Study: Onshoring could become the new offshoring

A recent ITAA report details how U.S. companies can kill two birds with one stone: outsource their labor force and keep jobs available to U.S. workers.

The Information Technology Association of America recently released a report that details why what it is calling lower cost domestic (LCD) sourcing, or onshoring alternatives, options could be a better choice for American business owners and IT executives.

Onshoring or as some have called it, near-shoring, would involve U.S. companies establishing data centres or other locations within the United States, but in rural or less-urban areas to keep costs down. The work would still be outsourced from the company’s primary location but within U.S. border, which proponents say would alleviate data privacy and security concerns.

Also onshoring could help companies tap specialized IT talents within the United States. For instance, companies are choosing their offshore locations based on the workforce there and adopting “cities of excellence” in certain areas such as software development or call centers, the ITAA says, meaning companies offering onshoring in the United States could also offer locations that could become centers of excellence for specific skills. While locations such as India and China will continue to serve some U.S. companies’ offshore needs, the ITAA contends that onshoring labor to United States locations can help other organizations, such as government agencies, that are not able to hire specialized IT talent offshore.

“For some organizations using offshore services is just not an option. … Some work simply does not lend itself to an offshore solution,” the ITAA report reads. “There are a growing number of examples of companies establishing or expanding remote delivery centers in cost-effective LCD locations. Many view onshoring as a vital component of their global delivery model.”

The ITAA report goes against the grain of other other Canadian IT industry associations, including ITAC, which have tried to promote Canada as a “nearshore” destination for managing data centres and other outsourcing work.

The ITAA report does not discredit offshoring options and expects to see locations such as India and China continue to serve U.S. companies and the U.S. economy. But the group contends the United States — with the right programs and government developments — can also become an attractive and viable source for similar outsourcing scenarios. Outsourcing companies can take on work from U.S. companies and operate as though the work was offshored, except locating data centers within the United States.

“The U.S. is still the dominant supplier of IT resources and remains desirable on every sourcing selection criteria except absolute labor costs. There are many lower-cost rural and midsize cities that have a talented IT workforce, with colleges and universities eager to collaborate with prospective employers on IT-oriented curricula,” the report states.

Yet the report cites the looming shortage of IT workers in the United States due to baby boomers retiring and fewer IT graduates as a growing concern. According to an ITAA survey, some 77 per cent of IT companies cite a shortage of qualified talent in the United States as the biggest human capital management challenge. Without the workers, the hopes of keeping jobs onshore diminish, the report says.

“Absent a large, qualified U.S. workforce, LCD sourcing becomes a moot point. Simply put, the U.S. cannot nurture the creation of jobs in lower-cost venues without a skilled IT workforce,” the report reads.

With the report, the ITAA is calling upon U.S. companies and officials to make LCD sourcing a realistic solution. A letter included in the report’s executive summary from ITAA President and CEO Phillip Bond urges U.S. federal and state governments as well as American companies to work toward creating feasible onshore alternatives for small to midsize companies that can’t afford to offshore or for organizations not able to establish a location in another country.

“America has its own unique advantages to offer — not only to American companies, but to foreign-based businesses as well,” the letter reads. “We must grow our IT workforce, make high-speed broadband more widely available and create economic development strategies to attract private-sector investment and technology jobs to more cities, towns and rural areas. Our nation needs to seize this opportunity.”

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