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The US emerges as next unlikely destination for tech outsourcing

Rising labour costs abroad and the need for agile, local teams in the same time zone that can react quickly to today's constantly evolving, tech-fueled customer needs is helping boost the fortunes of American onshore outsourcers.

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It may not be a shift of seismic proportions or a permanent trend as yet, but for those who have longed bemoaned the outsourcing of American technology jobs to faraway shores such as India, there may just be a reversal of fortunes taking place, albeit in miniaturized form.

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Instead of taking advantage of cheaper technology labour overseas, US companies are now beginning to send work to tech outfits in their own backyard such as Nexient, headquartered in Newark, Calif., or Rural Sourcing, headquartered in Atlanta, or Catalyte based out of Baltimore.

None of these companies get work done at their home base. Instead, they have delivery centres in what you may think are the most unlikely of places but are in fact smart choices due to their close proximity to excellent graduate schools and inherently low living costs. Most importantly, they are far away from places like Silicon Valley or New York, where the cost of living is astronomical.

Nexient has its centers in both Ann Arbor and Okemos, Mich., and Kokomo, Ind. Rural Sourcing has its sub-bases in Albuquerque, N.M., Augusta, Ga., Jonesboro, Ark., and Mobile, Ala.

Could this trend be more than just a passing one? Nexient's employee base has increased from 250 to 400 people in the last two years, while another one, Catalyte, has doubled its workforce just over the last year to 300 people. Not impressive enough to threaten the hegemony of Indian outsourcers like Infosys and Wipro perhaps, but for some customers, the tide is already turning in small ways. One of Catalyte's customers, Cambia Health, has sent half of its business to Catalyte instead of its Indian tech outsourcer.

There are many good reasons why this is happening. Indian outsourcers no longer offer the mouthwatering labour cost reductions that they used to. Today, a US software developer is only twice more expensive compared to a decade ago when he would have been five to seven times more expensive -- one of the chief reasons being the rise of the Indian middle-class techie. (Today, the standard billing rate for a US engineer is $60 to $70 an hour, compared with $30 to $35 in India.)

There are other reasons than just cost advantages. Today, companies place a premium on being agile and reactive to their customers. The ability to react instantly to a customer need, to tweak or re-configure a mobile app or website, to provide ongoing, real-time support, to continually researching, developing, and updating products based on shifting customer demands in this new, fast-paced, tech-saturated, global marketplace -- all without having to negotiate time-zones and language and cultural barriers -- are making local onshorers the flavour of the day.

Read also: 'Insourcing' predicted to throttle Indian IT services revenues | Infosys steps up US hiring as more top talent flees | Why IoT could be the savior Indian IT desperately needs

There is also a larger more serious, structural issue related to the American tech workforce that the current trend is resolving. "The rush to outsourcing was also breaking the overall talent pool for IT in the US," says Mark Orttung, CEO of Nexient in Venturebeat. "If companies were not creating entry level positions, there would be a generation of graduates who couldn't develop as enterprise-grade technologists. They wouldn't get the chance to build solutions and learn how technology delivers value in an enterprise context. If there were no entry level jobs, then in 10, 15, or 20 years, there would be no people with enough experience to take on the mid-level and leadership positions in IT," added Orttung.

As unlikely as it may be that these small and nimble US tech shops will supplant Indian outsourcers anytime soon, Orttung's observation, of bringing about a resurgence in American tech labour, may increasingly resonate with companies looking for that extra push to bring their businesses back home.

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