Farmshoring
Encyclopedia
Farmshoring is a term used to describe the shifting of employment from abroad into rural communities across the United States
. It is conceptually similar to onshoring (also referred to as domestic outsourcing) which can be defined as "the act of transferring some of a company’s recurring interval activities and decision rights to outside providers, as set in a contract". Farmshoring refers to a specific variety of outsourcing where, as well as services being sourced outside of the contracting company, they are outsourced from urban
to rural
locations.
jobs internationally has increased significantly over the last decade. Many factors have contributed to this rising trend, none more significant than the rising cost of doing business in the United States. In 2002, when the United States was trying to recover from recession, a number of reports emerged, highlighting the potential for substantial cost savings for firms which could source (outsource) some of their in-house supplies, particularly information technology services, to low-cost locations. In these reports, experts noted that given the advances in information technology
and the low cost of communications, a large number of information technology (IT) services could now be provided from low income countries to firms and consumers in high income countries. A study conducted by The McKinsey Global Institute, an independent economics think tank within McKinsey & Company
, revealed that 30 percent of the U.S. economy’s jobs can be offshored. Among the most "at-risk" occupations are office and administrative support jobs, business and financial operations, paralegal and medical workers, graphic designers, technical writers and software engineers.
The objective behind farmshoring is to motivate U.S. firms to send those jobs that would otherwise be destined for places like China and India where labor costs are a fraction of what they are in the U.S., to the "American farm". The prime motivator behind offshoring is reduced labor costs and there is a significant gap between labor costs in developing countries vs. the US. For example, a U.S.-based software developer earning $60 an hour can be replaced by an Indian developer with the same skills for $6 an hour. Or, a factory worker making $21 an hour in the U.S. can be replaced by a Chinese factory worker making $.64 cents an hour. Though rural America cannot compete with such wages, experts believe that the “farm” presents a viable alternative, based on factors other than wages.
Domestic outsourcing can deliver cost savings of 50 percent on installing and managing software, compared to 15 to 30 percent cost savings from overseas offshoring. Additionally, offshoring takes longer to capture cost savings, given the higher start-up costs and other issues associated with offshore arrangements. Security is a major issue with offshoring. In this sense, farmshoring offers a greater sense of control
and security with the outsourced firm within U.S. borders. Onshore outsourcing also bypasses the language barrier associated with many offshoring arrangements. Workers in call centers in India for example, have to learn to speak English the “American” way in order to enter into outsourcing contracts with U.S. firms.
With farmshoring, there are fewer cultural or language barriers, foreign laws and regulations or multiple time zones to deal with. Farmshoring also offers a low-cost, high quality living alternative to metro areas. Housing in metro suburbs is 70 percent more expensive than in rural areas, and land costs are even higher. In the same context, the traffic and congestion is significantly higher in metro areas (40 percent slower in metro areas), requiring metro residents to spend more time traveling to work as well as recreational activities. Farmshoring offers a lower-cost, lower-risk, and quality living alternative to outsourcing, enabling firms to obtain the cost benefits associated with outsourcing jobs to low-cost areas, without the risks associated with hiring foreign workers.
As more of the economy processes information digitally, more firms are able to locate practically anywhere they can find skilled labor and advanced telecommunications infrastructure. For example, the U.S. Postal Service uses telecommunications technology that allows its workers in Greensboro, North Carolina
to “view” mail in Washington, D.C.
Likewise, Northwest Airlines
has shifted some of its booking operations to Minot, North Dakota
.
, two major IT firms,CGI-AMS and Northrop-Grumman, announced their plans to bring 700 jobs paying an average of $40,000 a year to the southwestern Virginia town.
Beyond incentives provided by the state, for CGI-AMS and Northrop-Grumman, the decision to open divisions in Lebanon, VA was driven by high labor costs in Fairfax and neighboring Reston in the northern part of the State. For other firms, proximity to economic or academic resources is a key motivator. Building on these rationales Virginia Economic Development Partnership (VEDP) Director Jeffrey Anderson is developing a “distributive services initiative” which aims to market the rural Virginia communities of Blacksburg, Danville, Harrisonburg and Lynchburg, to businesses in the northern part of the State looking to shift some of their back-office operations to lower-cost areas. All four communities house 4-year colleges; Virginia Tech in Blacksburg, Averett University
in Danville, James Madison University
in Harrisonburg, and Liberty University
in Lynchburg. According to VEDP, the presence of a large academic institution is attractive because it generates employment, creates a positive academic environment and provides a steady stream of potential new hires. Blacksburg has already been successful in luring some companies out of the northern Virginia region, including UXB and EvolvePoint.
Other large companies such as Daimler-Chrysler and Dell Computers have experienced the global trend of industry consolidation. Firms are realizing the need to “bring back” some of the functions that were previously offshored internationally, either because they mistakenly offshored a function that is core to the business, or because of the risk and complexity of managing and measuring offshoring projects and relationships. In spite of this however, the balance still favors offshoring considerably with as many as 3 million IT jobs expected to go overseas in the next few years.
