Sometimes, America's corporate leaders seem to enjoy making things hard on themselves. Maybe they feel that is the only way to justify their enormous paychecks. On the other hand, maybe they are all just dumb as doorstops.
Faced with a snarling bear market at the turn of the millennium, its revenues dropping steadily and its profits eroding, Corporate America scrambled for a cure-all solution that would cut costs and shore up its earning power. The solution: outsourcing.
Companies such as AT&T Wireless (NYSE: AWE) and Accenture (NYSE: ACN), to name just the first couple written about here on Fool.com, began seeking out low-wage countries to do their work. They hired consultants to tell them of the 70% and 80% savings to be had producing Nikes (NYSE: NKE) in the Philippines, or doing General Electric's (NYSE: GE) legal work and answering Dell's (Nasdaq: DELL) phone calls in India. (Of course, once in India, they often found that antiquated telecom infrastructures and ill-trained workforces dropped their cost savings to the 20% to 25% range.)
Well, guess what? You don't have to go to Mumbai to save 25% on your customer service reps. You can do that in Little Rock, Ark. Actually, there are several states where the median household income is roughly 25% below the average for the U.S. And companies based in high-wage states can find even more dramatic savings. In theory, a company like Lockheed Martin (NYSE: LMT) could slash wages for its Bethesda, Md., staff by 45% just by pulling up stakes and relocating to Charleston, W.Va.
While few U.S. companies are packing up their corporate headquarters and hying off to the boonies, Dell and U.S. Bancorp (NYSE: USB), at least, are starting to reconsider the economics of outsourcing. If you can save the same money here as there, and avoid public criticism at the same time, it just makes sense to outsource locally.
Moreover, by sending jobs to rural America, instead of urban India, companies can become pillars of the community. Often, they are the biggest employers in the towns where they set up shop. Between the goodwill they create and the (locally) high wages they pay, some companies are finding that employee retention is easier in small towns, and turnover expenses lower.
If this theory continues to play out, the "local outsourcing" trend could catch on. And investors in the companies that most quickly realize they don't need to go abroad to save money will be the ones to reap the benefits.
Fool contributor Rich Smith
owns no shares in any company mentioned in this article.
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