U.S. companies have long moved work overseas to save money. But a long-emerging trend of moving work to lower-cost areas of the U.S. instead of overseas appears to be gaining steam.
The New York Times article “Hot Spot for Tech Outsourcing: The United States” looks at the outsourcing of software development tasks to lower-cost U.S. cities, mostly in the Midwest.
Although lower-cost U.S. cities are more expensive than outsourcing overseas, rising salaries and costs overseas is making outsourcing there less of a bargain.
Meanwhile, locating in the U.S. has a number of advantages.
Having work done in the U.S. greatly reduces issues and problems associated with navigating time zones, cultures, and languages that are common with international outsourcing.
The nature of software development and product design has also changed in ways that make domestic outsourcing more attractive. Key quote from NY Times article:
[C]ompanies in every industry need mobile apps and appealing websites, which can be made smarter with data and constantly updated. That software is best created by small, nimble teams, working closely with businesses and customers — not shipped to programmers half a world away.
Regular readers know one of our favorite trends is the paradox of place.
The paradox is even though the Internet and connective technologies has made working remotely easier than ever, people and companies are increasingly clustering together in fewer, more valuable locations.
But despite the paradox, there are a growing number of signals indicating that companies — and workers — are becoming more distributed.
The talent marketplace Upwork, for example, released a study earlier this year showing that work conducted via their site is increasingly moving from high-cost areas of the U.S. to lower-cost areas.
Another example is the growing trend towards “near-shoring” — locating manufacturing in the U.S. to be closer to customers and supply chain partners.
Also driving this shift is that cities like San Francisco and New York have become so expensive, it’s simply become hard for companies and their employees to locate there.
The LinkedIn article “Labor Arbitrage Comes To Silicon Valley” covers the shift to lower-cost locations by many Silicon Valley firms. Key quote:
The advantages of these remote locations include lower salary costs, higher standards of living for employees, greater ability to retain employees, less competition and consequently higher retention.
A number of domestic outsourcing firms have sprung up to tap into this trend. The New York Times article covers the Midwest-based Nexient, whose tagline is “100% U.S. based software partner.”
Technology is, of course, the other driver of this shift. Next-generation chat, video calling, and project management software make it easier to coordinate work with and manage remote teams.
But paradox of place continues to be, well, paradoxical. IBM and other major corporations are reducing telecommuting and ordering more people back to the office. And according to NewCo Shift, “Co-located Outsourcing Is The Newest Trend In Tech Outsourcing.” Key quote:
In person, face-to-face, co-location is the most effective form of communication, especially when you are faced with brainstorming and solving complex issues. Software development is often complex. And, the more that companies rely on technology to be a differentiator, the more complex it becomes.
So the trends indicate there will be both more distributed work and more co-located work. We believe both will continue to happen, at least for the next 5-10 years.
But we also think that in the long run, distributed work will become more common as technology reduces the problems associated with distance.
The short video below (less than 1 minute) gives a quick overview of the Midwest’s Silicon Prairie.
This post originally appeared on Small Business Labs.