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
. It is conceptually similar to onshoring (also referred to as domestic outsourcing) which can be defined as "the act of transferring some of a company’s recurring interval activities and decision rights to outside providers, as set in a contract". Farmshoring refers to a specific variety of outsourcing where, as well as services being sourced outside of the contracting company, they are outsourced from urban
Urban area
An urban area is characterized by higher population density and vast human features in comparison to areas surrounding it. Urban areas may be cities, towns or conurbations, but the term is not commonly extended to rural settlements such as villages and hamlets.Urban areas are created and further...
to rural
Rural
Rural areas or the country or countryside are areas that are not urbanized, though when large areas are described, country towns and smaller cities will be included. They have a low population density, and typically much of the land is devoted to agriculture...
locations.
Farmshoring's details
Recent studies show that the trend to offshoreOffshoring
Offshoring describes the relocation by a company of a business process from one country to another—typically an operational process, such as manufacturing, or supporting processes, such as accounting. Even state governments employ offshoring...
jobs internationally has increased significantly over the last decade. Many factors have contributed to this rising trend, none more significant than the rising cost of doing business in the United States. In 2002, when the United States was trying to recover from recession, a number of reports emerged, highlighting the potential for substantial cost savings for firms which could source (outsource) some of their in-house supplies, particularly information technology services, to low-cost locations. In these reports, experts noted that given the advances in information technology
Information technology
Information technology is the acquisition, processing, storage and dissemination of vocal, pictorial, textual and numerical information by a microelectronics-based combination of computing and telecommunications...
and the low cost of communications, a large number of information technology (IT) services could now be provided from low income countries to firms and consumers in high income countries. A study conducted by The McKinsey Global Institute, an independent economics think tank within McKinsey & Company
McKinsey & Company
McKinsey & Company, Inc. is a global management consulting firm that focuses on solving issues of concern to senior management. McKinsey serves as an adviser to many businesses, governments, and institutions...
, revealed that 30 percent of the U.S. economy’s jobs can be offshored. Among the most "at-risk" occupations are office and administrative support jobs, business and financial operations, paralegal and medical workers, graphic designers, technical writers and software engineers.
The objective behind farmshoring is to motivate U.S. firms to send those jobs that would otherwise be destined for places like China and India where labor costs are a fraction of what they are in the U.S., to the "American farm". The prime motivator behind offshoring is reduced labor costs and there is a significant gap between labor costs in developing countries vs. the US. For example, a U.S.-based software developer earning $60 an hour can be replaced by an Indian developer with the same skills for $6 an hour. Or, a factory worker making $21 an hour in the U.S. can be replaced by a Chinese factory worker making $.64 cents an hour. Though rural America cannot compete with such wages, experts believe that the “farm” presents a viable alternative, based on factors other than wages.
Domestic outsourcing can deliver cost savings of 50 percent on installing and managing software, compared to 15 to 30 percent cost savings from overseas offshoring. Additionally, offshoring takes longer to capture cost savings, given the higher start-up costs and other issues associated with offshore arrangements. Security is a major issue with offshoring. In this sense, farmshoring offers a greater sense of control
Control (management)
Controlling is one of the managerial functions like planning, organizing, staffing and directing. It is an important function because it helps to check the errors and to take the corrective action so that deviation from standards are minimized and stated goals of the organization are achieved in...
and security with the outsourced firm within U.S. borders. Onshore outsourcing also bypasses the language barrier associated with many offshoring arrangements. Workers in call centers in India for example, have to learn to speak English the “American” way in order to enter into outsourcing contracts with U.S. firms.
With farmshoring, there are fewer cultural or language barriers, foreign laws and regulations or multiple time zones to deal with. Farmshoring also offers a low-cost, high quality living alternative to metro areas. Housing in metro suburbs is 70 percent more expensive than in rural areas, and land costs are even higher. In the same context, the traffic and congestion is significantly higher in metro areas (40 percent slower in metro areas), requiring metro residents to spend more time traveling to work as well as recreational activities. Farmshoring offers a lower-cost, lower-risk, and quality living alternative to outsourcing, enabling firms to obtain the cost benefits associated with outsourcing jobs to low-cost areas, without the risks associated with hiring foreign workers.
As more of the economy processes information digitally, more firms are able to locate practically anywhere they can find skilled labor and advanced telecommunications infrastructure. For example, the U.S. Postal Service uses telecommunications technology that allows its workers in Greensboro, North Carolina
Greensboro, North Carolina
Greensboro is a city in the U.S. state of North Carolina. It is the third-largest city by population in North Carolina and the largest city in Guilford County and the surrounding Piedmont Triad metropolitan region. According to the 2010 U.S...
to “view” mail in Washington, D.C.
Washington, D.C.
