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Made in lower-cost America

Communities outside traditional tech centers are getting IT operations as U.S. firms offer low-cost domestic alternatives to offshoring.

Silicon Valley, Boston and Austin may have some new competition--and not just from Bangalore, Shanghai and Singapore.

The latest kids on the tech block are places like Twin Falls, Idaho; Oklahoma City; and Jonesboro, Ark. These are among the smaller cities or rural areas of the United States where information technology companies have been locating or expanding facilities.

The companies, ranging from IT services start-up Rural Sourcing to computer giant Dell, can save on wages in these communities, thanks partly to inexpensive housing there. And in some cases, the companies are pitching operations in midsize America as an alternative to .

News.context

What's new:
Tech companies are locating operations in smaller U.S. communities, such as Oklahoma City and Jonesboro, Ark., where wages can be much lower than in computer industry hubs like Silicon Valley.

Bottom line:
Facilities in midsize American cities may offer a low-cost domestic alternative to offshore outsourcing. And some involved in the "homeshoring" trend can imagine small cities eventually challenging San Jose and Boston when it comes to tech innovation.

More stories on this topic

A key to what's been dubbed "homeshoring" is tapping a little-noticed talent pool. Kathy White, Rural Sourcing's founder and , argues that technology professionals in major metropolitan centers often come from smaller communities. "We're just reaching the ones that don't want to leave," she said.

To be sure, states like Oklahoma, Arkansas and Idaho aren't stealing the show when it comes to generating tech jobs. California ranked as the top state by far in terms of new IT positions posted on major job boards in December, with New York and Illinois also among the leaders, according to a study from job search service NimbleCat.

California's Silicon Valley--long the center of the technology world--continued to last year, but saw venture capital investments increase by 15 percent. The state now accounts for 35 percent of the nation's venture capital, up from 14 percent a decade ago.

Meanwhile, the practice of sending application development work and other technology projects overseas .

Challenging the tech meccas
Even so, U.S. communities other than the traditional computer meccas--Boston, Silicon Valley, Raleigh-Durham, N.C., and Austin, Texas--are starting to see their technology fortunes rise. In some cases, the cities are fairly large.

A U.S. Department of Commerce report concluded last year that pockets of economic development based on science and technology, or S&T, are "exploding" in Minneapolis; Seattle; Boulder, Colo.; and Salt Lake City. "Interestingly, all these areas have strong concentrations of S&T resources, including research universities and private-sector research centers," the report said.

Universities are part of the reason still smaller communities are attracting technology operations. Rural Sourcing has partnerships with several universities, including Arkansas State University in Jonesboro, where most of the company's roughly 30 employees are based.

The company also has a pilot project on the campus of Eastern New Mexico University in Portales, N.M., and is planning to open an office at a technology incubator in Greenville, N.C., where it is working with East Carolina University. Over the next two to three years, Rural Sourcing hopes to employ more than 100 people in Greenville.

Chicago area-based Decision Design is another IT company expanding outside of typical technology centers. The 20-person software developer recently announced new offices on the fringe of Silicon Valley--in Pleasanton, Calif.--that should hold another 10 or more employees.

Systems integration company Ciber appears to have even more ambitious plans for planting technology operations in smaller U.S. communities. In January, Greenwood Village, Colo.-based Ciber said it opened a facility in Oklahoma City, the first of several low-cost, "made in America" application development centers it plans to open in 2005 and 2006. Ciber aims to create roughly 200 new jobs in Oklahoma City and upwards of 1,000 new jobs around the country, as additional "Cibersites" open.


Randall Carter
Software engineer,
Ciber

With offices in 17 countries and about 8,000 employees, Ciber isn't the only technology firm that sees promise in Oklahoma City. Personal-computer titan Dell last year opened a customer contact facility there that focuses on sales to smaller businesses. Dell originally expected to hire 500 people in Oklahoma City but has passed that mark and now employs about 700, company spokeswoman Michele Blood said.

Dell has been making a habit of putting operations in smaller U.S. cities in the past five years or so. It has a facility focused on sales in Roseburg, Ore., and another that concentrates on technical support in Twin Falls, Idaho. The Round Rock, Texas-based company operates a manufacturing plant in Lebanon, Tenn., and late last year announced that it would build another manufacturing facility in the Winston-Salem area of North Carolina. That plant is slated to open in the fall of 2005 and employ about 700 workers in its first year of operation, with the aim of increasing its head count to 1,500 employees within five years.

Low cost a key
A chief reason technology companies are turning to midsize cities and rural areas in the United States is their lower-wage work force. Employees there can be paid less than in today's tech hubs, largely because the cost of living is much lower. For instance, a $400,000 home in Boston would cost about $69,000 in Oklahoma City, according to Coldwell Banker Real Estate. The cost of living in Twin Falls is 33 percent lower than in San Jose, Calif.--the heart of Silicon Valley.

Rural Sourcing claims that it can offer services such as application maintenance and Internet development for roughly 40 percent less than what other domestic technology outsourcers charge. Its fees are about the same as the overall cost of using an Indian outsourcer, according to White, if you consider factors such as communication costs, travel expenses and inconvenience.

