When outsourcing meets rural sourcing

Years ago companies discovered that since technology gave workers the tools to get stuff done anywhere, organizations could save money by tapping low cost labor markets. Outsourcing was born and along with it, it’s younger sibling and down home American alternative, rural sourcing. But now as costs are rising in top outsourcing destination, India, come companies are thinking on their feet to come up with a new way to keep costs down. The result is a mash-up of these two popular alternatives. The WSJ reports:

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