by Beth Bacheldor

The Business Opportunity for Inshoring in the Good Ol’ USA

Feb 10, 2010

Companies want to outsource IT, but could be looking for options other than offshore providers or the big-gun U.S. providers.

With the current cultural and political backlash against offshoring, and so many companies needing to outsource IT operations in order to save money and shore up IT departments that have taken hits due to layoffs, and so many skilled IT folk looking for work, the opportunity seems ripe to launch some small and mid-size outsourcing businesses here in the United States. So what does that landscape look like? Is there a business opportunity?

One startup attracting attention is Systems in Motion (SIM), which just a few months ago announced it is opening a new IT services center in Ann Arbor, Mich. and will hire more than 1,000 tech people to work there. The company already operates a center in Fremont, Calif.  

Systems in Motion’s management team—which includes CEO Neeraj Gupta, formerly a member of the executive team at Indian IT services company Patni and founder/CEO of Cymbal; Michael G. Parks, formerly CIO at Virgin Mobile USA; and Debashish Sinha who formerly headed marketing at Indian IT services company HCL America—saw an opportunity for inshoring (or onshoring as others like to call it) a few years back. According to the company’s Web site, “the executive leadership team continued to witness enterprises overspend on large in-house contract staff, or lose critical knowledge of their business to offshore providers with inadequate governance policies, all while watching the U.S. economy struggle to create the jobs of the future necessary to ensure growth and prosperity.”

(I’d like to segue here and point out that Michigan attracted SIM’s business as a base for operations in part the state provided incentives:  In September, Michigan awarded SIM a $7.4 million credit to build there. I’ve talked about government incentives before—i.e., in this blog—and in this instance, it appears they worked.) 

Clearly Systems in Motion isn’t the first to jump in and offer inshoring services. In an article in The Economic Times published by the India Times, several other companies are mentioned.

Rural America Onshore Sourcing, Inc., which provides business process outsourcing services, says on its Web site that it employs professionals from within rural America, not from overseas, and that its “hourly rates are more affordable than the overall cost of using India, China, or East European outsourcing when the hidden costs of communication barriers, travel expenses, and quality control issues are added to the labor costs.”

I’m sure there are other small and mid-sized businesses out there that are offering alternatives to the offshoring option. I’d argue there’s room for more. Sure, growth has slowed overall in the IT outsourcing market, deals are fewer and smaller, but the recession that stalled the growth will become the economic impetus for an outsourcing boon. A lot of companies hit hard by the recession are realizing that they need to be lean, smart, and stick to their strengths and core businesses. They need to streamline IT operations and then find IT experts with whom they can partner in order to leverage IT to innovate, build better products, offer better service, increase market share, and grow revenue.

The IBMs and EDSes of the United States shouldn’t be the only inshore IT outsourcing providers in the game. There’s ample opportunity for businesses like SIM to jump in and go after the small and mid-size market. Of course, don’t expect India and other regions to sit by and watch their market share go by the way of the good ol’ USA. And companies here—despite hungry U.S. IT workers in need of jobs, political sway, and enticing tax incentives—still have to compete with much lower wages that keep IT offshoring contracts low-cost for customers.

But I’ll be keeping my eyes open for new and/or re-invigorated inshore (or onshore) providers. And if you know of any, drop me a note!