When settling into a lower-profile region, companies also stand to benefit from tax breaks. For example, North Carolina will provide Dell with up to $225 million in tax credits over 15 years for its new plant. The company also will receive a job development incentive grant worth up to $14.1 million over 12 years. Dell plans to invest $115 million in the plant during the next five to 10 years.

Onshore the best -shore?
Then there is the appeal of having onshore technology operations. Despite the potential cost savings of sending programming or other work abroad, not all the projects work out ideally. Decision Design, whose clients include Lehman Bros. and JPMorgan Chase, was brought in several times last year when a customer's offshore project wasn't panning out properly.


Mick Cornett
Mayor, Oklahoma City

After receiving customer complaints, Dell stopped sending U.S. technical support calls for two of its corporate computer lines to a Bangalore, India, call center in 2003.

With its new lower-cost Cibersites in the states, Ciber expects to woo customers wary of shipping work overseas. "Cibersites clients will have another choice in avoiding the hidden costs of offshoring, such as language gaps, intellectual-property protection, travel, time schedules, infrastructure vulnerability, political risks and increasingly high employee turnover," Tim Boehm, president of the company's Cibersites division, said in a January statement.

Then there's the prospect of luring employees with a different lifestyle compared to larger urban regions. Mick Cornett, Oklahoma City's mayor, says his town has inexpensive housing, little traffic and a high quality of life. Those features win over employers hoping to please workers, he said. "They realize people are going to be happy here," he said.

It's not just laid-back homebodies who will like Oklahoma City, Cornett suggested. Over the past decade or so, the city of some 500,000 residents has gotten a face-lift of sorts in its public venues, with a new minor-league baseball stadium and a canal through the downtown area.

What makes Oklahoma special to Randall Carter, though, is the friendly culture. The 52-year-old software developer is among the first hires at the Oklahoma City Cibersite. It hasn't always been easy to get computer-related work in Oklahoma for Carter, who has also earned a living as a nurse anesthetist.

Some time ago, Carter was tempted to leave the state to pursue work. But he and his wife couldn't bring themselves to move. "She wants to stay in Oklahoma for the same reason I do," he said. "It's the people."


Molly Marshall
Programmer,
Rural Sourcing

One state over, in Arkansas, Molly Marshall is glad to be staying put in Jonesboro while working in her chosen field of computers. Marshall graduated with a degree in management information systems from Arkansas State University in May, but was unable to find an entry-level programming job in the area for months.

The 23-year-old started waiting tables. And as the summer rolled by, she reluctantly considered leaving her friends, family and community to pursue a career in technology. To her relief, Marshall found a job about five months ago at Rural Sourcing. "I was starting to get aggravated," she recalled. "I was starting to think about moving somewhere I really didn't want to go."

Carter, Marshall and others in smaller-town America may be benefiting from newfound opportunities in technology, but clients might wonder if their tech tasks can safely go there. Rural Sourcing, for example, is drawing on talent from little-known regional universities rather than working closely with prestigious universities like Harvard, Stanford or Carnegie Mellon.

White says many American business leaders themselves hail from non-elite schools and are therefore willing to give her company a chance. Since beginning to pitch its services last summer, her company has done work for about six clients. Rural Sourcing is in advanced discussions for about 20 potential projects, White said.

The local work force is also getting a boost, as techies who flew the nest return, White said. "We are drawing people back to a region that they had to leave to find work," she said.

Dell is not having trouble hiring workers for its Oklahoma City operations, spokeswoman Blood said. She added that "soft skills," which include communication abilities, are important for customer support work.

Ciber is also confident that smaller cities can get the job done. Midsize U.S. cities with lower-cost attributes "often have large populations of military, retirees and students, many of whom have not only similar technical education as overseas IT workers but often have more experience," Ciber Chief Executive Mac Slingerlend said in a January statement.

The next Silicon Valley?
How big can the small-city tech trend get? Stephen Levy, director of the Center for Continuing Study of the California Economy, suggests that although tech services work may be flowing to those regions, Silicon Valley's prized possession--a leading role in inventing new technologies--is staying put. "They are not doing the innovation," he said. "The next new thing has not yet gone to Arkansas."


Stephen Levy
Director, Center for
Continuing Study of
the California Economy

Levy said he's more concerned that California--and the United States overall--could lose its edge in innovation to countries abroad.

Although folks in the better-known technology centers may not view midsize America as a serious challenger, some involved in the homeshoring phenomenon are aiming high. Oklahoma City's Cornett concedes that his city is "at least a decade behind," but he has his sights set on rivaling Silicon Valley or Boston. "That would be our goal," he said.

Rural Sourcing's White, who grew up in the tiny town of Oxford, Ark., and eventually became chief information officer at health care giant Cardinal Health, also suggests that smaller cities could sneak up on the tech hubs. "Innovation has come from strange places, and it's come from garages," she said. "I would say you never know."