US’s small town firms now pitch for big tech outsourcing deals

US’s small town firms now pitch for big tech outsourcing deals

Bangalore: Aset of US tech services firms such as Durham, North Carolina-based Rural Sourcing Inc. is competing for outsourced software projects from leading American customers, pitching low-cost cities in that country against offshore destinations such as India and China.

The pitch: cities such as Pendleton in Oregon, Texas’s Irving, Kearney in Nebraska, Oklahoma City and Jonesboro of Arkansas offer skilled programmers for as low as $40-50 (Rs1,616-2,020) a man-hour for software application development projects, which is at least 30-40% cheaper than what it would cost for similar skills in San Francisco, New York or Chicago.

While these rates may still be twice those offered ($20-22 an hour) by leading Indian vendors Tata Consultancy Services Ltd and Wipro Ltd, “many customers who lack skills and bandwidth to negotiate and manage complex offshore projects are preferring second-tier US towns for outsourcing their IT projects," said Kathy Brittain White, founder and president of Rural Sourcing, in a phone interview. Her firm is planning to have around 20 low-cost centres in various US cities by 2012, up from the current three.

In a July report, trade lobby IT Association of America (ITAA), had turned the spotlight on firms such as Greenwood Village, Colorado-based Ciber Inc., Atlanta-based Xpansion Llc., Cayuse Technologies Llc., and Rural Sourcing, which are increasingly wooing customers to look within the country for software outsourcing.

“As the labour component for most IT-related activities decreases over time, the cost advantage of offshoring will decrease," said the report, titled ‘Lower cost domestic sourcing: A niche opportunity for the US’, prepared by Palo Alto, California-based Conscient Partners Llc.

According to the US Bureau of Labor Statistics, the total number of high-wage IT workers (software and hardware engineers, network and systems administrators, data communications analysts and database administrators) increased by 17.3% between 1999-2004 against a 3% growth in jobs in the economy. “There are at least a thousand universities around non-metro areas in the US that can be tapped for employment," White said.

However, US universities are producing only 45,000 computer science graduates annually, even though the local demand is three times that, the report said. “Some dissatisfaction with current offshore efforts and concerns over the sustainability of the offshore labour arbitrage advantage are causing some enterprises to reconsider their global strategies and look afresh at new US locations," ITAA said.

Will there then be a significant ‘return to the US’ trend in the years ahead?

Barring a few—California-headquartered Kana Software, a provider of software products for customer service management, which brought back its product development from India to the US citing productivity challenges and high attrition rates, for instance—there have not been many cases of US corporations scaling down on offshoring to look at domestic outsourcing. Moreover, companies are too small currently (Rural Sourcing has around 50 employees) to be seen as a real threat to offshore outsourcing.

White, however, believes that there are many customers, smaller ones though, who have brought back work after bitter offshoring experiences, but she stops short of naming them. While Ciber counts AT&T Inc., General Motors Corp., American Express Inc. and McDonalds Corp. among its clients, Rural Sourcing serves relatively smaller companies such as Charlotte-based Enpro Industries and Ohio-based Cardinal Health.

Several Indian companies such as Tata Sons Ltd and Wipro, too, are planning to establish centres in low-cost US cities, positioning themselves as ‘local employers’. As Wipro chairman Azim Premji said in a May interview: “We will also become huge, huge local heroes by employing local people, which will help in combating whatever anti-offshoring sentiments there are."