Ask somebody back in 2000 what that loud sucking sound was, they’d respond, “That’s American IT jobs draining into India and China.” The U.S. dot.com bust, a faltering economy, and religious-like fervor to do more with less not only sapped jobs, but made the pursuit of computer science degrees anathema.
Those factors have not reversed themselves necessarily, but the playing field certainly has changed. Offshoring is still a useful tool for American business. However, some overseas outsourcing is returning and some that previously would have gone overseas are staying put.
“In 2012, Gartner analysts’ inquiries on the topics of “onshore,” “rural” or “domestic” sourcing increased 61% over the previous year; a similar pattern was evident in high client interest in the first three months of 2013. Gartner predicts continued growth in IT services providers’ U.S. onshore delivery presence to satisfy buyer requirements for more proximity in delivering key services where greater business impact — not just lowest-cost services — is desired.”(1)
We believe a myriad of factors are at play here. A big one is that the answer to doing more with less by offshoring is not nearly as attractive as it was once thought to be. The big factor used to be wages … $20/hour there versus $100/hour here. Wages “over there” have increased steadily over the past 15 years, rising as much as 25 percent per year with little moderation expected. Here, an economic depression and high unemployment have moderated wages and slowed growth to low single digits, significantly narrowing the gap.
Beyond that was the realization that $20/hour was not really the total cost. After taking into account productivity, quality, rework, communications, travel, cultural influences and other factors, the promise of offshoring lost its luster. Some predict that the cost of offshore and onshore resources will equalize around 2015 on a dollars per hour basis for some non-traditional IT services locations in the U.S. such as Sioux City, IA, Provo UT, Tampa, FL, or even Detroit, MI.
But, there’s more to it. The dearth of American IT skills became an area of concern, which is still being addressed. That has resulted, though, in collaborative relationships between industry and education to develop skills needed for jobs available, including IT. Beneficiaries of many of these initiatives have been smaller cities and rural communities where costs of living are lower, the workforce is stable, and where Generation Y (21-30 years old) is happy to be and be working. Add to them the long-term unemployed who are eager to work. Consequently, the availability of IT services in demand by businesses have blossomed in these locales.
Domestic sourcing offers additional benefits, as well. Being able to collaborate with a nearby provider produces faster results of better quality. Effects of culture and language, time zones and local laws have limited impact, if any. The teams tend to be close-knit, mutually supportive and service oriented.
There are other factors at play, as well. Don’t underestimate the power of perception. Social responsibility, job creation pressure and “made in America” can be powerful influencers. With all that’s going on in the world and all the has happened to the American psyche in the past half-decade, keeping jobs here is not only good business, it’s patriotic.
Of course, the entire complexion of IT – what it is, what it does, how it’s done, who’s responsible – is in flux, to put it mildly. Data processing and data center models common in the first five years of the new millennium are anachronisms. The simultaneous depth and reach of cloud computing options is changing everything, turning traditional models on their heads. The IT services market in North America is expected to growth by six percent CAGR through 2017, spurred largely by infrastructure-as-a-service, hosting, and co-location. Much of that is outside major cities.
The regulatory climate in the U.S. and data privacy laws everywhere are a necessary evil, as well as a financial burden. Issues such as export control laws, personal information protection and data sovereignty are major influencers on where stuff happens and who handles it.
IT services customers are increasingly looking for onshore delivery options, either to replace or complement their offshore outsourcing relationships. The best sourcing strategies treat outsourcing – domestic and international – and insourcing as complementary, not competitive. The growing acceptance of hybrid computing model, combined internal IT evolving into service brokers rather than providers, will be catalysts for merging and leveraging these options into one managed infrastructure to drive strategic business goals. The spotlight on corporate governance is helping bring to bear thoughtful analysis within a strategic framework.
At Peak 10, we’re pleased to be part of it all, from community-based programs that nurture IT skills development to expanding our cloud and managed services footprint across the country in the coming years. Helping customers create and manage the multi-faceted IT environments that are just beginning to take shape is a role we embrace as a core service offering.
(1) Gartner Source: Market Trends: Providers Expand U.S. Onshore Delivery, Invigorate Investments in Low-Cost Domestic and Rural Sourcing Options, May 23 2013, refreshed August 25, 2014