This article first appeared in IMPO's March 2011 issue.
Rural Sourcing Inc. (RSI) provides a competitive onshore alternative to the traditional answers of IT outsourcing. Mr. Hamilton is the CEO responsible for leading the strategic direction and the growth of RSI to launch 30 new high-tech hubs across the US. He is a sought after speaker on the outsourcing topic, having recently been featured on CNBC, NPR radio, and at various industry conferences. In addition, recent articles depicting RSI’s innovative outsourcing model have appeared in Business Week, CNN Money magazine, CFO magazine, and CIO magazine.
Professionally, Hamilton is a member of the Board of Advisors for the Metro Atlanta Chamber of Commerce, Georgia Biomedical Partnership, and the International Association of Outsourcing Professionals.
Hamilton recently joined IMPO in a discussion regarding the business case for mobilizing the often marginalized rural workforce in America.
IMPO: What is the strategy and concept behind Rural Sourcing Inc.?
Hamilton: Our model is to place all of our centers of excellence in low-cost, high quality of life locations where there is a cost of living index somewhere in the 70s or 80s. There’s a benefit for the people who live there in terms of what they pay for housing, utilities, groceries, and the like. And then, typically -- at least where we’ve been fortunate enough to locate -- there have been strong community ties for those who live there. Those locations are where they want to stay and raise their families and retire, and make into their homes. Consequently for us, that means really low to no turnover. If someone is a computer programmer or a computer engineer and they want to work on the newest and latest technology, there just are not a lot of those opportunities around. What has traditionally happened is those people, in order to practice that craft or to have a career, typically had to move away to the major metropolitan areas to get that opportunity. However, as we step into these communities we’re able to reverse that, or at least give them the option to do what they love to do, and also be able to get to their kids’ basketball games. So those advantages -- at least as we see -- create strong communities and strong ties to the organization.
IMPO: Do you factor in state-run programs that provide incentives to create a more economically attractive region for companies?
Hamilton: Absolutely. We just announced a new center in Augusta, GA about a month ago. Georgia has a $20,000 total payroll tax incentive for companies who are creating new jobs. That certainly helps the case to look at that. Likewise, a number of these local economic development chamber groups are doing a good job using the funds they have to take out some of the risk. For us, that would be primarily in looking at any of the fixed costs we might have. We’ve seen some economic groups who are really doing a good job of marketing that. Iowa, in fact, created an entire program that they branded called “Offshore Iowa” and it was specifically to address the brain drain that they have. Their problem is really acute. They have two big state-supported universities in Iowa State and University of Iowa. However, the retention of those graduates in the state of Iowa is almost nil. They immediately leave for Chicago or another Midwestern city. I think the majority of those people would love to live in Iowa. That’s where they grew up typically, and that’s where they’d love to raise their families. But the opportunities just aren’t there. So the state of Iowa selected four different towns to put in technology infrastructure in buildings and discount those rates aggressively to lure high tech kinds of businesses. There are lots of states creating similar structures, with some states doing a better job than others.
IMPO: When it comes to the opportunity of foreign labor markets: What might be a few considerations that many businesses neglect when calculating the total cost of going offshore?
Hamilton: I think I’d lump the risk into two major categories. One is financial risk, where you’re looking at the things like the fluctuation in those currencies, the ability to repatriate any profits that you might have made, and the inflation costs. Look at India specifically, where inflation for the last couple of years has been running between 10 and 15 percent. Obviously, at that rate, you’ve got to keep your employee’s salaries bumping up to that each year, or more. When you look at long-term contracts being outsourced, if you’re not factoring in that inflationary cost, your business case is going to be off by a magnitude. So, always hedge against your currency risk. There can be some complicated risk management that you need to take into consideration.
The other piece of that risk bucket is in the operational risk. You must look at the complexity of managing something that is 11 and a half times zones away, for instance. When your processes are not always very prescriptive and well-defined, you can’t always pinpoint exactly what each step needs to be; there has to be some creativity and some give and take. It’s very difficult to do with cultural and time zone differences, as well as business domain expertise differences, and even some generational differences. It makes it challenging to make your communications effective.
All of that complexity just requires more management from someone -- either from your supplier or you -- and more rigor in the process. Because of this, the cost of quality is a major issue. It’s also especially critical to consider time to market. It’s highly critical when factoring in the logistics of shipping from China, and the cost of the freighters or airfare. Again, these are all costs that have increased significantly in the last 12 to 18 months. Most business cases didn’t factor in that increased cost when they first looked at the options.
The final area that is huge in terms of cost is what I’d call the ‘ramp-up’ as far as coming up to speed on your company’s business and processes. If you throw in the amount of turnover that some of the Asian countries experience, perhaps you’re not even hanging onto that person for more than 3 or 4 months and then you’re doing it all over again. If you’re constantly training somebody new, you’re not getting that cost savings that you’d planned to get.
IMPO: How has the weakened dollar been able to improve the business case for rural sourcing?
Hamilton: There has been over 10 percent unemployment in the U.S. for the past couple of years. Having a weakened dollar means it doesn’t look as good to export these jobs, and the cost differential has decreased dramatically in some of the near shore places. Also, the whole Great Recession has brought to light the question of what our economic policy as a nation is. What should we be doing? Should we always be sending jobs overseas just because they could be done for 50 cents cheaper?
IMPO: Do people come back at you and say, "Once the economy turns around, the dollar improves, and jobless rates go down, my costs are going to escalate and I’m going to have a hard time finding labor?"
Hamilton: It is a risk; there’s no doubt about it. However, I still believe that we have a large group of marginalized workers out there in rural America. A lot of these people absolutely do not want to live or work in major metropolitan areas. They want the different kind of lifestyle afforded by smaller communities. I think that we will always have the talent pool out there where we can meet supply needs, and at a reasonable and competitive rate with offshore. The India and China inflation rates, and the rising costs that they experience today -- that’s not going to stop. So the gap between what they charge and what we charge will continue to get smaller.
For more information, visit www.ruralsourcing.com.