#287. Forget India, outsource to Arkansas

Posted on | The Agurban

Thanks to a devoted Agurban reader for sharing the following cnnmoney.com article with us. This is a follow-up to our Agurban two weeks ago on “onshoring”. We are including excerpts from the article below, but the complete story can be found here. We will keep our eye on this trend, as it generally focuses on smaller, rural towns.

Forget India, outsource to Arkansas
By Jennifer Alsever

Looking for skilled, low-cost labor? Forget about India and China. How about Jonesboro, Ark.?

As the national unemployment rate hovers near 10%, some companies are starting to eye job-hungry areas of the country as prime candidates for the kind of outsourced work that once would have gone overseas.

Dubbed “ruralsourcing,” “rural outsourcing” and “onshoring,” the practice relies on two simple premises: Smaller towns need jobs, and they offer a cheaper cost of living than urban centers. So businesses that outsource work to these areas can expect to pay less — rates are often as much as 25% to 50% lower — than if they were hiring urbanites with comparable skills.

In response, a new crop of outsourcing startups are popping up with development centers in places like Joplin, Mo., and Eveleth, Minn., where hundreds of employees crank out software code or offer IT support for large corporate clients.

Compared with the estimated $60-billion-a-year offshoring industry, rural outsourcing remains just a blip on the radar. Yet the strategy is becoming a more popular option for businesses that are trying to stretch their budgets.

For some companies, the thought of outsourcing work to countries with different laws and business practices feels risky. Take Human Genome Sciences, a Rockville, Md., biotech company. The 900-employee company got bids from several outsourcers to handle the technical support for its back-office software. One of those bidders, AnswerThink, would have offshored the work to India. But the idea of sending confidential company information overseas, outside the reach of American intellectual property law, didn’t sit well with David Evans, an IT director at Human Genome Sciences.

Instead, Evans hired Atlanta-based Rural Sourcing Inc. and its team of software experts in Jonesboro, Ark.

“There’s a real desire to keep things onshore,” Evans says. “There’s a backlash against offshoring. There are a lot of horror stories, a lot of jokes.”

Evans had his own stories of struggling to work on projects outsourced overseas by Human Genome Sciences’ vendors. The outsourcers were in drastically different time zones, concepts were hard to communicate, and cultural differences created misunderstandings.

Human Genome Sciences now pays about $55 an hour for technical support from Rural Sourcing. That’s about 15% higher than the rates quoted by the Indian outsourcing firm Evans considered, but half of what it would cost for him to hire a software development firm locally in the Washington, D.C., metro area.

“Now when we have a problem, we can get right on the phone and talk through the issue real-time. That right there is worth the extra cost,” Evans says.

Launched in 2004, Rural Sourcing Inc. sets up shop in mid-size cities that are near universities — places like Jonesboro, where the average IT salary is $35,000, versus $65,000 in a large metro area. The cost of living in Jonesboro is also 23% less than the U.S. average.

Rural Sourcing now counts GlaxoSmithKline (GSK) and R.J. Reynolds as clients, and its revenues are on track to triple this year to $4 million, says CEO Monty Hamilton. The company plans to expand beyond a single center in Jonesboro and open two new IT development centers, including one in Greenville, N.C., by the year’s end.

“Companies are stumbling upon us, and it’s growing gangbusters,” Hamilton says. “There’s no reason why we can’t put a lot of people to work.”