Economics, patriotism push American companies to keep more jobs for locals

BANGALORE: India will remain the biggest IT outsourcing destination in the foreseeable future. But a combination of attractive incentives from tier-2 cities in the US, a desire to gain the goodwill of the American public by creating jobs for locals, and an increasing shift in the way software is developed — to what is known as agile development — is pushing American companies to keep more of the work close to their home ground.

American companies are by far the world's biggest technology outsourcers, and the new trend is shifting outsourcing's centre of gravity a wee bit from India and towards North and South America. That means a little less work for India, and pressure on Indian IT vendors to grow their presence in these other locations.

AT&T established a mobile applications development centre in Plano, Texas, last year. Kronos, the workforce management solutions company, established a development centre in Indianapolis two years ago. EMC set up a technical support centre in Salt Lake City, Utah, last year. PayPal, GE Aviation, Dow, Garmin, Dell are others who have established research and development centres in tier-2 cities in the US over the past couple of years.

Experts in the field of outsourcing say that some of this is work that previously might have been offshored to India, or countries such as India.

Chandramouli, director-advisory services in Zinnov Management Consulting, says his company recently worked with a client that established an operation in Salt Lake City, US, where it could get people for $13-14 per hour. "In India for the same skill it would have been $8-9. So Salt Lake City was cost-wise only a little higher, but the value it generated was significantly higher, and the client's US customers like the fact that it has brought jobs to America," he says.

The high unemployment levels in America has narrowed the salary differential between the US and India for certain skills, and combined with incentives offered by tier-2 cities and their relatively better infrastructure is making the economics of working in these cities attractive, especially for work that does not require large scale hiring.

Siddharth Pai, partner in outsourcing advisory firm ISG Asia Pacific, says places like South Carolina offer attractive tax sops. "Also, higher contextual voice work can be done near shore in smaller centres rather than sending work to India or the Philippines. If a customer was looking at planning his retirement portfolio, you don't necessarily reach out to telecallers in India or elsewhere to advise the customer when it can be done onshore. Rural sourcing and cost advantage makes the economics of doing business more compelling with better quality of service. Rural sourcing is gaining momentum in places like Alabama, Nebraska and Memphis due to higher degrees of contextual understanding and cost-competitiveness," he says.