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And in an era where just about every company is fixated upon cost-cutting and improving
the bottom-line it is not at all surprising to hear that International Data Corporation
foresees the worldwide market for offshore information technology services more than
doubling between 2003 and 2008.

To Outsource Or Not To Outsource: Is This Even A Valid Question Today?
Industry critics, union leaders, and various organizations representing displaced American IT workers continue to press for legislative and tax-code changes that could potentially stem or reverse U.S. reliance upon offshore outsourcing. Some of these vocal lobbying groups openly advocate the adoption of various measures, which can only be labeled protectionist, in order to deal with the practice. Others have been more amenable
to more practical and palatable solutions which would provide a wide range of tax or
financial incentives to American companies in exchange for keeping workers gainfully
employed within our nation's borders or within the facilities located in a particular state,
region, or city.

Carrot-and-stick approaches can make a difference and they can, indeed, save the jobs of
American workers. But legislative solutions to the challenges of offshore outsourcing
should neither be looked upon as some sort of "anti-outsourcing magic bullet" nor be
overused to implement restrictive or punitive laws and regulations that, in the end, might
only serve to hurt the interests of America's businesses and industries, the health of which
ultimately impacts upon the wellbeing of everyone in the United States.

"Over time, companies from every country will have access to the same resources in any
country," Fortune magazine's David Kirkpatrick noted in a recent column. "This is
another one of those disturbing but world-changing facts that emerges from the existence
of the Internet and a globalized economy. If there is an opportunity to reduce costs by
outsourcing some functions to other countries but a U.S. company is prohibited from
taking it, what happens if their non-U.S. competitor does? We risk not only losing the
outsourceable jobs, but all of a company's jobs as it no longer can compete."

Nor should we resort to measures that would create a system of governmental subsidies
in order to keep jobs here. As Daniel Drezner, Ph.D. reminded CCN readers last July, "If
you tried to stem outsourcing through a variety of tax-breaks or other 'carrots' as some
have suggested, this approach could probably be quite successful-that is, it would be
successful in creating a very powerful domestic lobby that would, in the end, then fight
like hell to prevent any of those subsidies from ever being taken away.... And as far as the
effect all this would have on jobs...it would be minimal."

To outsource or not to outsource, thus, is no longer a valid question today.

Yet while there are many good and economically sound arguments in favor of offshore
outsourcing-and these were discussed at length in the fourth installment of this series
California Computer News, July 2004-there are compelling arguments to be made for
keeping jobs here and having them remain carried out by American workers.

And we most certainly could do much more than we are doing at present, either via
education, job retraining, tax and regulatory reform, etc., to help ameliorate the
difficulties and challenges displaced workers face in their lives because, make no
mistake, the life-changes and displacements associated with offshore outsourcing have
had a most wrenching effect upon our regional and local economies as well as
communities. Governments at all levels should also take the time to critically assess and
reform if not entirely eliminate those problematic Byzantine codes, laws, rules and
regulations that make it difficult or downright unattractive to create new jobs here in the
United States. We ought to be doing everything possible to foster free enterprise and
entrepreneurship within this country with a modicum of government intrusion only wherever and only whenever absolutely necessary.

The undeniable fact is that outsourcing is now a necessary and critical part of our nation's
"competitiveness-equation." How the outsourcing of jobs winds up being utilized and
conducted by America's CEOs and CIOS, though, will determine in large part whether or
not we all in the end attain benefits from its sensible practice.

Offshore Outsourcing: All Is Not Gold That Glitters
As more and more work and business process goes offshore, concerns engaging in
offshore outsourcing are increasingly coming to recognize that it is not all that it at first
appears. U.S. and European firms which had once enthusiastically embraced the practice
often discover to their chagrin that there is a greater inherent risk that some of the
information and data that ends up sent abroad can wind up corrupted, stolen, used for
fraudulent purposes, or even worse. The organizational risk-factors of doing business
abroad in unfamiliar legal and social environments are also not negligible. Furthermore,
many firms are learning to their dismay that while offshore outsourcing can yield very
tangible rewards in terms of flexibility, productivity, and cost-savings, companies can
also come away from the experience with less satisfaction than they had at first
anticipated.

