In an attempt to keep a lid on costs and employee attrition, London-based outsourcing company Xchanging Plc., which has 30 percent of its staff in India, is experimenting with locating some of its business in the hinterland. Or, at the very least, a six hour drive from the nearest airport. That’s enough to ensure that real estate is cheap, as is the work force. And best of all, it’s far enough to deter the competition from coming in and swooping up trained staff, the company says….

Alok Sinha, president and head of its IT outsourcing division, says the experiment to take work outside Bangalore was driven primarily by an attempt to curtail escalating costs. Real estate prices have increased 15 percent, wages, on average, have shot up by up to 12 percent while the amounts billed to clients have gone up only 3-4 percent, says Mr. Sinha.

“It’s a brilliant idea,” Bhavin Shah, an IT analyst at Equirus Securities, is quoted as saying in the WSJ article. “They will face some challenges in recruiting, but if they can overcome those, it will work very well.” Like many successful rural sourcing initiatives here in the U.S., Xchanging partnered with schools to deal with this challenge, asking colleges located in the towns where the company set up shop to tailor their curricula to turn out students that wouldn’t require much expensive training.

Finding talent was an easy enough problem to sort out, but Xchanging had to get more creative when it came to real estate. There were no suitable buildings in the area, so the company initially took “over the local wedding hall as there were no office buildings that were large enough to house all its employees.” It has since built its own campus.

This sounds like good news for the job-starved hinterlands of countries like India, but are there any pitfalls or downsides to the idea?

Image courtesy of Flickr user Paul Keller. 

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Despite the firm’s international outlook, COO Larry Mieldezis struggled to make offshoring work for some parts of the business, so decided instead to cook up a rural sourcing plan with his alma mater Southern Illinois University, snagging well-educated but lower-cost recruits from a region not exactly known as tech hotspot. We called him up to ask how it’s going and what advice he has for other organizations who are considering setting up shop in America’s heartland.

Why did you decide on rural sourcing versus offshoring?

I’m responsible for our technical delivery services, so basically our managed services. I’ve done that with this company for about 12 years. Over those years, just like our competitors, we went down the path of offshoring to try to lower our costs but also expand our just-in-time capacity in terms of development, technical delivery and customer service. We’ve run at that for a number of years, but we’ve had mixed results, ranging from quality issues with the data that came back, to availability, to turnover and really understanding the business practices that we’re trying to solve. The solutions that we’re delivering aren’t just people that can go in the corner and code. They actually have to interact quite a bit with our customers.

Some years back I had had an idea. I’m from a rural part of the country. I know there’s some good talent that comes out of local university systems in those areas, yet the opportunity for those people to stay is typically limited. I thought, let’s try an alternative to offshoring.

The experience we saw with offshoring, and what we were able to do with people here in the U.S. – common time zones, business cultures, communications and all the security issues — have been completely more than what we had anticipated. We still do some selective offshoring on our development side, but we’ve moved managed services 100 percent to rural sourcing.

Are you happy with the workforce in Illinois? Have your turnover issues decreased?

I definitely think we’re seeing better results than what we saw in offshoring. The offshoring model has become so fluid and transient from the perspective of employees moving from one company to the other, and then in recent years providers moving from country to country because of the wage escalation in those markets.

What we’ve seen in rural sourcing is quite the opposite. I think the key was to build really strong relationships between our company and a local university, so as a result of that we partnered with Southern Illinois University, which is a pretty good-sized university with very good computer science and applied engineering programs. We went in and worked with the deans and professors to identify top candidates out of those programs — candidates that are from that region and want to stay in that region. You’re going to find people coming out of school that want to go to New York, L.A., San Francisco, whatever it may be. That’s fine. But you’re also going to find people that want to stay local, raise a family, invest in a way of life and are strong, intelligent contributors in technology. We’re seeing a lot less turnover if you target the right people with the right message.

Let me say, our population up there is not exclusively recent graduates. A third are seasoned people who have either moved back to the region after having a high tech job elsewhere or people that have found opportunities in the region even though they were sparse.

How were you able to locate those more seasoned people?

Basically, tap into those local communities, the Chamber of Commerce, professional networks in those markets. You’re not going to necessarily get there by using things like Monster and Indeed. People don’t look there if they want to stay local, so it’s mainly been people on the ground, word of mouth, and making an investment in the community. These communities embrace this like you wouldn’t believe because it’s an opportunity for these people to take on some important, challenging technology roles. Otherwise they’d be working for a local bank or an attorney.

How about on the financial end – was this a money saver for you?

