Rural Outsourcing: How Small U.S. Businesses May Keep Large Firms from Going Overseas

1. While outsourcing has often been painted as a legitimate threat to business in the United States (and it no doubt has been historically,) it remains possible and even likely, that small businesses in the United States will still be able to compete successfully against lower-wage companies in India and China, and there are a variety of reasons that lead one to draw such a surprising conclusion as rural outsourcing continues to gain momentum on the American business landscape.

To begin with, wages are more competitive in the United States when all factors are considered. Though the case study says wages are ten to 150 percent more than what is being asked overseas, it also makes mention of the fact that more workers in countries such as China and India are asking for higher wages. That consideration alone makes doing business in the United States potentially more attractive, as it eliminates one of the primary motivations for large American businesses to outsource their work. Now, in addition to inconveniences such as cultural and language barriers, a company must also contend with higher payments because workers overseas are asking for more money. Should a company acquiesce and pay their workers more in India and China, there is little reason to think those employees will not again ask for a pay hike further down the road, which then makes it even less attractive to outsource than it has already become after the first wage increase. If a business continues down this path with its foreign employees, it may eventually reach a tipping point where the cost of working internationally is no longer a financial benefit.

Secondly, while obviously not an initial concern, familiarity with policies, laws, and labor and legal practices in the United States can also be considered a positive for rural outsourcing when compared with work being done overseas. Coupled with the rising cost of labor in other countries, knowing that a workforce has a working knowledge of conducting business in America can be very attractive for a company that is based in the United States. Familiarity with cultural practices, U.S. currency, and the English language can also fall under this category as well.

In addition, it may be easier to transfer data within the United States than it is globally. In terms of a physical product, shipping costs without having to cross continents and oceans may be cheaper. This may also come into play because American rural outsourcing workers are still asking for ten to 150-percent more in wages. The money saved from shipping domestically may help make up that gap, all while keeping the work within the United States’ borders, and reaping the rewards of cultural, language, financial and legal familiarity that would come with rural outsourcing.

Finally, there may be more options for subcontracting within the United States, especially if rural outsourcing gains more traction as these fledgling companies have more and more success with their business model. Company leaders will have the flexibility to search online for local or U.S. companies willing to do the work. It may even be easier to visit such companies before – and after – signing a contract for business. This makes it more feasible that a company will be able to make more “check-in” trips in order to assess the job that the outsourcing company is doing. The purchasing company may also be able to convey any immediate concerns they have about the work with greater ease.

2. There are a variety of factors that would likely be taken into consideration by the executive of a company in the United States that is weighing the benefits of international outsourcing versus the benefits of rural outsourcing. Some of these factors will undoubtedly depend on the industry, but in general, several likely remain constant regardless of what field the work is in.

An executive will likely primarily be concerned with the wages per hour per employee. While the case study states that rural outsourcing companies are asking for more money, they also have what seems to be a relatively small number of employees. Should fewer employees be doing a task it takes more workers to do overseas, it is very possible that a company will break even in this regard, or, at the very least, not get completely gouged by the price differential. If there is still a large gap in wages, international outsourcing may be more attractive, unless the company is swayed by the convenience of cultural, language, financial and legal familiarity of domestic workers. This is perhaps the greatest point of opposition that a rural outsourcing company will have to deal with, but the numbers of growth suggest they have done an exceptional job at combating this critical potential negative thus far.

Outside of wages, an executive will also likely consider the cost of taxes, and what the business will pay by sending work to another country like India or China, and what they will pay to the American government for keeping the business in the United States. Drawing such a conclusion about the benefits of where to place business requires a deeper understanding of foreign and domestic tax laws.

Other considerations will almost assuredly include the cost of shipping and the ease of access to information. This could involve expenses such as business trips (likely cheaper to fly to and stay in Duluth, Minnesota, than it is to visit Hong Kong or New Delhi) and other costs such as shipping products produced on-site at the plants or even the transfer of data.

In addition, someone must do the work for the company looking to outsource either internationally or rurally. The available talent pool could be greater in the United States, but it is undoubtedly more familiar with American customs, laws, and practices, which could be especially valuable to some companies, depending on their priorities, considerations, and industries.

Finally, it is not unreasonable to think that the vast majority of companies are highly concerned with protecting valuable data and information. It is also not inconceivable that conducting business and transmitting information domestically rather than internationally leads to a heightened sense of security of information, which should be a high priority for many companies. This, coupled with several other factors listed above, makes it viable to think that a rural outsourcing company would, in fact, be attractive to an American business looking to hire a subcontractor for more work.

3. Most small businesses in the United States have shown that they will not relocate to international locations despite several perceived advantages of doing so. This is likely because most American small companies are quite familiar with the practice of conducting business in the United States. There is an ease associated with doing business in the U.S. that brings comfort and cannot be replaced, though such practices can still be learned over time in a foreign land. There is an understanding of the U.S. economy, the U.S. laws, and the U.S. policies, and that must play a role in keeping small businesses in the country. A foreign workforce may be skilled and may be cheaper, but there is a cost of training them about the laws, currency, economy, and culture that would not be necessary with American labor. Furthermore, foreign countries have different policies and laws, including business restrictions, and it is possible that secure and vital information (especially as related to HIPPA, classified, and banking regulations) may not be as secure or readily available as it would be in the United States.