Domestic outsourcing better option for some midmarket firms

Scott Juranek, vice president of technology at Cellnet+Hunt Group, had a two-month IT project that he needed to get off the ground quickly.

Cellnet, which makes smart metering devices for utility companies, has 35 software developers in its IT shop. The job required some specialized expertise, however -- and a fast turnaround. So the Alpharetta, Ga.-based company decided to outsource the project -- to Minnesota.

"It just worked out that way," says Juranek, who notes that the company outsources a quarter to a third of its IT jobs at any given time. "We work with people overseas. But some things are easier to do with a local workforce. The ability to hop in a car and work face to face for a while is very helpful."

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While outsourcing IT work to India and other overseas locations gets a lot of attention, many midmarket CIOs are finding what they need closer to home.

"Some jobs you just can't send offshore," says Kurt Potter, an analyst at Stamford, Conn.-based Gartner Inc. "When IT is strategic, you need feet on the ground. Clients want some skills onshore, same time zone, American-born language skills, high-touch call centers."

Cellnet, for instance, took its project to Saturn Systems Inc., an outsource provider in Duluth, Minn. (population: 87,000). Saturn, which caters to midmarket companies, says its rural-based IT workforce is significantly more affordable than tech talent in a large city.

"We're targeting companies that can't afford to set up a real offshore operation or don't want to manage one," says Scott Risdal, vice president of business development at the company, which is expecting a record year of growth. Business has been growing by a quarter to a third every year for the last four years, Risdal says.

But CIOs say it's not so much the cost as the ability to ramp up quickly and launch short-term projects efficiently that makes domestic outsourcing an important tool.

"When we don't need higher-end skills, we can save money by offshoring it," Juranek says. "But we have some pretty specialized needs. A project that needs to be done in less than two months is very difficult to take overseas."

Increasingly, overseas-based outsourcing providers are setting up shop in the U.S. to meet these needs. These aren't just sales or project management offices, but real development centers hiring local American workers. In May, for example, Brazil's Politec SA announced that it was going to increase its number of U.S. employees from 50 to as many as 800 over the next two years, opening development centers in Atlanta, New York and Miami.

And in the last year, two major Indian providers have announced similar plans. Tata Consultancy Services Ltd. is establishing a development center in Milford, Ohio, while Wipro Ltd. is expanding into Atlanta and three other cities. Each company expects to employ 1,000 Americans.

"You want your best people working your same time zone," Gartner's Potter says. "The A-team in India isn't going to work the graveyard shift to stay on your time zone. All the major providers are here now."

Domestic outsourcing rates, of course, aren't as cheap as sending the work offshore, but they can be cheaper than recruiting and hiring a full-time person for a short-term project or finding a specialized skill set.

The ability to hop in a car and work face to face for a while is very helpful.
Scott Juranek
vice president of technologyCellnet+Hunt Group

That's what Pete Segar, vice president of technology at Ergotron Inc., in St. Paul, Minn., has learned.

"It's necessary to outsource for us," he says, "but if we were just to ship a project over to India we'd have to provide project management, and that's almost as difficult as doing the whole yourself.

"We can't just can't hand off a project to India and expect it to go well."

The company, which makes computer display stands, often has short-term projects that it needs to fire off quickly.

"It saves us money vs. in-house because we'd have a guy working his butt off for three months, then sitting around for three months," Segar says. "You really can't attract top-notch talent for a half-time job. The guys doing this work I probably couldn't hire at Ergotron."

Michael Ybarra is a monthly columnist for SearchCIO-Midmarket.com and a former senior writer at CIO Decisions magazine. He is also the author of Washington Gone Crazy. Write to him at editor@searchcio-midmarket.com.


This was first published in June 2008

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