I look at it overall as a winner. There’s a cost component, and there’s the ability for us to respond competitively. There’s new business that we’re able to obtain that otherwise we would not. On the pure cost side, I have data that shows anywhere from 1.5 to two offshore resources can be replaced by one domestic resource – just the effectiveness, the creativity, the understanding of the business, all the other challenges of offshoring. I’m hiring less people than I have to hire if I go overseas, so obviously that’s a cost savings.

The cost in that part of the country, whether it’s rural Illinois or Kansas or Indiana, is obviously going to vary, but I am seeing somewhere in the area of probably a ten to 15 percent higher salary rate than what you can find overseas, in some places a little bit more than that. But that, by far, gets offset by what I see as more effective resourcing.

Do you find it easier to manage on your end in terms of things like time differences, logistics, cultural differences, etc?

Absolutely. I’ve had six people in southern Illinois get in car on a Sunday and drive down to spend the weekend in Atlanta with the engineers. It’s very easy for them to do that. It’s very easy for them to communicate and plan and be a part of the product planning cycle as well, so the communication disparity is night and day, and the physical availability also is pretty extreme.

If another company were thinking about rural sourcing, what advice would you give them? 

On the university side, building that relationship with the local university. Make sure the technical programs that are being taught in that university are aligned with the skills that you need. Make a connection with the top of that school, whether it’s the president, the dean, the lead professor, to make sure there’s alignment.

Going into these regions, the flexibility that they show in wanting to help and conform to what your company needs is night and day compared to offshore. We’ve had discussions around, why don’t we take some of the real world concepts that Liaison is solving and build it into our curriculum? Then you have students coming out of the program that are trained in real world examples of technology solutions that we’re providing to the market. So number one is, really depend on that relationship to the university. You’ve got to find a university that’s willing and interested.

The other thing is, I think it’s strategic to identify a university where there’s not an overrun of a lot of other companies wanting to do this. You’ll get their undivided attention.

How about bumps in the road – did you run into any problems that others should avoid?

I guess really recruiting that one-third that’s not coming right out of the school system, and building a connection with the local community early on. We didn’t do that right up front. We mainly focused on the university, and as a result we quickly staffed up a lot of people that were freshly out of school and then had to aggressively go after some more seasoned folks for leadership, mentoring and management. So doing that up front at the same pace that you’re building a relationship with the university is critical.

You mentioned it’s a good idea to find relatively fresh territory. In your experience, are you competing with many companies interested in rural sourcing?

I think the concept has been there for a while, but it’s not been called rural sourcing. It’s been very low-key. Where we went into Carbondale, Illinois, there were probably two or three other small technology companies that recruited locally. We found there was plenty to go around. I think the area could even house some additional companies.

What’s interesting was the university’s economic research arm had just performed a study the year before we came in on how to lure technology companies into the region and what the demographics were, so we were able to peek at that to target our message. There are some universities that want to be a driving force for the economy in the region, and I think if you find a university that wants to do that, then they’ll be able to get you the data to show what the availability is and the demographics of the resources.

What are your plans for the future?

We’re actually looking now at expanding our footprint a little bit. We’ve identified two other universities in the region. Each is about 60 miles away. It’s not uncommon for folks to drive 30, 40, 50 miles there — not in traffic, by the way — to work in a role like this, so we’re expanding. The one piece that we have not tapped into that I think there’s opportunity there to help perpetuate this, is tying in to the local and state government. That’s one area I think you’re going to see us look into a little bit more. How do we get our message out through the state government entities, whether it’s through financial help or through reach and marketing?

I absolutely embrace globalism. We’ve got operations in Finland, the UK. We’re serving customers in China. We need feet on the street over there. But at the same time, if I can find a way to help employee people who live here in the US of A and help my company grow, I’m absolutely going to do that. That means we’re going to be a global company, but we’re going to do it out of rural Illinois.

Image courtesy of Flickr user tlindenbaum.

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Today though online labor marketplace oDesk is announcing numbers that show this shift may be happening more quickly than many expect. The company released growth numbers showing contractors earned a record $22.3 million through the company’s website in October, which represents a 90 percent increase on last year. More broadly, they’re expecting the market for online work in general to grow to $1 billion in 2012.

