Inside Outsourcing interview: Will rural sourcing be real alternative to offshoring IT?

I met up with Rob Machin, the UK head at nearshore IT services firm Endava. Amongst other things he told me there is a trend that is seeing application development centres being set up in Middle America.

In Middle America, which is underdeveloped in many places, the cost of labour is low and it is a real alternative to Indian offshoring, which is really unpopular in the US, so much so that President Obama is making signs that he will reduce the exporting of US jobs.

Machin also says this will happen in the UK. We already have call centres in lower cost regions of the UK but he thinks app development will also move to similar areas. He gave an example of a company y that has been set up in County Durham. He said a developer that worked in London moved back to his native Durham to work near his family. Although he had to take a huge cut in salary the lower cost of living and lifestyle benefits convinced him.

Endava is a company that supplies software services. About 85% of its delivery comes from Romania and Moldova and it uses agile methods to develop software. I won’t go into more detail about Endava as you can read it in this blog post I wrote back in August 2011.

Another interesting trend Machin told me about was that businesses are increasingly demanding that suppliers sign productivity and quality agreements and that procurement departments and are no longer just interested in unit costs like they were in the past. This is all related to the use of agile development techniques. Fewer developers are needed to work in these agile teams and there are tools that enable businesses to measure productivity and quality.

Businesses are always surprised when they learn how many fewer people are used when developers use agile methodologies, says Machin. “When we give them the proposals they often do not believe we will be able to do the project with so few workers.”

Machin also told me something interesting about the big Indian IT suppliers. He said that they don’t even bod for application development work if it requires fewer than 100 developers. Labour arbitrage is still there main advantage.

So if agile methodologies are taken up by more and more businesses what will the big India offshore do?