The Next Frontier in Offshoring

I have a friend who works for BearingPoint (formerly KPMG Consulting), and she wrote to tell me about her firm’s newest Global Development Center (which are basically off-shore, low cost software development offices). They currently have centers in India and China, and their next destination is…Mississippi. That’s right, a Global Development Center in Hattiesburg, Mississippi.

It turns out Mississippi has a low cost of living (thus low wages) and satisfies the need for clients like the federal government that require work be done in the U.S.

From a financial perspective (though some might call it greed) this seems like a logical trend for some businesses to follow, and similar to one call centers travelled in the 1980s before the internet made “around the world” into “down the block.” But as a fellow developer I’m curious to hear your thoughts on the following questions:

  1. Is it a good thing that development work is moving to low-cost areas, but staying within the U.S.?
  2. Is this a savvy business move made to keep a company competitive, or a devious, greedy move made to take advantage of developers and pocket fistfuls of cash?
  3. Would you be interested in moving to a low cost area of the U.S. (read: the middle of nowhere) and working for less money, but having a better quality of life with no traffic and cheap housing?
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17 comments ↓

#1 http:// on 02.14.07 at 3:28 am

I’m all for this, if they can actually find cheap, quality talent in Mississippi (not to sound elitist, but even finding good talent in Austin has been hard for us). However, compared to outsourcing with India, I can guarantee it’s a win hands-down. From my experience, the 12-hour time delay (where the marketing slides sell it as “work 24 hours a day; while you’re sleeping they’re working!”) is a nightmare. When you or them have a blocking question, rather than going to their office or at worst giving them a phone call, you send an email, and hope their response the next day answers the question perfectly. Otherwise you get another 24-hour round trip. Call me old-fashioned, but I like to say “you get what you pay for.”

#2 Nik on 02.14.07 at 3:38 am

I’m a software engineer in Mobile, AL, and I’ll say good luck to them. We’ve tried to find DBAs, Developers, Modeling Engineers, and nobody wants to work in the South. The cost of living here is phenomenal, and the quality of life is 2nd to none, but nobody wants to move here.

#3 http:// on 02.14.07 at 4:10 am

There’s actually been some press about this in the past; I’ve heard folks use the term “nearshoring”. There’s a small shop in Duluth, Minnesota that does this – they have the advantage of having a decent-sized university in town with a decnt computer science program. However, similar pros and cons – low cost of living, lower wages, harder to find great programmers.

#4 Carlos M Perez on 02.14.07 at 8:48 am

#3 – Hell yes. Do they admit foreigner applications ? =)

#5 http:// on 02.14.07 at 1:39 pm

#1 is a definite yes. It’s a lot easier for an out of work developer in the US to relocate to Mississippi (or any other state) than it is to relocate to India or China for a tech job. #2 is a trick question, both are true, the first more than the second. It is most definitely a savvy business model. Companies can use this as their unique selling point “We don’t offshore” or “We keep jobs in the US”. A corporations sole purpose is to make boat loads of cash…so the second part will only be true if they relocate the jobs when wages start to increse in these rural areas. Sorry, for #3, I’d have to say NO unless it was a last resort. I’ve tried the rural thing and it’s not for me. If this work out and jobs move to lower cost areas, wages will increase, costs will increase, and the traffic will come.

#6 http:// on 02.14.07 at 2:28 pm

I thinks it’s a great idea. The essence of capitalism (or free markets, I guess) is that in a transaction everyone wins, and that’s how value is created. Personally, I can’t stand the south – the culture is awful, and so is the climate. I also prefer the amenities of a city – good bookstores, concerts, ethnic restaurants, farmer’s markets. I like Portland, OR. 🙂 But the prospect of cheap housing and decently-sized lots is great. More power to them. It’s definitely better than having jobs go overseas.