Washington, D.C., formally the District of Columbia and commonly referred to as Washington, "the District", or simply D.C., is the capital of the United States. On July 16, 1790, the United States Congress approved the creation of a permanent national capital as permitted by the U.S. Constitution....
Likewise, Northwest Airlines
Northwest Airlines
Northwest Airlines, Inc. was a major United States airline founded in 1926 and absorbed into Delta Air Lines by a merger approved on October 29, 2008, making Delta the largest airline in the world...
has shifted some of its booking operations to Minot, North Dakota
Minot, North Dakota
Minot is a city located in north central North Dakota in the United States. It is most widely known for the Air Force base located approximately 15 miles north of the city. With a population of 40,888 at the 2010 census, Minot is the fourth largest city in the state...
.
Example: Farmshoring in Lebanon, Virginia
In Lebanon, VirginiaLebanon, Virginia
Lebanon is a town in Russell County, Virginia, United States. The population was 3,273 at the 2000 census. It is the county seat of Russell County.-Geography:Lebanon is located at ....
, two major IT firms,CGI-AMS and Northrop-Grumman, announced their plans to bring 700 jobs paying an average of $40,000 a year to the southwestern Virginia town.
Beyond incentives provided by the state, for CGI-AMS and Northrop-Grumman, the decision to open divisions in Lebanon, VA was driven by high labor costs in Fairfax and neighboring Reston in the northern part of the State. For other firms, proximity to economic or academic resources is a key motivator. Building on these rationales Virginia Economic Development Partnership (VEDP) Director Jeffrey Anderson is developing a “distributive services initiative” which aims to market the rural Virginia communities of Blacksburg, Danville, Harrisonburg and Lynchburg, to businesses in the northern part of the State looking to shift some of their back-office operations to lower-cost areas. All four communities house 4-year colleges; Virginia Tech in Blacksburg, Averett University
Averett University
Averett University is a private college in Danville, Virginia, USA, in south-central Virginia near the North Carolina border. It was established as a Baptist college but is in formal talks with the Baptist General Association of Virginia to renew ties that were cut in 2005.- History :The school was...
in Danville, James Madison University
James Madison University
James Madison University is a public coeducational research university located in Harrisonburg, Virginia, U.S. Founded in 1908 as the State Normal and Industrial School for Women at Harrisonburg, the university has undergone four name changes before settling with James Madison University...
in Harrisonburg, and Liberty University
Liberty University
Liberty University is a private Christian university located in Lynchburg, Virginia. Liberty's annual enrollment is around 72,000 students, 12,000 of whom are residential students and 60,000+ studying through Liberty University Online...
in Lynchburg. According to VEDP, the presence of a large academic institution is attractive because it generates employment, creates a positive academic environment and provides a steady stream of potential new hires. Blacksburg has already been successful in luring some companies out of the northern Virginia region, including UXB and EvolvePoint.
International trends
A similar trend is occurring internationally as well. In India, the software service industry is focusing on domestic outsourcing opportunities as banks and government departments step up spending on technology to cut costs and improve their efficiency. A similar situation is also developing in England. With the growth in the IT market, more firms are looking to get out of London and into places like Manchester and Scotland. Karen Price, Chief Executive of Sector —Skills Council, E-Skills UK, points out that “lots of public sector functions are going out of London because of the (poor) government’s efficiency review.” For example, the British Broadcasting Corporation is relocating lots of jobs to Manchester. Price adds that the same is happening in the private sector, as software development companies are opting for “onshoring” to low-cost areas with high-skilled labor, over the offshoring alternative.Other large companies such as Daimler-Chrysler and Dell Computers have experienced the global trend of industry consolidation. Firms are realizing the need to “bring back” some of the functions that were previously offshored internationally, either because they mistakenly offshored a function that is core to the business, or because of the risk and complexity of managing and measuring offshoring projects and relationships. In spite of this however, the balance still favors offshoring considerably with as many as 3 million IT jobs expected to go overseas in the next few years.
See also
- GlobalizationGlobalizationGlobalization refers to the increasingly global relationships of culture, people and economic activity. Most often, it refers to economics: the global distribution of the production of goods and services, through reduction of barriers to international trade such as tariffs, export fees, and import...
- Offshore outsourcingOffshore outsourcingOffshore outsourcing is the practice of hiring an external organization to perform some business functions in a country other than the one where the products or services are actually developed or manufactured. It can be contrasted with offshoring, in which the functions are performed in a foreign...
- OffshoringOffshoringOffshoring describes the relocation by a company of a business process from one country to another—typically an operational process, such as manufacturing, or supporting processes, such as accounting. Even state governments employ offshoring...
- Offshoring Research NetworkOffshoring Research NetworkThe Offshoring Research Network is an international network of researchers and practitioners studying organizations in their transition to globalizing their business functions, processes and administrative services...
- OutsourcingOutsourcingOutsourcing is the process of contracting a business function to someone else.-Overview:The term outsourcing is used inconsistently but usually involves the contracting out of a business function - commonly one previously performed in-house - to an external provider...