Cultural differences. Time discrepancies. Quality control issues. Communications barriers. Transition costs. Legal paperwork. The list of problems that American companies encounter when they make the decision to send IT jobs overseas seems endless. So why do they do it? Because despite the drawbacks, many companies continue to see offshoring as the best way to save money.
That many not be the case. According to a recent study by the Centre for Economic Policy Research, it may be significantly cheaper to source services work closer to home. Applying economic theory and the distance effect, Professors Keith Head and John Reis of the Sauder School of Business at the University of British Columbia and Thierry Mayer of the University of Paris 1 Panthéon-Sorbonne found that closer is cheaper. A lot cheaper. A services buyer based in London could afford to pay workers in Oxford anywhere from 99 percent to 373 percent more than workers in Bangalore and still come out ahead, they found.
If offshoring isn’t the solution, what is? Rural outsourcing, according to many industry watchers.
The idea behind rural outsourcing is that companies use American IT workers who live in parts of the U.S. where the low cost of living means low salaries. Okay, maybe not as low as an IT worker in Bangalore is paid, but still lower than a major metropolitan area. And by staying in the U.S., companies that employ rural outsourcing eliminate the problems encountered by offshoring. That alone saves money.
Rural outsourcing is catching on, and the number of IT companies offering the option is growing. But some experts warn that losing an outward focus could result in IT inbreeding. That worry aside, it seems clear that most companies are going to follow cheap labor, whether they find it inside the U.S. or out.