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Insourcing: Bringing Jobs Back to America

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"Insourcing" is how President Obama described his latest push for bringing jobs back to America. Some news outlets are even describing it as a "trend," this migration of jobs by U.S. companies who had been outsourcing to overseas workers.

U.S. companies hiring U.S. people to work for them is now a trend?

I know - companies are in the business of making money. When U.S. companies make money, ostensibly that has a positive effect on the entire country. Making money entails managing costs. Labor is a huge business expense. If the company CEO can obtain talent for $14-15 per hour versus $75 per hour in the U.S., he or she has to take a long, hard look at what that means for the company.

So now in our political sphere, there are conversations about penalizing U.S. companies who continue to take jobs overseas, or rewarding them for bringing jobs back. No one really knows if either approach will be successful or can predict the final outcome.

I would hope that rather than treat these companies to a gold star or a demerit, we can bring both the logic and intrinsic rewards of such a move into the consumer and business sphere. I'm glad it's getting attention, don't get me wrong; but in my opinion, rarely does politicizing business lead to a desired outcome.

And rarely does succumbing to the temptation of short-term savings lead to long-term gains. Here are some facts:

The four 4 basic costs associated with outsourcing are:

  • Labor;
  • Transitioning your work;
  • The operation of the outsourced relationship; and,
  • Managing the unexpected.

The labor savings is a prime temptation. However, a 2004 study by the Application Executive Council demonstrated how the operations and management costs actually reduced that savings by as much as 17 percent. Transitioning can take weeks or months. Delays affect customer relationships, customer loyalty, and customer retention

In fact, a recent study by Princeton Survey Research Associates International shows that U.S. consumers are willing to pay more for goods that are made in the United States. They value authenticity, over cheaper goods.

So we're back to costs. Perhaps U.S. urban talent is still out of reach for some companies, particularly for smaller to mid-sized businesses. Is insourcing - or onshoring - still an option?

Yes: Rural Sourcing. Businesses can find comparable talent in rural pockets across the U.S. for up to 40 percent less than in urban areas - and zero to 17 percent more than overseas. Now, remember that your management and operation costs of overseas outsourcing can add 17 percent in costs - so your labor justification is no longer valid.

The Jiraffe Group, located in the DC-Metro area providing "Process-First" Technology Solutions, is a small business that has both encountered the reality of pulling in additional resources to meet customer needs, and now also insources with a rural workforce.

"It is tempting to think that low-rate offshore resources are a silver-bullet solution to the risks of a tight-budget problem," says Jiraffe Group founder Jim Rafferty. "But the reality is that when you are working with resources in a vastly different time zone, with vastly different cultural backgrounds, you are creating far more management and communication challenges than you might think - which translate into additional costs that erode the supposed savings.

"We take pride in being able to offer an all-American workforce option to our customers at a value point that cannot be achieved as easily today with urban resources, so even a small business like ours is part of bringing and keeping jobs in America."

Rural onshoring insourcing: U.S. companies hiring U.S. talent, and saving money in the process.

You just can't get more authentic than that. Authenticity has to be the trend, and we need to get that message to American businesses.