One of the more interesting recent innovations in sourcing IT expertise is onshoring. Simply put, onshoring is providing traditional offshore IT services (e.g., software development or infrastructure maintenance) in a traditionally high-cost geography such as the US or Europe. These services provide nearly the same low-cost structure as traditional offshoring, yet have the benefits of workers who may share the same time zone, native language, and cultural experience. Many of these centers are in areas where the cost of living is below the US average, but there are still a large number of skilled workers. Centers' locations range from Detroit to New Jersey to Texas.
This trend would have been unlikely without the economic recession, where a surfeit of qualified workers was competing for a limited number of jobs. For the potential onshore center employee, a lower pay scale is offset by a chance to gain valuable IT skills, get an impressive name on the résumé, and potentially move from the onshoring center into a consulting or high-end software development role. Customers of these centers get access to levels of talent similar to traditional offshore locations, but who likely understand the nuances of an NFL website or a Kardashians app more readily than the average offshore worker. Furthermore, should the need arise, an onshore developer can be flown to a customer site with nary a visa or international flight in sight.
Onshore or offshore?
With these benefits, onshoring may seem unquestionably superior to offshore IT sourcing; however, the viability of onshoring faces the same risks as offshoring, where the best talent rapidly moves into higher value positions. This trend has been building slowly in places like India as higher-end jobs become more available; in the US, these jobs are more common and likely more lucrative as companies continue to open IT coffers.
Furthermore, onshore resources lose the benefit of a 24-hour work cycle. At its best, offshore resources are productive while IT workers in the US sleep, allowing for rapid development cycles and near-constant productivity.
With both onshore and offshore resources, it's critical to remember the immutable law of the universe: you get what you pay for. As the economy recovers, competent onshore and offshore resources are going to rapidly migrate to higher paying jobs. That incredibly low-cost developer, whether they're located down the street or around the world, is likely to be a junior resource who will be learning on your dime, and in the worst case using the education you're providing as a stepping stone toward another job.
Also, it may be easier to ignore lack of competence with someone who fluently speaks your language, follows the same sports teams, and can provide eloquent excuses for why work is not getting done. Like offshoring, you must understand the risks of onshoring and closely monitor the productivity you receive. Just because a resource is low cost does not immediately indicate that they're valuable; paying a developer $15/hour to produce code that requires significant rework and fails testing is often significantly more costly in the long run than a competent developer who costs five to ten times as much.
Watch this space
With the benefits of proximity and the risks of higher-end jobs, perhaps the best use of onshoring is as a "farm league" for your IT staff. Onshoring lets you have access to a broad array of talent, with relatively low replacement costs for those who don't work out. As resources in your onshore center demonstrate their talent, consider filling openings with these resources, mirroring the tendency of baseball teams to "call players up" from the minor leagues.
A robust economy may actually harm onshoring. As more jobs become available, the talent pool at the lowest pay scales tends to shrink. If you find extensive turnover in your onshore center, monitor new resources to make sure you're getting acceptable quality levels, and consider that onshoring may not remain viable as a low-cost option in the longer run. If you regard onshore centers as a way to groom talent in the longer term, and allow rates to rise appropriately, you can create a pipeline of experienced resources that take significant risks and costs out of the hiring process.
As with any IT talent sourcing decision, there are dozens of factors beyond cost. Onshoring can be the cornerstone of your IT talent process, a quick way to augment resources, or an option that's simply too costly as rates increase. Proximity can certainly be a benefit, but productivity and capability should be the ultimate determining factors in where you source your IT talent.
- Onshoring vs. offshoring is the wrong way to think about IT hiring
- 'Onshoring' IT services and bringing jobs back home
- Offshoring, outsourcing and start-up salaries: The CIO's hiring headaches revealed
- First IT jobs went offshore, now they're being automated
- Why AI could destroy more jobs than it creates, and how to save them
Patrick Gray works for a global Fortune 500 consulting and IT services company and is the author of Breakthrough IT: Supercharging Organizational Value through Technology as well as the companion e-book The Breakthrough CIO's Companion. He has spent over a decade providing strategy consulting services to Fortune 500 and 1000 companies. Patrick can be reached at email@example.com, and you can follow his blog at www.itbswatch.com. All opinions are his and may not represent those of his employer.