How Domestic IT Sourcing Is Revitalizing the US Economy

November 27, 2017
A tidal change is currently washing through the U.S. From IBM to Salesforce, tech giants are starting to pivot their focus away from outsourcing and towards domestic IT sourcing. This is due to the gathering of many conditions: technology is speeding up and requiring agile teams to operate in the same time zones; costs are rising overseas; and cloud solutions are allowing a new landscape of geographic freedom. It’s all resulting in the rise of tech clusters in cities far away from the coasts—which is having powerful, positive impacts on local economies. But will it last?

Rust-belt innovation 

This all starts with the powerful U.S. tech sector employment which, according to the Computing Technology Industry Association’s Cyberstates 2017, grew by nearly three percent in 2016, approaching seven million workers. The tech sector was responsible for approximately 10 percent of all jobs added to the economy. If you peer into the data shown visually in the Cyberstates project, you’ll notice the coasts still have the strongest tech sectors, but there are rising cities throughout the middle of the country. 

The spread of tech clusters into the American heartland is a trend that has been appearing for several years. Today, the fastest-growing tech cities in the U.S. aren’t on the coasts at all. Millennial workers, who are unable to afford the sky-high rents in states like California and New York, are heading to less expensive cities which offer a better quality of life. According to a CBS report, Huntsville in Northern Alabama is the most quickly, fasting-growing tech city. It has seen a 309% growth in tech jobs in the past year. Bloomberg reports that it now has the third most technical workforce in the country. 

Indianapolis has also been emerging as a model for tech innovation. The Indianapolis region added nearly 9,200 digital services jobs between 2010 and 2015. Companies such as Salesforce have been opening branches here, offering 800 high-paying jobs in 2016—meaning that graduates from the city’s plentiful colleges and universities are finding the sorts of jobs they previously would have had to move away for. 

Why this is good for America

Clearly, this has positive impacts for the broader economy. The economic ripples effects are profound. Cities like Nashville, Tennessee, are seeing building booms as a result of their growing tech scenes. Michelle Maldonado, a broker with the Lipman Group Sotheby’s International Realty in Nashville told the Washington Post: “The tech sector is growing fast, and it’s bringing high-paying jobs to this city, and that’s lifting this market.”

But it’s also having an important societal effect. Skilled workers are able to stay in their home towns, close to their families, and gain high tech jobs remotely. The money they spend then dwells within their local economy and the brain drain is averted. (And it’s worth noting that rural communities have a strong history of innovation: they actually have the most entrepreneurs in the U.S. More data on the huge amount of innovation lurking in America’s heartland here). 

The rise of domestic sourcing

Part of the trend is due to the reduction in outsourcing of tech jobs to overseas markets, and the rise of domestic IT sourcing. Overseas labor rates are going up, and offshore contractors can’t easily collaborate in real-time. As a result, outsourcing to overseas companies is becoming less and less attractive. As an example, IBM has announced plans to hire 25,000 more workers in the United States over the next four years. 

Investments previously made to companies predominantly in South Asia and Eastern Europe, are being redirected into local payrolls and spreading the wealth more evenly into the country. At Redtech, this is exactly what we do: assist some of the world’s leading tech companies in finding excellent workers throughout the continental U.S. 

But despite the promising trends, there are still challenges ahead. According to the Brookings Institution, despite the new clusters there is a larger and more worrying trend of tech jobs congregating in the coastal hubs. The institution’s conclusion is that tech companies should be proactive here and activate this spread of jobs more evenly throughout the U.S. economy. As Mark Muro and Sifan Liu write, “In short, by “leaning in” and directing some of their growth toward Main Street, Bay Area tech companies might make a downpayment on a new narrative and a more balanced and healthy geography of tech.” 

Want to find a brilliant set of IT workers in the heartland? Get in touch with our team. 

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 Domestic, Heartland, IT