The Emerging Onshore Alternative

Ann All
Slide Show

Check out highlights from Rural Sourcing Inc. CEO Monty Hamilton's presentation at the 2010 Outsourcing World Summit.

Earlier this year I wrote about a CIOUpdate piece on 10 up-and-coming outsourcing destinations and welcomed the fact that one of the entries on its list was low-cost U.S. locations. IT Business Edge contributor Don Tennant recently spoke to a couple of executives of companies offering these kinds of onshore services.


A couple of interesting data points from a presentation given by one of them, Monty Hamilton, CEO of Rural Sourcing, at the 2010 World Outsourcing Summit: Sixty million Americans live in non-metro areas, where wages are lower than in larger cities, and $7.2 billion in federal stimulus funds have been earmarked for the expansion of broadband in rural areas.


A recent McKinsey Quarterly piece recognizes onshoring as a growing trend, though it refers to it as close-shoring. (Po-tay-to, po-tah-to.) It shares several stories of companies that enjoyed labor savings of 30 to 40 percent by moving operations from large metropolitan areas in the United States or Europe to less-populated and lower-cost areas. Looking at the map accompanying the piece, it appears U.S. labor costs are lowest in the South and the Midwest.


True, those labor costs likely aren't as low as ones they could obtain in offshore locales like India, but there are other benefits as well. Local governments are often eager to offer economic incentives to attract such investments, and local educational institutions sometimes partner with employers to ensure there's a supply of workers with desired skills. Working with local partners is especially advantageous when trying to create a labor pool with specialized skills.


Not to mention it's a good idea to diversify global IT service facilities to reduce the operational risks that can arise due to inflationary pressures, currency volatility, political instability and other factors in offshore locations. The article's authors point out India's inflation rate rose to 11 percent in 2008, while the rupee's value against the euro and the dollar fluctuated by 20 to 30 percent. Certain services, often involving sensitive data, must remain onshore to satisfy regulatory requirements.


The authors' advice: Companies should segment their IT labor forces into broad areas of talent needs, skill classes and experience levels, assessing both their near-term and long-term needs, then compare the cost structures of different locations. After narrowing down potential sites to a short list of candidates, companies can begin meeting with local government and educational representatives to discuss incentives.


The authors' research shows that metropolitan areas with populations under 200,000 can accommodate only one or two large IT centers before supply constraints drive up wages. Thus early movers will enjoy the greatest advantage, they conclude.

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Add Comment      Leave a comment on this blog post
Sep 3, 2010 3:15 PM Skip Womack Skip Womack  says:


We agree with McKinsey's conclusions about the growth of onshore outsourcing.But what is so critical to sustain growth is the location for delivering services in the US.This so directly impacts the cost structure and the work ethic driving client work and satisfaction.

At Advantage Outsourcing, we located our onshore IT outsourcing operations in Wichita , Kansas .

As part of our analysis on where to best locate our onshore operations, we identified the following seven criteria for selection:

1.Low Cost Market

To be able to sustain a competitive cost structure versus offshore providers, the service delivery center for a successful onshore outsourcing solution provider must be located within a low cost market.Fortunately there are still a number of low cost markets in the US.Wichita was attractive in part due to it's moderate cost of living rate, a rate below the average among 289 urban areas in the US.In addition, Forbes cited the Wichita metro area as among the most affordable to live in the US ranking Wichita # 7 in the nation for cost of living.

2.Economic Base Able to Support a Local Market Business Case For Onshoring

From a strategic perspective, launching a cost effective national marketing program can drain precious management time and resources.It is therefore very important for an onshore firm to be able to turn to a vibrant local business marketplace for initial sales and references.While the US has many different areas that fit this description, at Advantage Outsourcing, we selected Wichita, Kansas as our hub and Center of Excellence for service delivery.Wichita serves as the home of many large firms in key industries such as aerospace, outdoor equipment, healthcare, energy, education, and chemicals.Industries and firms that have complex technology and business process needs, have extensive experience with outsourcing, and who may be receptive to the advantages of onshoring and using a locally based service provider.

3.A Work Ethic That Can Sustain Service Excellence

Outsourcing in many industries has historically been people intensive.While technology and process improvement can drive substantial change.it is the people who staff and lead outsourcing engagements that build client relationships and drive breakthrough results.At the end of the day, People Buy People.As such, it is important that an onshore provider locate its delivery centers in areas where the culture has fostered a strong work ethic.In the US, there are still a number of cities and markets with that strong work ethic.At Advantage Outsourcing, we felt that it was important to locate our operating hub in the Mid-West where a handshake still means something and people really care about the integrity of their work.

4.Sufficient Talent Pool To Sustain Long Term Growth

To be successful on a long-term basis, the delivery centers for onshore providers must have a sufficiently large talent pool to draw from.For Advantage Outsourcing, Wichita more than met our criteria.With 366,046 residents listed in 2008, it is the 51st largest city in the US.In 2008, with Forbes ranking Wichita as the # 2 city in the US for Best Jobs.The same survey found Wichita to be a great place to work and ranked it # 7 for job growth.Moreover, with so many large national firms based in Wichita, there is a large network of highly experienced IT professionals who both live and work within the community.

5. Reply

Sep 3, 2010 3:15 PM Skip Womack Skip Womack  says:
Community Spirit and Lifestyle to Attract Best-In-Class Professionals

To sustain service excellence and world-class operations, an onshore service provider must be able to attract best-In-class professionals from other markets.To do so, it is important that the main source of service delivery be located in a city that is seen not only as a great place to work, but also is attractive because of its cost of living, culture, educational system, and community involvement.As we researched business locations, we noted that Wichita was ranked #1 by Newsmakers as "The Most Uniquely American City" and one of America's most livable cities.Wichita has been praised over and over again for its affordability, thriving industry, and accessible culture.Forbes Magazine also ranked Wichita #6 in the US as the "Best Bang For the Buck City" citing Wichita's solid housing markets, relative stable employment, enviable cost of living, and quick commutes.As such, we are very confident that we could tell with passion the Wichita story to any future professionals we recruit as we expand our business..

6.Extensive College and University system to provide high quality, entry level workforce

On a long-term basis, we feel it is important for a provider's main service center to be located in a city with a strong educational foundation.Colleges and universities serve as a great source for a highly educated, skilled workforce.Wichita met our criteria at Advantage Outsourcing.The Wichita area is served by 15 colleges and universities including Wichita State University and the Wichita Area Technical College.As of 2005 86% of Wichita's citizens aged 25 years and older had at least a high school diploma.We believe that all service providers should be located in a community that fosters and supports education as one of its main priorities.At Advantage Outsourcing we have every confidence that the students of today will bring a higher level of service excellence to the workforce of tomorrow and we want to be there to support their success.

7.Aggressive Economic Development Program To Support Expansion

In selecting a location for service delivery centers, onshore providers should be aware of the economic development programs sponsored by their prospective city.Wichita, for example, has a broad array of economic incentive programs that include property tax abatements, industrial revenue bonds, enterprise zones, and job training funds.Moreover, providers should also evaluate the ongoing marketing programs that local cities use to attract new businesses and build awareness of the city's business environment.For example, city officials in Wichita were very active in promoting Wichita in the 2009 National Civic League competition.Their dedication earned Wichita the prestigious title of All American City:for the fourth time.The nation's oldest civic award recognized Wichita's government agencies for collaborating with the community and achieving great strides in economic development.

Skip Womack

CEO and Co-founder

Advantage Outsourcing

Wichita, Kansas

1 316 771 7460




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