We called CEO Gary Swart to find out what’s driving this growth, which is occurring across regions and sectors, and whether he expects it to continue, only to find him optimistic about the future of platforms like oDesk for three reasons:

• The economy. The lousy traditional job market means more people are searching for work in non-traditional ways, but the squeeze on companies is also good for online labor platforms. Services like oDesk, Swart says, “Enable startups to have a level playing field and get access to great talent.” In Silicon Valley at least that means they, “don’t have to compete with the likes of the local big players that can afford to give everyone a bus ride and three square meals a day at the office.”
• Globalization. “The globalization train left the station 20 years ago and more and more businesses want to take advantage of talent outside of the area,” says Swart. “We’re seeing a lot of growth from companies in Europe, Canada and Australia who want U.S. workers. It’s a global opportunity, so we think that the market will continue to grow.”
• Technology. According to Swart, “The availability of broadband in more rural geographies is creating opportunities for those not located around a metropolitan area. So while people in the San Francisco Bay Area have choices, people in Flint, Mich. do not.” That’s great for workers marooned in towns with less than vibrant job markets, but also good for the likes of oDesk as well.

Swart is particularly excited about the opportunities oDesk presents for those in out-of-the-way communities, noting that, “while most of our workers are located in metropolitan areas, we think there’s going to be explosive growth in rural geographies because the pain is more acute. Rural workers don’t have the options. Then broadband, the Internet and platforms like oDesk permeate into these geographies. We think there’s going to be even more growth on platforms like ours.” Already, per capita use of oDesk in small towns of under 15,000 people is growing to match metropolitan cities, according to Swart, and workers there are billing more hours than those in big cities like New York City and Los Angeles.

He also feels that interest in online labor marketplaces will come increasingly from big firms. “We had some large customers who came to us with the same challenge,” Swart explains. “They needed to instantly, hire, manage and pay a flexible online workforce. Over the last year we had a lot of large companies calling us looking for help, customers like Google, Facebook, Amazon, Microsoft, HP, Travelocity, and the phone continues to ring.”

While the advantages in terms of lowered cost and greater flexibility are obvious for the employers’ side of the equation, Swart batted down any suggestion that the deal wasn’t equally good for workers. Besides stressing his company’s ability to connect workers with open positions, Swart also explicitly answered criticism we’ve covered previously here on WebWorkerDaily that oDesk and similar platforms drive down wages for U.S. workers.

“In the U.S. alone, we’ve seen wages go from $19 an hour on average in 2007 to $30 an hour on average today,” he says.

Do you see a bright future for platforms like oDesk and location-independent contractors more generally? Do you think that will mean a better or worse deal for workers?

Image courtesy of oDesk.

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Feldman is based in New York City, but his company designs and builds its products in tiny Aurora, New York, where the closest population center is Ithaca, 40 minutes away. So what are the benefits and challenges of this rural location? How does city dwelling Feldman make sure things are going smoothly up on the farm in Aurora? And does remote work hold out the possibility of bringing more jobs to other tucked away communities?

Talent

MacKenzie-Childs may have grown into a fairly large enterprise with international distribution, but Feldman is keen to keep the company agile and aggressive, and he hires with that – and the company’s remote set-up — in mind.

“We’ve grown into a pretty good-sized company but we still try to have an entrepreneurial kind of startup culture in terms of how aggressive we are and innovative and flexible. I think when you have a dispersed organization and you have a lot of people out there doing things independently, you need to hire a certain type of person,” he says. Maturity, independence and drive top the list of qualities Feldman most desires for his executives.

Feldman doesn’t use any flash techniques for getting at whether a potential new hire will fit in with the company’s independent spirit, recommending simple dialogue to get an a candidate’s work style, but that doesn’t mean he isn’t extremely careful about selecting new team members with remote work in mind.

“You are careful, because it’s not a company where people are going to be telling you what to do and when to do it all the time, and some people need that and they prefer that. We’re very careful not to hire that type of person,” he says.

Tools

Feldman calls his team “a pretty plugged-in group” and describes them as walking around each armed with a PC, iPad and smartphone. But with today’s tech, he doesn’t feel like keeping in touch across vast distances is a Herculean task.

“Not that any of this is rocket science or anything,” he says. “Most companies are doing something like this.” A Monday morning conference call with his team of five top executives and the occasional Skype video conference with agents or suppliers in distant locales are all Feldman relies on to keep his business running smoothly.

Tips

The company’s location at a former dairy farm in upstate New York is key to the brand’s identity and development, according to Feldman. “Our brand is very much about that place,” he says. “We have a group of artisans there that have come together that are absolutely critical to business and core to the brand. We’re based on a beautiful 65-acre former dairy farm with a beautiful show farmhouse. We get over 60,000 visitors a year, so the brand is very much about this place.”

