What if large corporations seeking to save through outsourcing stopped looking overseas and instead tapped rural domestic workers?
It’s not a distant dream, according to experts. With a less expensive labor pool than can be found in large metropolitan areas, Northwestern Wisconsin and Northeastern Minnesota might just be positioned to offer cost savings to companies both now and in the future. And the benefit would be mutual in a region that has long struggled with high unemployment and a lack of well-paying jobs.
Three years ago, Bloomberg BusinessWeek predicted some firms would shift away from overseas outsourcing, noting that high tech wages in India were on the rise.
“While India is still a great deal for many companies that want to cut costs on high-tech workers, some experts predict the labor savings there could evaporate in five to 10 years. That has spurred some interest in lower-cost labor markets in the U.S,” the business magazine reported in 2008.
In this region, that discussion continues as those having a stake in the region’s economic future try to identify opportunities for rural outsourcing, also known as farm shoring. The topic has been identified as a statewide strategy for Wisconsin.
“Farm-shoring, or the outsourcing of work to domestic rural locations, is gaining visibility among companies that would prefer not to ship U.S. jobs overseas,” Tom Still, president of the Wisconsin Technology Council, reported in 2008. “The cost of living, wages and work ethic in rural areas can compete with the cheap labor touted by offshore producers, especially when other advantages are considered.”
The topic was once again under review at the June 2010 Wisconsin Entrepreneur’s Conference in Milwaukee. Higher wages in developing countries, coupled with the strong domestic work ethic, make the Northland increasingly attractive, Still added.
None of this is news, however, to Saturn Systems, headquartered in Duluth with another office in Charleston, S.C. President and founder Keith Erickson began his company in 1990, celebrating a 20th anniversary last year. It is a software development and information technology firm that can trace its roots to Erickson’s move from Santa Barbara, Calif. back to Duluth, bringing IT clients back to the Northland.
Today, the company employs about 25 people in Minnesota and another 10 in Charleston, an office that opened in 2002. Saturn Systems not only offers information technology expertise, but its workforce costs about 25 percent less than comparable talent in the Twin Cities metropolitan area.
While its costs are less, Saturn Systems’ profile is on the rise. The company’s success was noted in a BusinessWeek article on rural outsourcing in the fall of last year.
Cost savings is one advantage the Northland workforce brings to the table. Cultural, language and distance barriers, often a problem for U.S. overseas operations, are other advantages to working closer to home.
“We have some clients that have come to Saturn and said offshore outsourcing wasn’t working for them. I’m not panning offshore outsourcing, but it just doesn’t work in every instance,” said Scott Risdal, Saturn’s vice president of business development. “We speak the same language and we’re in the same time zone (as our clients), and there’s a real advantage to that.”
Some of Saturn’s clients are local – like Amsoil, Northwood Children Services and Woodland Hills. But other clients come from all over the nation, including Florida, Colorado, Texas and California.
While no one is arguing that overseas outsourcing is going away, there is perceived potential for more companies to enter the rural outsourcing game. A July 2007 Information Technology Association of America report estimated that mid-sized cities and rural areas could offer a 30 percent savings over similar costs in high-tech hubs, like Silicon Valley.
There are barriers, however. Some rural areas still lack the telecom infrastructure needed to pull off a rural outsourcing operation, according to Still. And the lack of a well-trained workforce is identified as a notable barrier to further development.
All employees of Saturn have a minimum four-year degree education. However, Risdal acknowledges that some firms have concern about whether or not a non-metro firm can provide the same high-tech goods that customers want. When asked if Saturn Systems delivers, Risdal said the answer is “yes.”
He said having three major universities in the Twin Ports uniquely positions this region in terms of workforce education.
“We get to live where we want, and customers get a high quality product,” he said.
Still added that Wisconsin is a state “with a well-regarded university system as well as a two-year campus system. Having the right workforce shouldn’t be a problem.”
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