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The Industry Push For 'Domestic Outsourcing'
by Aliya Sternstein
Some technology firms want to breathe new life into a line from a film set in Dyersville, Iowa: "If you build it, they will come." They say the rural area that provided the backdrop for the fictional "Field Of Dreams" and other towns like it could provide the real American dream of prosperity.
If state governments build talent and incentives in traditionally non-tech districts, the tech giants will come, according to a recent report by the Information Technology Association of America.
"The U.S. can generate more IT jobs, wages, tax receipts, and other economic and productivity benefits, if federal, state and local policymakers join hands with universities and industry in a concerted, nonpartisan effort to make U.S. localities more competitive and attractive for IT businesses," the July report stated.
The practice has been dubbed "lower-cost domestic sourcing" -- essentially creating or moving jobs to lower cost mid-sized metropolitan areas and rural communities that can provide significant cost improvements over top-tier IT hubs like Silicon Valley.
But first, according to ITAA, government, industry and academia must collaborate to offset domestic talent shortages by promoting science, technology, engineering and mathematics education, and expanding visa programs for skilled workers. They also must leverage the growing pool of veterans and boomer retirees who want work. And they need to enact policies that increase the availability of high-speed Internet service nationwide.
Field Of Dreams Or Dreamy Fantasy?
ITAA views domestic sourcing as a companion to global sourcing, not a substitute. "While global IT services delivery is an irreversible trend, the U.S. IT industry will always command a share of the U.S. IT market," the report said.
Former tech executive Vivek Wadhwa, now a Harvard University fellow and Duke University executive-in-residence, said: "If the numbers are there, we should give corporations the tax incentives to locate their operations at home. One of the big problems for the U.S. is that our tax system often encourages companies to go abroad."
Nate Viall, president of the Iowa-based IT recruiting firm Nate Viall and Associates, lives very close to the field of dreams.
"We have a huge resource in terms of education," he said, mentioning Drake University, Grandview College, Grinnell College, the University of Iowa and Iowa State University. "We've got an awesome recreational trail system" and Iowa's annual bike ride across the state makes national news. Dyersville is one of the stops on the bike route from time to time, Viall added.
Ron Hira, a public policy assistant professor at the Rochester Institute of Technology, noted that several vicinities have been successful at keeping jobs stateside, pointing to the IT services company Ascent Systems in rural Pittsburgh. The company cites a successful track record in bidding against offshore firms. In June, Ascent launched a campaign to encourage others to offer affordable services that would help local businesses keep work in Pittsburgh.
Still, companies that outsource jobs to India are maintaining large profit margins, Hira said. "A starting salary in India is still about $5,000. Even if you went to Pittsburgh you're still looking at $35,000 or $40,000."
AeA lobbyist John Palafoutas said cheaper domestic sourcing "sounds like a great idea" but also seems "kind of dreamy." He said, "People in Silicon Valley are not saying, 'I wish I could move to Kansas. ... I don't know of any companies that are talking about doing this." While Micron Technology opted to headquarter in Boise, Idaho, Palafoutas said there is "a saturation point" in rural areas.
Overcoming The Cynics
Some observers think both outsourcing and domestic sourcing are flawed.
"Given that [ITAA's] primary strategy for staffing is the bypass of experienced and qualified domestic IT, this is surprising," said Donna Conroy, a former technology professional who now leads a movement to counteract claims that Americans cannot do science and technology. She said she thinks the domestic-sourcing platform was prompted by the collapse of a Senate immigration bill that would have nearly doubled the number of visas for skilled workers.
John Miano, founder of the Programmers Guild, a group representing IT workers, said one of the problems with the ITAA approach is that of geographic proximity. "There is an inherent need for software developers to be near the communities they serve," he said. "The people who come up with new financial applications are people who have worked in the financial industry."
ITAA's Jeff Lande acknowledged that the model is limited by the amount of talent in rural communities but said such communities are one source of much-needed talent. He disputed arguments that ITAA's paper was a reaction to failed immigration legislation.
Lande said the report was drafted before the immigration debate and released to coincide with the National Governors Association summer meeting. ITAA has always advocated for the expansion of the domestic talent pipeline through education and immigration, he said. The jobs ITAA has pegged for domestic sourcing range from "call-center operators all the way up to innovation and consulting services."
Tax breaks for tech companies that relocate to or launch offices in rural communities would benefit the residents, companies and governments, Lande said. The model also could be applied in urban areas that are economically depressed, he said. "I really do find it funny that some of the folks who have long criticized us for our position" on global sourcing and immigration "now attack us on domestic sourcing," Lande added.
David LeDuc, the public policy director at the Software Information Industry Association, echoed: "Contrary to popular cynical belief, industry and representative trade associations truly do want to create a better environment for [U.S. job] growth."
Unfortunately, he said, there has not been a sufficient commitment by the federal government -- or state governments -- to heed the call for growth. "Immigration policy and global sourcing has become a major necessity for industry" because industry, the education system and policymakers "fell short long ago in building an adequate U.S. workforce."
Lande said U.S. companies would prefer to keep jobs in the United States if there were no benefit to locating operations elsewhere.
Harnessing America's Unheralded Wired Talent
John Meredith, president of the engineering group IEEE-USA, said "pockets of excellence" exist across the country. One major reason that Google chose Lenoir, N.C., for its new computer-server farm was lower electricity costs, he said. "ITAA is correct that the government needs to do a better job spreading IT into our rural areas, especially broadband access."
But technology companies also need to be more creative about harnessing talent in areas that are not traditionally seen as high-tech, Meredith said.
The Labor Department has been encouraging domestic sourcing as part of a program that awards grants to regions for workforce development. The Workforce Innovation in Regional Economic Development program, or WIRED, which began last year, assists areas in preparing their residents to compete in the new economy.
The Appalachian region of Southeastern Ohio, one WIRED recipient, is positioning itself as a center for interactive digital technology, with jobs in computer gaming, serious gaming and simulation. That kind of initiative proves "there is a great potential in rural America to become a sourcing center for an array of IT-related services," said Emily Stover DeRocco, Labor's assistant secretary for employment and training.
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