Domestic Outsourcing ? Not an Oxymoron | NJTC TechWire

Over the past two decades, the combination of technology advancements and intense pressure to control costs has driven many businesses to radically increase the amount of business functions outsourced to specialized firms, who were sometimes overseas. Many of these functions involved routine processes, where a set of rules can be applied and is often known as Business Process Outsourcing (BPO). This includes everything from call centers and data processing to accounting, HR, and even legal services. Additionally, many companies use Information Technology Outsourcing (ITO) to enhance their businesses; with the attraction of software-as-a-service and cloud computing (covered in February?s edition of TechNews), this type of outsourcing becomes increasingly more common.

However, outsourcing does not automatically mean offshoring (the moving of service functions overseas). It is true that significantly lower telecommunication costs and advancements in internet communications allowed many locations overseas to compete for work that was previously only feasible when located near or within the parent company.

This opened opportunities for businesses from entirely new areas of the globe to compete in the marketplace as service providers and that is exactly what they did. The initial services they offered focused on providing a low cost value product. The cost structure was too compelling to ignore and with the model?s success, the offshoring of business practices dramatically increased.

The key word here is ?was?. The overseas value model that initially attracted companies has changed significantly since offshoring first began, and the value model that once was so compelling has evolved and become less competitive as wages and levels of education have increased overseas. Companies also are coming to recognize that the cost of labor is but one factor in the total cost of services being provided overseas.

The new model that has emerged, sometimes called ?rightshoring? or ?blended approach?, focuses more on putting the services in the right location for the job. Some services require a significantly higher level of collaboration, where face-to-face interaction and/or time zones matter. Others might need to mitigate any cultural or language barriers. Often this new approach means a more detailed examination of the services needed and blends together a mix of domestic and offshore services that when combined together provide lower costs with the right skills and services.

Additionally, outsourcing is not always about increasing cost efficiencies but is often about obtaining access to talent, skills, capabilities, and services. Many businesses of all sizes are looking to firms to provide websites, email and scheduling, customer relations databases, business analytics, and more; these are now typically offered as cloud services.

For example, the federal government now outsources its email to both Google and Microsoft, and Salesforce manages customer information for more than 100,000 clients. New Jersey based companies regularly provide business services from paychecks and tax documents (Automatic Data Processing) to software and data processing services (Cognizant).

Just as low telecommunication costs and Internet access has opened up overseas locations, so too has it opened up lower costs locations in the United States. Lower cost regions such as Tier 3 cities and rural communities are now viable locations for domestic outsourcing or sometimes called domestic sourcing. When you consider all factors, domestic outsourcing has become a competitive option for companies.

TechAmerica in partnership with Ahilia, a global services consulting practice, studied the factors around the site selection process for outsourcing firms and found that the major factors for these firms were the cost structure and the availability and skill sets of the workforce.

When applying these factors to the United States, the business case for U.S. domestic outsourcing is compelling. It is driven by: potentially lower costs, affordable real estate, predictable wages, lower turnover rates (as low as 5-20%), lower training costs, improved services, proximity to your customer base, regulations that requires domestic sites (often government work), quality issues, time zones, and even tax incentives

The location selection process is normally driving by the individual companies that are looking to outsourcing rather than by the service provider (the company providing the outsourced function). As such outsourcing services firms will follow the instructions and leadership of their clients. To this end, as companies better understand the viability of domestic locations, they can be the drivers of this business trend. The United States, especially rural America, has a compelling business case for many outsourced businesses and deserves a second or third look.

Matthew Kazmierczak is the Senior Vice President, TechAmerica Foundation.

The TechAmerica Foundation educates industry executives, policymakers, and opinion leaders on the promise of technological innovation to advance prosperity, security, and the general welfare. matthew@techamericafoundation.org

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