According to a recently published PricewaterhouseCoopers' Management Barometer
Survey, for example, although 75 percent of U.S. and European multinational companies
now use outsourcing or shared services to support their financial functions and they plan
to continue doing so over the next 12-24 months, less than half considered outsourcing to
be cost-effective. The overall quality and cost-saving benefits of offshore outsourcing,
moreover, received predominantly mixed ratings in the assessment.

We cannot turn our backs on free trade and on being active participants in a world market
from which we gain not insignificant advantages, so we cannot ignore offshore
outsourcing when it is in our nation's economic and competitive interest. That said,
however, we should not fail to take notice of the positive aspects of onshore outsourcing
and its very real potential for job creation within rural areas of our own nation.

Rural America has generally been overlooked by our high-tech, IT-dependent businesses
even though "flyover country" has cheaper labor costs, lower costs of living, and a
population of-surprise, surprise [sic]-educated, motivated, hard-working fellow U.S.
citizens. Given the mixed results offshore outsourcing ventures can produce, perhaps the
time has come for U.S. CEOs and CIOs to give onshore/rural sourcing a good long look.

Rural Sourcing: A Viable Alternative To Keeping IT-Related Jobs Here...

Several companies have recently sprung up in rural areas of the U.S. offering a variety of
onshore outsourcing services. One, Rural Sourcing, Incorporated www.ruralsource.com
of Jonesboro, Arkansas, enables American CIOs to outsource IT work to currently
underutilized and often underemployed, lower-cost, IT workers living in outlying areas of the United States.

"RSI is an organization established back in 2003 to provide valuable, high-quality,
information technology services at 30 to 50 percent lower cost than U.S. major metro
areas. We are for-profit; however, we do have public-private partnerships as part of our
mission of reaching out to regions that need economic development," said Kathy Britain
White, Ph.D., the founder and president of Rural Sourcing, Inc., and founder of the
Horizon Institute of Technology www.horizoninstitute.org that supports technology
outreach initiatives in rural America. White retired as executive vice-president and CIO
of Cardinal Health, Inc. in March of 2003. She has also held executive positions with
Honeywell and Baxter Healthcare and had spent ten years as associate professor of
information technology at the University of North Carolina, Greensboro.

"In describing my work, I guess what I would say is that I go into a region, I finance
training and help with the infrastructure, working with the region to get the facility ready,
and I hire the employees. At the same time I act as a 'catalyst' to bring everybody
together...brokering a deal between these regions, under the brand of RSI, and potential
customers. And what's interesting is, that every time a story is done about us, we get
inquiries from potential customers as well as interest from potential rural sites, from
interested economic development people who read about us and who write saying, 'Please come consider us....'"

Born and raised in Oxford, Arkansas population 642, White knew there were qualified
workers to be found outside big-city limits "I really started working with some of these
locations back when I was still a CIO, because we could find good talent here, and these
people were much more receptive to coming to work for us back when we were still
losing people in the mid-1990s. At that time, we were having trouble finding people
around Chicago, so I went on a recruiting trip to Arkansas to an area where there wasn't
much industry and there were no companies in town, and we started a virtual internship
program that allowed students to stay in Arkansas and work on our projects from there.
So, I certainly now see this [rural sourcing] as part of a sourcing solution in today's
environment. What I'm focusing on is that we have an area that we can help a lot of
companies. I don't think we can do everything; however, I think we can do something
more for these regions that would end up being a win-win for everyone concerned."

Using the global outsourcing model, which has shown that employees can produce highquality work remotely, RSI has moved to offer U.S. firms access to a talented tech-skilled employee population at a very competitive cost. New college graduates interested in living in their home, rural communities make up the core part of the venture's employee
base.

