US Cities Now Make Attractive Alternatives to Offshoring
Many mid-size U.S. cities and other areas now make attractive alternatives to India and other offshore locations for companies considering consolidating finance, IT, and other business services operations for shared service or global business services centers, according to new research from The Hackett Group, Inc.
The diminishing gap in labor costs, combined with factors such as lower turnover rates, greater business knowledge, proximity to customers and headquarters, and state tax incentives has created conditions where many companies are now seriously considering U.S. locations, particularly for centers handling complex and higher-value processes, the research found.
Verizon Communications is one of many companies that has made the decision to locate business services operations domestically, consolidating nearly 1,500 finance operations staff into two U.S. service centers over the past two years.
The Hackett Group’s Global Business Services Executive Advisory program developed the research, which provides detailed rankings for more than 30 cities across the U.S., based on a weighted mix of factors. Top 10 cities in the research are: Syracuse, NY; Jacksonville, FL; Tampa, FL; Lansing, MI; Grand Rapids, MI; Atlanta, GA; Allentown, PA; Green Bay, WI; Richmond, VA; and Longmont, CO.
Previous research by The Hackett Group has found that while offshoring has led to a dramatic decline in the number of corporate IT, finance, procurement, and HR jobs in the U.S., the number of new business services jobs moving offshore has declined steadily over the past few years and will continue to do so, as companies reach the practical limits of the type of work in these areas that can be effectively offshored.
“Companies are realizing that the U.S. is becoming an increasingly viable option for elements of their service delivery organization, and we’re seeing real growth in this sector, with nearly 700 U.S. centers of excellence, shared service centers, and global business services operations now up and running,” said Jim O’Connor, principal and global finance executive advisory practice leader for the Hackett Group. “Labor and operating costs are still high in the U.S. compared to Eastern Europe, Latin America, and Asia. But the gap is shrinking, and there are significant other benefits. In more and more cases, those benefits outweigh the additional cost. In addition, the public response to offshoring has made keeping jobs ‘at home’ a attractive option for U.S. companies.
“Even if companies are using offshore centers, the U.S. is an essential part of almost any service delivery network for American companies, particularly when the work is complicated, knowledge-based, or requires a high level of communication with customers and internal clients, or when fast turnaround or extensive collaboration is a critical element,” said O’Connor. “U.S. centers are also ideal for transforming, improving, and standardizing processes, before they are moved elsewhere.”
At Verizon, a variety of options were considered before the company decided to consolidate nearly 1,500 finance operations staff from more than 300 U.S. locations into two service centers located in Lake Mary, Florida (near Orlando) and Tulsa, Oklahoma.
“By keeping our finance operations in the U.S., we’ve derived an array of benefits,” said Karan Mehra, Verizon’s director of corporate-finance restructuring. “Talent was perhaps our primary deciding factor. We wanted to make sure we could recruit the quality talent that we needed, and that we could put strong training and development in place. Our goal was to build bench strength to support succession plans, so that our staff had the ability to learn new skills and develop professionally.
“We also saw a wide range of other benefits,” said Mehra. “By staying domestic, we got instant buy-in from both our clients within Verizon and throughout the finance organization itself. We have also been able to maintain complete control over our finance operations and processes, which can be difficult to do when you move offshore. And finally, avoiding extended travel times when visiting our service centers has been a significant advantage.”