U.S. companies are increasingly considering onshoring finance, IT, and other business services operations at home, with many mid-size U.S. cities now offering attractive alternatives to India and other offshore locations, according to a new survey.

Consulting firm The Hackett Group said the diminishing gap in labor costs, proximity to customers and headquarters, and state tax incentives are among the reasons that firms are looking at onshore locations, particularly for facilities handling complex and higher-value processes.

“Companies are realizing that the United States is becoming an increasingly viable option for elements of their service delivery organization,” Hackett Group Principal Jim O’Connor said in a news release.

While labor and operating costs are still high in the United Sates compared with Eastern Europe, Latin America, and Asia, he noted that “the gap is shrinking, and there are significant other benefits [to staying onshore]. In more and more cases, those benefits outweigh the additional cost.”

“In addition, the backlash against offshoring has made keeping jobs ‘at home’ a attractive option for U.S. companies,” he added.

One U.S. company that has made the decision to locate business services operations domestically is Verizon Communications, which has consolidated nearly 1,500 finance operations staff into two U.S. service centers over the past two years.

“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 told The Hackett Group. “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.”

Other advantages of onshore locations she cited were maintaining control over finance operations and processes and avoiding extended travel times when visiting service centers.

Top 10 U.S. locations, according to The Hackett Group, included Syracuse, N.Y.; Jacksonville, Fla.; Tampa, Fla.; Lansing, Mich.; Grand Rapids, Mich.; Atlanta, Ga.; Allentown, Pa.; Green Bay, Wisc.; Richmond, Va.; and Longmont, Colo.

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4 responses to “U.S. Firms Eyeing Benefits of Onshoring”

  1. As companies adopt a more comprehensive total cost analysis they are finding that the “hidden costs” of offshoring and the long complicated supply chains of long distance manufacturing often counterbalance any remaining savings from cheap price or labor abroad. These companies are investing and sourcing in the U.S. because it makes good economic sense for them to do so.
    Our skilled workforce, quality and productivity that is 3Xs higher than low cost countries makes the U.S. an attractive place for reshoring.
    The Reshoring Initiative Can Help
    In order to help companies decide objectively to reshore manufacturing back to the U.S. or offshore, the not-for-profit Reshoring Initiative’s free Total Cost of Ownership Estimator can help corporations calculate the real P&L impact of reshoring or offshoring. http://www.reshorenow.org/tco-estimator/

  2. Many companies are reshoring or bringing back work from offshore locations for reasons cited above. However, the real growth in onshoring will be from value other than labor arbitrage. Specifically in the technology sector – innovation, speed to market, need for agility and Agile development processes lend themselves to onshoring. In the BPO space, being close the customer, cultural affinity and productivity of labor will be key. In addition automation will play a big part. U.S. firms that have more difficulty accessing inexpensive talent pool, will be more incentive to automate making shore less relevant.

  3. The narrowing gap in pay is a double-edged sword. It not only indicates rising wages in offshore locations, but, falling wages (as adjusted for inflation) in the U.S. And the jobs that are restored will reflect that in employee compensation. Not a good sign for the average American.

  4. It seems to me the onshore movement is simply a function of the number of work visas pushed through congress. Lower onshore wages shrinks the cost differential. Problem solved.

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