graduated to move them to Chicago," she says.

But it didn't take White long to realize that most of the former interns didn't really want to leave Jonesboro if they could find meaningful work there.

RSI employees Molly Marshall, Henry Torres and Leodis Williams

RSI employees Molly Marshall, Henry Torres and Leodis Williams

Image Credit: Jack Kenner

After retiring from Cardinal in 2003, she launched RSI, which now has facilities in Magnolia and Monticello, Ark.; in Greenville, N.C., on the campus of East Carolina University; and in Portales, N.M., on the campus of East New Mexico University. Another facility is planned for Beckley, W.Va., which has 11 universities nearby.

"It's like coming full circle," says White, who grew up in the Arkansas town of Oxford, which has a population of 642.

"We're going to hire talented people and sell IT services. The twist is we're doing it in areas where others are not. We're going into areas where there's a strong university and good quality of life, where many people would have stayed if they could find a job," she says.

For IT services buyers, she says, the rural business model translates to lower costs.

In every location, RSI takes a salary survey and then finds the midpoint, she says. "We are targeting a blended rate of $40 an hour for the work we're doing," White says. "There are a lot of customers that feel that's very competitive, and in some cases, it's less than what they can do the work for internally."

Other RSI customers include Sarnoff Corp. and Cardinal Health.

Mattel's Eckroth, whose company also uses offshore IT services, says there are certain types of collaborative work where rural sourcing makes much more sense than sending the jobs offshore. For example, Mattel had RSI work on some very complex software applications involving marketing and content creation, and the project required close communication because of dynamically changing requirements. "We were very successful in that relationship," he says. "You can pick up the phone and get them anytime."

Ken Behrandt, president of Eagle Creek Software Services in Deephaven, Minn., which specializes in CRM software implementations, expects to create 200 to 300 IT jobs over the next three to five years at Eagle Creek's new Siebel Project Center in Valley City, N.D. Many of those jobs will go to graduates of Valley City State University (VCSU), which has created a CRM track that includes an academic course in Siebel Systems Inc.'s CRM software. Students can also complete a two-semester internship at Eagle Creek, whose customers include Cadbury Schweppes PLC, Citibank NA and The Hartford Financial Services Group Inc.

The academic program's recently recruited instructor, Sue Pfeifer, is a 10-year IT veteran. She's taking a 33% cut in pay from her job as a lead software engineer in the St. Paul/Minneapolis area to return to North Dakota, where she grew up and went to college.

"We've always watched for opportunities to go back to North Dakota," Pfeifer says. A one-third pay cut is significant, she acknowledges, but she points out that housing and day care cost at least a third less in Valley City than they do in Minnesota. Moreover, her family is in North Dakota.

"Many North Dakotans want to stay, but they can't find the right job," says Behrandt. "Our goal is to build a project center that supports that goal. People can stay in North Dakota, or we'll move them" back, he says.

Salaries will range between $30,000 and $75,000, with the norm in the $45,000 range, he adds. This compares with an average annual statewide salary of $22,000.

VCSU President Ellen Chaffee says the university intends to expand its IT curriculum beyond Siebel skills. "We talk to corporations who are hiring in IT and ask what their entry-level skills and experience requirements are so we can tailor our curriculum for our graduates to have those skills," she says. "One of our stated goals is to keep jobs in North Dakota."

Win-Win Scenario

Creating IT jobs in Georgia, rather than following through on its original plan to take them offshore, has afforded Aelera several business advantages, including contracts with state agencies for the business process outsourcing services its facility in Fitzgerald provides. "The play for us was to work with the state's economic group to keep jobs within the borders of the state, and we've had a very warm reception," Crane says. The main reason: "For every dollar [in salary] you keep in Georgia, it turns into $7" as it moves through the state economy, he notes. Keeping the work in rural areas is also saving the state a bundle, Crane says, noting that "compared to the Atlanta market, which is where our customers are, we can offer between 20% and 35% cost savings."

Users and service providers also emphasize that there is absolutely no shortage of skilled IT personnel already living in rural areas or wanting to relocate for the right IT job.

Smith says she had no problem recruiting the IT skills McKesson needed for its data center in the heartland. "The level of expertise McKesson was able to attract to our core operations center in Iowa has been excellent. We received many hundreds of resumes for the newly opened positions from all over the U.S.," she says. "We learned that it was typically a quality-of-life issue for them and their families."

IDC analyst Barry Mason agrees that the skills and capabilities of IT personnel available in rural areas match those of IT workers in major metropolitan areas. The drawback, he says, is that for now, there just aren't enough of them.

"The companies doing rural sourcing right now are very small. They don't have the scale to compete with offshore outsourcers like Wipro or a domestic outsourcer like IBM," Mason notes. "If they were to sign a large contract, I'm not sure they could sign the number of employees needed in those [rural] geographies." But, he adds, "for something like project-oriented work, it has more potential."

The bottom line: "At this point, rural sourcing is a very small market," says Mason. "But we'll keep our eyes on it. It's a good idea in theory and might work on a small scale."

An IT professional in San Francisco earning $100,000 annually would need to earn the following amounts to maintain a similar standard of living in these rural areas:
Savannah, Ga. $50,693
Jonesboro, Ark. $39,506
Portales, N.M. $37, 517
Fargo, N.D. $40,374

Source: The Salary Calculator at www.homefair.com

Copyright © 2005 IDG Communications, Inc.

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