"There are over a thousand different, good, universities in what are considered rural or
non-metro areas of the United States. And many of these places educate folks very well.
Yet even if it's a nice place to live, there's no place to work," White elaborated. "I went to
school with many of these people-I grew up in rural Arkansas-and a lot of these people
chose not to leave. They didn't get a chance to utilize their talent because they had to
make a choice between being upwardly mobile or leaving family and friends. I also feel
like people tend to underestimate folks coming from less affluent backgrounds, and yet
I've seen how good a job they can do...and what's so interesting to me is, that when I was
working in the city, I would run into people, every day, living and working in big cities
who had all come from these small towns. And what I'm now finding, is that many folks
in the centers where we're located, experienced people, are sending resumes to us because they want to move back home....So, in short, we are giving them a choice as to where they can choose to live and work: we are bringing big companies to them: they don't have to move to work for the big company. And with available technology, we've shown that you don't have to outsource outside of the U.S.-we've shown that you can do the same type of work over here."

RSI's approach has been to build development centers in places within rural America
where the infrastructure is sufficiently "wired" to deal effectively with the challenges
inherent to today's IT projects and work assignments. To date, all have been located
where there is a quality university or college nearby. The centers have thus far also been
sited in lower-cost regions of the U.S. like rural Arkansas, New Mexico, and North
Carolina. The goal is to have between 50-100 workers eventually working at each center.

"Our final goal is to be in twenty states within the next five years, and we intend to scale
up and be big," said White. "And wouldn't it be exciting to be able to say in five years
that we have 1,000 to 2,000 workers working in places that had almost given up, places
which were perhaps waiting for a manufacturing facility to come to town. And if we are
successful, these people will now have the ability, the opportunity to interact with some
of the most sophisticated companies in the United States because our own people can turn out quality work and be competitive with the rest of the world."

The Price Is Right

A survey by Mercer Human Resource Consulting in New York confirmed and
underscored the low price of doing business in places like Little Rock, Arkansas, where
costs were more than 30% below those of a major metropolitan area such as San
Francisco, California. Operating expenses associated with rural-sourcing, additionally,
can be even further reduced when the employees are located in various other rural areas
throughout the United States.

RSI is able to charge its clients about $38 to $60 per hour, depending on the skills
required-about a third of what is paid for such IT services in major metropolitan areas
and a price-range that is very competitive with the cost-advantages typically associated
with offshore outsourcing. For companies seeking greater security and quality for
outsourced projects, the added plus that there is a much lower organizational risk-factor
when doing business domestically in familiar legal and social environments can make
rural sourcing much more attractive and acceptable than offshore outsourcing.
Sourcing to rural-sourcing companies such as RSI, moreover, can also be a fiscal boon
for local governments and/or governmental agencies which might presently be constrained by laws to carry out all IT-related contract work within the United States.
With rural sourcing, such entities have a viable option that will be more economical and
thus more appealing to tax-payers who are concerned that tax dollars be spent at home
and as frugally and carefully as possible.

"We have five major customers and projects right now. Cardinal Health and Mattel have
worked with us in pilot projects before we got started, and I think we've had some real
success, and we're talking to major customers everyday. And I expect to have 20 or 30
major customers in the next six to nine months. We currently have a project going with
Novell, a major telecommunications project, and we are also very close to closing some
major deals with other major companies, noteworthy firms. Our work is varied. For
example, we have a lot of Internet development...we're doing a lot of application
maintenance: companies outsource to us a lot of the applications they don't want to keep
in-house anymore, not ERP, but smaller applications. We're doing a lot of Java-based
applications, Executive Dashboard kind of work, and we're doing some work with Linux.
And as we expand, naturally we'll be expanding our skill sets and experience."

...But Rural Sourcing Is Not A Panacea

"I don't see rural sourcing and offshore outsourcing as being an either/or proposition,"
White emphasized. "There are three very viable ways that an IT executive needs to look
at how they supplement their in-house: on-site is one alternative; offshore is the second;
and onshore is the third-and how the three are ultimately utilized depends on the needs of
the particular organization. I don't think that any one is the 'correct answer.' All of them
can be used and all of them have to be critically looked at by executives. We just hope
that we can be part of the formula for success."

Although she is a firm believer in free trade and the global economy, White does have
concerns that America might be over-relying on offshore outsourcing and, therefore,
possibly putting itself at a future disadvantage vis-à-vis other nations.

"For us to sit back and for us to allow this industry to 'die' in the U.S., well, I think that
would be a terrible mistake. I think we need to compete: we need to think proactively
about how to attract people to the field and how to employ them. And we really need to
strike a proper balance for our own ultimate, long-term wellbeing."