#7 http:// on 02.14.07 at 2:49 pm

1. Absolutely yes. 2. Absolutely yes. 3. Well, considering that I live in Mississippi now, sure. 🙂 The perception you and the other commenters give that everyone who lives in Mississippi or similar southern states is out in the boondocks is patently false. I don’t live in the middle of nowhere, I don’t have to kill my own cows to have meat, and I don’t have to have a well to get water. I live just a few miles from Memphis, TN, so there are plenty of attractions and “big city” types of things right in my backyard. Granted, where I live may be a bit more “city-fied” than Hattisburg, but let’s not assume that you have to give up everything about your way of live to move here either.

#8 Michael C. Neel on 02.14.07 at 3:07 pm

Find good developers is a problem everywhere, not just the south. The problem stems from the methods employers interview (we need this list of acronyms, and here are some textbook questions that give no bearing on your skill level), and working conditions (issues beyond pay). These things Rob has blogged about in detail =p I live in Knoxville TN (2,000 sq ft house – $700 monthly payments) – there are plenty of skilled developers around, but few companies that identify them or act in a way that will keep them long term. I don’t have the salary of CA, but I do contract out often to CA clients at CA rates (150-200/hr) which more than makes up the difference. I like it, but then I don’t like big cities (goes with my dislike of crowds, lines, and traffic). You could sustain small shops of custom developers out here just fine – building a headquarters of 50-100 is going to be tough. But then I think doing that anywhere is going to be tough.

#9 http:// on 02.14.07 at 3:36 pm

1) Hard to say whether this is inherently good or bad – I’m sure the India would rather the jobs go there instead. From an American perspective it’s great, because the jobs and salaries stay in the US and, unlike call centers, encourage development of valuable skills. 2) Considering how risk-averse most large companies are, they’re probably pretty sure it will keep them competitive. It remains to be seen if more companies do this and have success. 3) I might be interested in moving to a small town, but not MS (I just can’t take the heat and humidity). However, a quick Wikipedia search shows that Hattiesburg has 45,000 people and a metro of 130,000 people, a university, and three colleges. It also has an airport and is on the Amtrak line between New Orleans and New York. 130K isn’t New York or San Francisco, but it would have the things that most people would take for granted (shopping, movies, basic restaurants, etc). Also, I wouldn’t underestimate how many southern CS students would rather stay closer to home than moving to the northeast or west (or even Dallas or Atlanta). In areas where there are very few high quality jobs, this could be something great to stabilize an area. Anyone curious about something similar to this should listen to the IT Conversations interview with Greg Gianforte of Rightnow Technologies (http://www.rightnow.com/). He started and runs a high tech company out of Bozeman, Montana, a town of about 30,000. He says his company is well respected because his average wages are double the county average. It’s an interesting demonstration of a similar model. http://osc.gigavox.com/shows/detail1624.html

#10 admin on 02.14.07 at 5:27 pm

Dan, I want to address your comment: “The perception you and the other commenters give that everyone who lives in Mississippi or similar southern states is out in the boondocks is patently false. I don’t live in the middle of nowhere, I don’t have to kill my own cows to have meat, and I don’t have to have a well to get water.” I don’t think that everyone who lives in Mississippi lives in the boondocks; I was referring specifically to a town like Hattiesburg, with a population of 50,000. Compared to Los Angeles, where I live now, or Sacramento, where I used to live, Hattiesburg would be a major cultural shift, even though all of the same housing amenities are available. This is not a matter of which state, but the size of the city/town. From my experience, living in any large city in America is going to be similar enough for most people to be reasonably happy. But I doubt these low-cost development centers will open in Memphis or Nashville – they’re going to be in smaller towns where the wages are lower – and that means a major cultural shift purely due to population, not due to the state they are located in.

#11 http:// on 02.14.07 at 9:28 pm

Sorry if I came across a bit harsh in my comment. My intent was mainly to say that “middle of nowhere” is inaccurate, even in Hattisburg. “But I doubt these low-cost development centers will open in Memphis or Nashville – they’re going to be in smaller towns where the wages are lower – and that means a major cultural shift purely due to population, not due to the state they are located in.” I suspect cost of living and wages isn’t much different in Hattisburg than they are where I live in the northen part of the state and around Memphis. I’ve not done any study on it, but it’s pretty low here, and way below what it would be in Los Angeles or New York. My assumption is that this company likely chose Hattisburg because of the nearby college and that the gulf is close enough to attract people to the area. So essentially the same thought process could be involved with building a center close to Memphis or Nashville – still away from the hustle and bustle, but close enough if you are in to that kind of thing. Anyway, you are definitely correct that it would be quite a cultural shift. Even moving from Los Angeles metro to Memphis\Nashville metro would be a big adjustment I’m sure.

