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Offshoring... sort of

Fellow blogger Rob Walling posed an interesting question in his post titled "The Next Frontier in Offshoring", and asked me what I thought of the idea of "Offshoring" business to rural Mississippi.

I'm going to call it outsourcing, since it's not really offshoring if you don't go offshore. For the record, I don't think Hawaii should count as offshoring although by definition it probably is.

This is a fascinating question so let's look at this. The salaries are lower, thus the costs of doing the outsourcing are lower. There are a lot of potential benefits, including the fact that some government contracts require the use of US citizens to write the code and do the work. So, will this take off? Why don't we answer Rob's questions to find out.

1) Is it a good thing that development work is moving to low-cost areas, but staying within the U.S.?
Yes. I think this is a great new development. Instead of sending money overseas to other economies, we're keeping it here in the US and thus bolstering our own economy. We all know that the US economy isn't in the greatest of situations right now, but it could certainly be much worse and we all know that. While just a few companies doing this isn't likely going to push the economy over the hump, there are secondary effects of outsourcing in this manner. First and foremost is that people are staying employed. By definition, they're not on unemployment and are contributing to economic development. Probably more importantly is that we're keeping these people employed in technical jobs where they might otherwise leave the field of software.

Now, I'd be the first to encourage someone to leave the field if they aren't really any good at it. The fact is that getting rid of the 'fat' is a good thing for the entire industry. But on the other hand, the number of people entering the technology field has dropped dramatically over the last several years. It's scary to think of what could happen in the software field in the US if the rate of people leaving the software field dramatically exceeds the people who are there now.

So yes, I think this is a good thing.

2) Is this a savvy business move made to keep a company competitive, or a devious, greedy move made to take advantage of developers and pocket fistfuls of cash?
It's probably a bit of both. I could make some convincing arguments either way. On one hand, it's a competitive move. Who else is building these outsourcing companies in Mississippi? Not too many I would imagine. Sure it might cost a little more than outsourcing to other countries, but look at the benefits. The primary language of the people you're dealing with is very likely to be English. They're in the same time zone, or near enough so that you're not leaving messages that someone will get back to you in 12 hours. That's a huge benefit right there. And with the much lower cost, how can you go wrong? Technically a lot of ways, but let's stay in the honeymoon phase of this relationship for the time being.

On the flip side, what if the company is just trying to take advantage of developers? According to Salary.com and ignoring the obvious inaccuracies of their website, the middle range of a Software Engineer IV is between $75,902 and $93,423. In Boston, the same is between $90,853 and $111,825. That's about a $15,000 difference in cost and more than $1,000/month over the course of a year. The outsourcing company is going to build in a 25% margin to turn a profit. That means that middle of the road cost for the company purchasing this outsourcing talent is going to be around $125k/year.

This is far more than outsourcing overseas, but probably much less than that of hiring a Boston based consultant. Realistically, I don't think the price could go much higher before the clients start looking locally for consultants who work in the office or hire full time.

I rather doubt that companies are doing it to be devious or greedy or attempt to take advantage of developers. Lets face it. Developers aren't stupid. They'll know if you're taking advantage of them and will leave if you do.

3) Would you be interested in moving to a low cost area of the U.S. (read: the middle of nowhere) and working for less money, but having a better quality of life with no traffic and cheap housing?
No, certainly not. For me, moving is about relocating to a place where there is more opportunity, not less. I lived in Rochester, NY for a very long time and quickly became what I would call a big fish in a little pond. I was great at what I did, but finding a new job that I was interested in was next to impossible. Eventually, I ended up moving to Boston where there are plenty of jobs and plenty of opportunities. There were nowhere near as many opportunities in Rochester, and I suspect the same would be true of Hattiesburg, Mississippi.

What happens in five or ten years when you get bored and want a change? Suddenly, you're at a much different point of your life with a family, a house, mortgage, car payments, etc. Where do you go? Where can you go? The answer is nowhere because now you can't afford to, both literally and figuratively.

Less traffic and cheap housing doesn't change the price of a lot of things. A MacBook Pro is still going to cost you $1,999 and anything you order over the internet is going to be roughly the same price, whether you live in Hattiesburg or in Boston. This might not affect you if you don't order things over the internet, but a lower cost of living doesn't mean that everything drops in price.

An important point I want to make is that low traffic and cheap housing certainly aren't the only factors when looking at quality of life. I'm not sure I would say I had a better quality of life if the nearest place to get Mexican food was 90 miles away. I'm just not about to give up my burrito addiction, much to my wife's dismay. Your opinion on that will certainly differ.

Let's look at it from the perspective of an employer. As an employer, I would have serious concerns about relocating my business to a place like Hattiesburg. Sure, hiringĀ  employees is going to be cheaper, but are they going to be as good as they are in other parts of the country? This is a strike against them from their clients perspective as well.

Why isn't there a MIT (Mississipi Institute of Technology) in Hattiesburg, and an additional fifty bazillion other well known and generally respected colleges. It raises concerns about the future of the company and where the talent is going to come from. How much is it going to cost to recruit more talent and do you really think you can attract enough attention to your company and to the area that developers are willing to relocate there from places like Boston, Atlanta, or San Francisco?

I don't think so.

Ultimately, I think this will pay off for the company building the business in Hattiesburg due to the volume and the margins, but I don't see this being some sort of unforseen runaway success. There are too many factors working against them and I for one, will not be drinking the Kool Aid.

Feedback

# re: Offshoring... sort of

FYI - the suits call this kind of thing "nearshoring" 2/16/2007 12:39 PM | DAR

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