“Second-Tier” U.S. Cities Benefit from IT Onshoring

A fascinating article in the McKinsey Quarterly reveals how large American organizations are keeping IT jobs "onshore" due to specific IT needs and regulations, even if they’d rather ship them offshore. Because of this, these organizations are looking at what locale these IT positions should be in. 

Despite the steady march of IT services to offshore centers from India to Russia over the past 15 years, many IT tasks aren’t easily moved. Financial regulations, for instance, often demand that data such as bank records be processed in home markets. Privacy rules impose similar restrictions on health care data, while security guidelines require defense contractors to handle data analysis within national markets. By one estimate, more than 15 percent of data center jobs must remain there for these reasons. 

 

It seems the answer is to look at "second-tier" cities not usually thought of as high-tech centers.

 

The onshore service facilities of many companies are located in areas where IT costs are among the highest in the world – often near headquarters operations in major European and North American urban centers. An increasing number of these organizations are now taking a close look at second-tier cities in close-shore locales as venues for future investments. Pools of high-level IT talent are available in such regions, wage levels are attractive, and generous government incentives are often available to spur local investment.

 

The wage differentials between tech hubs and cities in the Great Plains, the South, and Appalachian states can be as much as 30 percent. Plus, "federal, state and local authorities are eager to reduce regional pockets of unemployment by attracting skilled jobs and IT investments, offering incentives such as training grants, tax abatements, and subsidized loans."

The McKinsey Quarterly says that a metropolitan area with a population under 200,000 can accommodate only one or two large IT centers before supply constraints drive up wages. The suggestion is that these data centers will begin appearing everywhere as corporate onshore IT needs grow. Keep an eye out.

 

–Don Willmott

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