600+ IT jobs to be “insourced”
During the past two decades, a steady flow of information technology (IT) jobs has left the United States and been outsourced to foreign corporations. IT companies in India and other countries have won business and jobs that have been moved overseas.
IT work is labor intensive. Low wages paid to workers in India and other countries have resulted in many US companies moving this work offshore.
A strategic business move being made by a respected North Carolina-based IT company is especially noteworthy because of this background. The company is examining operations in northwest Ohio to compete and win systems development business away from firms in India, China, and other countries.
The company, Attevo, Inc., is setting up a new subsidiary, Ruralogic, Inc. It has considered sites in a number of states for the new operations. Ruralogic has identified Bryan, Ohio as the site of its proposed new headquarters as well as sites in Archbold and Napoleon. Its final decision will be dependent on tax credits approved by the State of Ohio Controlling Board and completion of site negotiations that will be determined after this issue goes to press.
Dean Spangler, chairman of the board, Spangler Candy Company, has led a private sector initiative to recruit Ruralogic to northwest Ohio. In addition, one of the private sector partners in the business is Bryan-based New Era Ohio, LLC.
Attevo has named one of its partners and its chief financial officer, Joe Burmester, to be the CEO of Ruralogic. Toledo Business Journal recently met with Burmester at the proposed new headquarters building in Bryan to discuss the company’s plans.
During the next five years, Ruralogic plans to hire an estimated 200+ IT professionals at each of its three operations centers. The total number of employees is projected to be 600 or more professionals. These will be full-time salaried employees with benefits. Starting salaries are expected to be $35,000 to $40,000 a year with management and other positions paying at higher levels. The company will have well in excess of $21 million a year that it will pay in compensation to employees at the three new operations centers when its plans for the first phase of its business are fully implemented.
There are additional opportunities in the region for new job creation by the company as it implements and succeeds at its new business model.
New facilities
Ruralogic is completing transactions for facilities in Bryan, Archbold, and Napoleon if the Ohio tax credits are approved. The business will need approximately 200 square feet of office space per employee. The facilities at each of the three locations will be able to accommodate phased growth.
Ruralogic’s new headquarters and operations will be in Bryan at the New Era site if Ohio grants tax credits to the company. The two-story office building was originally owned by the Ingersoll Rand Company. In 2004, Ingersoll Rand announced that it was closing its operations in Bryan and a group of local investors purchased the plant and office buildings. They established New Era Ohio.
In 2009, New Era announced that it would be closing the Bryan operations and terminating employment for its workers. Ingersoll Rand had been the only customer of New Era but last year canceled its contract. Approximately 138 workers are losing their jobs.
Ruralogic’s timing is especially important in Bryan. New Era filed notice with State regulators advising that it would be ceasing operations by September 2010.
IT services and clients
Ruralogic will provide support for enterprise application software. Some of this support will be focused on database systems. Employees will provide forms development, report writing, and other systems programming and development functions. There will be different tiers of service to meet a range of client application needs.
Clients will be Fortune 1000 companies. In addition, Ruralogic will provide support to system integrators and software development firms. The first client has been set up for the new business. It is a software development firm in Germany with US operations located in Michigan. Ruralogic is currently in negotiations with two other firms to provide systems development support services.
Strategy and competitive positioning
Ruralogic’s parent company, Attevo, works with large corporate clients and government entities in the US and abroad. Many of these companies and government entities outsource systems development work. Based on rates in India at $20 an hour and below, work has been moved overseas in an effort to reduce systems development costs.
In analyzing project development costs for clients, Attevo learned that these projects, using foreign programmers, regularly require additional iterations of development that were not planned or budgeted.
“In working with a foreign systems development firm, the client gets what they asked for even if it is wrong. There are language issues and distance issues and programmers in India and other countries work to a written specification provided,” stated Burmester.
He further explained that, in doing systems development, there is a need for close communications and a need to be flexible in order to do modifications when required. According to Burmester, there are extra costs of using foreign programmers who do not understand the culture and the language in the US.
“Our analysis has shown us that the true cost of using foreign programmers is most often much higher than planned. When the costs of having to do additional iterations, pay for any travel, or other unplanned expenses from communication issues are included, the real cost is $54 an hour and higher versus a rate planned at $20 an hour or lower,” explained Burmester.
By using programmers and managers who understand the language and the culture in this country and who are in closer proximity to the client, Ruralogic believes that it can compete effectively against systems development companies in India and China.
A key part of Ruralogic’s strategy is to set up low-cost operations in the US. The company’s operations centers are being put into communities where the cost of living is low and where employee compensation costs are more affordable. Ruralogic is working with the three communities in northwest Ohio on a plan to put vacated facilities back in place that fit its tight budget. In addition, the company will obtain tax rebates based on new payroll taxes that it will begin paying as new employees are brought into the business. State tax credits are also a key part of this low cost strategy.
In order to compete with systems development companies in India and China, Ruralogic is implementing a strategy that will provide a lower operating and overhead cost structure. However, the company will provide its clients with a quality level superior to competition from foreign suppliers, according to Burmester. One of the keys to its plans is recruiting and training qualified systems professionals.
Northwest State Community College
Ruralogic has established a partnership with Northwest State Community College (NSCC) located in Archbold. The school will work with Ruralogic as students are recruited and trained for the new systems development positions.
NSCC has applied for a grant from the US Department of Labor. The grant will provide funding that is needed to enable the school to put the infrastructure in place to support this initiative. This includes advanced hardware and software needs and faculty members with specialized skill sets.
“This will be a very unique program. There will not be another like this in the country,” stated Tom Wylie, associate vice president for workforce development at NSCC. Wylie heads the school’s Custom Training Solutions subsidiary. Applicants will go through a screening process before being accepted into the Ruralogic and NSCC program. They will have to demonstrate the aptitude and desire to learn and perform systems development work.
The initial curriculum being developed can be completed in four months with students averaging 40 hours each week. However, some students will require additional course work to supplement skills needed for these positions.
An important benefit for the NSCC students involves employment. “Once an applicant successfully completes the program at Northwest State, they are guaranteed a job,†stated Burmester.
Future Growth
“We will be quite busy setting up operations in Bryan, Archbold, and Napoleon if we obtain tax credits from the State. However, we anticipate expanding the business and see opportunities in the future to take this model to other areas. Potential future partners might include Terra Community College in Fremont, Owens Community College, and others. We do have parties in a number of other states who are very interested in a Ruralogic operations center,” stated Burmester.
“The enthusiasm and excitement that we have encountered in the area for this new business venture has made this really fun.”