#12 David Hennessy on 02.15.07 at 12:15 am

I love it — all of the old tricks from the plantation days now have new names. It has now gotten to the point where, when dressed up in pretty words, developers will come in droves to say: “Yes! Drive down the value of my work, right here in my own home country, for the sake of someone else’s profit! Permit me to move away from the centers of civilization that enjoy my technological fruits, so that I can afford to live on the salary I’ll get making their lifestyle!” Sorry, but whether the money is spent on a homo sapien living within this border, or one living within another border, is not the issue — the issue is the same issue it has always been, the issue of the rich exploiting laborers. Unfortunately, IT people are so conditioned into thinking that we’re not laborers, that we actually think the rich are talking about us, too, when they say “we.” They aren’t.

#13 http:// on 02.15.07 at 3:14 pm

I wouldn’t leave family and friends to move from a place I have settled in, in order to help some greedy business make more money; yes, I despise being a puppet of a greedy corporation. I would move though if it were for a non-profit organization working towards a cause I believe in.

#14 http:// on 02.22.07 at 9:31 am

Dont know what most people in the States commute is like, but mine into central London is over an hour of hell. This makes my day 7:30am to 7:30pm including travel. If I could go back to living in the middle of nowhere with a 20 minute commute and still have the same standard of living I would jump at the chance.

#15 http:// on 02.27.07 at 5:54 am

If you’ve been to Huntsville, Nashville, Atlanta or Raleigh, you can see that it is very possible to have large companies full of talented engineers who enjoy living in the south. At the same time, Georgia Tech and Vanderbilt graduate hoards of talented engineers every year with family ties all over the south who think west coast air is too dry, the smog is too thick, and wild deer are too rare. I lived in the south for four years and headed back west the first opportunity I got, but there are plenty of great reasons for other people to make a living in a place like Hattiesburg, MS. I can’t get upset when jobs stay in the U.S. This is a country where everyone is at least a decendant of someone who was willing to take a risk and leave their home and family, so as long as it’s done right (read: incentives and lots of coordination with colleges nearby) it can be done. Would I go? If my situation was dire enough, I would go.

#16 http:// on 03.09.07 at 4:40 pm

1. Absolutely. US development (and support), for US customers, is far better than offshore product, for many reasons. 2. Being in business is about being profitable. You can’t call efforts to lower costs greedy. Lowering cost while staying in the US is a fantastic concept. Savvy? Believe me, if they can get the message out, this will sell. 3. Personally, yes. But there are more reasons that affect choices of locale than there are people making those choices. It shouldn’t be a problem for BearingPoint. There is plenty of capable talent in the Mississippi region.

#17 http:// on 03.29.07 at 2:04 pm

1. Yes but I could see a couple of problems arising from this. The first being inability to find the resources to go to a “remote” or less than desired location of the country to work for far less than one would make living in a larger city with things to occupy your time when you’re not programming. Second issue is, developing a community of developers within the community to interact with. As a developer, one of the best resources I have found and appreciate is another developer in the office/cube next to me. Sure online forums and blogs are great, but there is no better benefit than being able to walk to someone’s cube or office and ask their opinion or advice on something. 2. This seems like a band-aid to make the govt. happy as well as stick more cash into companies pockets. I can’t see this being any different than off-shoring as far as quality of work is concerned. Not to say people in that location wouldn’t do good work, but if you don’t have the talent or experience there to get the job done, the results may be less than spectacular. The only positive aspect would be that you wouldn’t need a passport to visit your dev shop and your cash is still good at that site as well. 3. It depends on where the location is and the situation of the individual. Personall for me having a family I’d have to say their needs come first. Schools, interaction, the environment are all big factors in considering a move like this. Interesting post, thanks. -D