The brand may have grown up in a small town over three decades, but current remote working tech has allowed it to expand its reach and for the company to expand it’s workforce. “We’ve grown our workforce by 50 percent since the beginning of 2010, so we’ve added a lot of jobs,” says Feldman, who believes that a more flexible, connected style of work may bring more opportunities to rural communities. “People don’t need to report to a skyscraper in the middle of New York every day for a lot of jobs now because of technology,” he says.

The result for MacKenzie-Childs is a fertile, tech-enabled loop – country sensibility enlivens a company and the company in turn enlivens the country with an influx of income and job opportunities.

Image courtesy Flickr user VanDammeMaarten.be

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It’s an idea we’ve covered before, noting the trend of “rural sourcing,” which offers the dual benefits of lower wages to companies and economic development to out-of-the-way places (also, plenty of workers simply prefer the lifestyle – and lower property prices – of more rural area). But it’s not just corporate remote employees that are bringing big city work into small towns; co-working spaces are hoping to achieve the same thing for freelancers, startups and small businesses.

At least that’s what local Kentucky-focused site KYForward recently suggested. Reporting for the site, Mark W. Kidd outlines the efforts of economic development non-profit Virginia Economic Bridge to bring coworking to central Appalachia with the opening of a space in Radford this fall. According to Kidd, the organization sees several reasons coworking might be a good fit for rural communities:

Coworking is flexible enough to accommodate for-profit, non-profit, or agency ownership, making the model adaptable to local economic and funding realities. Underutilized commercial space is common in many rural communities, and coworking’s flexible, do-it-yourself ethos is particularly suited to adaptations of existing space. This approach also offers resilience, because earned income through membership fees should cover the operational costs of a coworking space, regardless of whether the group seeks added grant or investment funding to procure special equipment or other shared resources….

Coworking bypasses logistical barriers like access to secure, broadband-ready space, features that can be especially vexing for innovators in small communities…. Existing organizations with community facilities – like craft centers, libraries, community colleges, and churches – could be excellent partners for establishing a coworking space.

Besides these advantages, there’s also the money remote workers utilizing the coworking space put back into the local community. Out in California, NextSpace used an economic development model to sell the idea of a coworking to the local authorities, noting that while it might be hard to attract a big employer to airport-less Santa Cruz, there was little stopping individual remote workers from basing themselves there.

“We realized after chasing a lot of companies that instead of attracting one 200-person business, we should attract 200 one-person businesses. The economic impact is bigger, and some of those businesses will grow,” the mayor explained.

A similar argument should apply to Kentucky, though the experiences of other coworking spaces in less urban areas suggest that overcoming lack of awareness about the movement will likely be a significant problem. Luckily, crafty coworking spaces are already coming up with creative ideas to raise awareness.

Is coworking a good way to bring city-sized paychecks to more remote communities?

Image courtesy of Flickr user Base Camp Baker.

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After all, a recent study by online worker clearinghouse oDesk found that workers in tiny towns of less than 15,000 inhabitants are already online and thriving in a remote work environment. The analysis discovered that:

• Small towns meet or beat large cities in terms of the number of online workers per capita
• Contractors in small towns worked more than 175 hours in January, which compares favorably with the hours worked by contractors in the larger cities: New York (70 hours), San Francisco (54 hours) and Los Angeles (23 hours)

You might argue that the high numbers of hours worked and the percentage of remote workers per capita just reveals that those marooned in small towns are simply desperate for work. No doubt that’s part of the picture,  but it’s not the whole story.

Before imagining dreary call centers springing up in Nowhereville, U.S.A. staffed by hordes of marginally skilled drones, consider this profile of Atlanta-based firm Rural Sourcing, one of around 20 U.S. companies that are locating skilled IT-workers in small towns — often those near universities with plenty of job-hungry graduates — to take advantage of lower living and labor costs, higher quality of life and an underutilized talent pool.

While salaries in Milford, Penn. may not be as low as those in Mumbai, India, some often-overlooked costs associated with outsourcing abroad — such as greater management oversight, cultural miscues and occasional long-distance travel — are lower with rural-sourcing. Plus, many workers enjoy living in these slower-paced places, while bringing employment to struggling towns is sure to generate good will.

Rural Sourcing chief executive Monty Hamilton reports that his employees are:

in places where … $150,000 still buys you a great house with a great piece of property, where people want to stay and raise their families.

Obviously, outsourcing abroad isn’t disappearing anytime soon, and for some positions, the best-qualified applicants will still be found in major cities. But could looking for virtual team members in small towns, whether through a firm like Rural Sourcing or independently, be a triple win for your organization – good for costs, good for workers and even good for small towns (and your PR department), too?

Photo courtesy Flickr user Mr Marmot

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