USDA - Domestic Sourcing in North Texas (public-IAOP)

© TechAmerica Foundation 1

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Domestic Sourcing in North Texas and Lessons Learned for Rural America November 2011


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Contents EXECUTIVE SUMMARY ............................................................................................................................ 3

INTRODUCTION ...................................................................................................................................... 6

BACKGROUND ................................................................................................................................................ 6 OBJECTIVE OF REPORT ...................................................................................................................................... 7

ANALYSIS OF NORTH TEXAS .................................................................................................................... 9

COMPARATIVE ASPECT OF THE LCD SOURCING MODEL .......................................................................................... 9 OPPORTUNITIES ............................................................................................................................................ 16 RECOMMENDATIONS ..................................................................................................................................... 19

EXTRAPOLATING THE PILOT – OUTSOURCING IN RURAL COMMUNITIES .............................................. 21

EDUCATING ECONOMIC DEVELOPMENT OFFICES ................................................................................................. 21 WORKFORCE ENHANCEMENT .......................................................................................................................... 23 RECOMMENDED MARKETING PROGRAMS .......................................................................................................... 23 EXCEPTIONS TO THE PILOT .............................................................................................................................. 24

REFERENCES ......................................................................................................................................... 25

ABOUT THE RESEARCH FIRMS ............................................................................................................... 26

TECHAMERICA FOUNDATION .......................................................................................................................... 26 AHILIA ........................................................................................................................................................ 26

© TechAmerica Foundation

Domestic Sourcing in North Texas and Lessons Learned for Rural America

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Executive Summary Current trends in outsourcing business practices and the increased penetration of telecommunication networks and technology have increased the overall competitiveness of specific U.S. locations for attracting outsourcing companies. These locations are often in rural, smaller communities, or certain distressed urban areas, where the cost of doing business is competitive. This study analyzes one region in North Texas, defined as Grayson and Fannin counties, to determine its case for domestic sourcing work. It also looks at lessons learned from North Texas that can be applied to other rural regions throughout the United States.

This report is designed with three general purposes. The first is to analyze the competitiveness of North Texas as a site selection for outsourcing work. To accomplish this, the report examines the factors used during a typical site selection process. The second is to educate outsourcing companies as well as site selection managers of U.S. companies about the competitiveness of the North Texas region. This report can be used to provide proof of concept to outsourcing companies about the competitiveness of this Texas region. It also provides government agencies and policy makers with several suggestions on how North Texas could enhance its attractiveness to outsourcing firms.

The third purpose of the report is to use this North Texas region as a pilot site for extrapolating to other potential rural communities in the United States. The report uses this North Texas region to examine two types of rural communities, those with larger population centers and those with smaller town centers.

For the first and second purposes, the overall finding of this report is that North Texas is indeed a very attractive and competitive location for domestic sourcing work. There already exists a cluster of call centers and business process outsourcing (BPO) centers in Grayson County, and with a low cost of doing business and a decent supply of workers, this region could easily sustain additional outsourcing sites.

While this region in theory could support all three types of outsourcing centers (call centers, BPO, and information technology services), this support often

The overall finding of this report is that North Texas is a very attractive and competitive location for domestic sourcing work.



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depends on a number of factors. Both Grayson and Fannin counties could support call center work. Grayson already has a number of call centers operating there and would be able to sustain large call centers that with time could grow to 200-300 employees. Fannin, which has supported small call centers in the past, could support smaller call centers focused on entry-level inbound and outbound activities. With a smaller supply of qualified workers, their center could grow to 100 employees but would likely start with smaller group.

Like call center work, both Grayson and Fannin could support BPO companies and general shared service centers of enterprises. In this type of outsourcing, workers would need, at a minimum, to have basic skill sets associated with a high school diploma and good work ethic. Fannin would be best suited for entry-level, low skilled work, given the current low supply of qualified workers. The typical position would be data entry and processing. Grayson could support the same work as Fannin and additional higher end BPO work, like claims processing. Typically, BPO companies train their own workers and over time the type of work can become more skilled as the workforce becomes more experienced.

Information technology outsourcing (ITO) requires a higher level of skill from the labor force. At the lower end, this is typically associated with an associate’s degree in computer science or technology or higher. Grayson, with its larger labor pool, access to the Dallas Metroplex, and nearby community college, has the potential to attract ITO service providers. Given that there is not yet a large technical skilled labor pool, of the three types of outsourcing work, ITO work would require the most training and would need to reach into labor pools from all surrounding counties. Most low-end ITO work would be around consumer product technical support or simpler desktop or IT support. The higher end IT jobs, such as application development and IT maintenance, are also feasible given the stability and high retention rates in Grayson.

For the third purpose, the report contains a section on how the North Texas case study applies to other rural communities in the United States. In this regard, Grayson and Fannin counties provide insight into two very different types of rural regions. Fannin, with its smaller population base and lower availability of skill sets, represents a typical smaller rural community with a small township at the center. Grayson provides an example for counties or regions with a larger population pool (over 50,000).

Both Grayson and Fannin can support call center and BPO work. Fannin is suited for entry-level BPO work, while Grayson can support entry-level as well as higher end BPO work. Grayson also has the potential to attract ITO work.



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The cost of doing business in a rural community (mostly labor costs and real estate) is very competitive for outsourcing work. However, the report found that the type of outsourcing work available to regions is dependent on the availability of workforce skills rather than on other factors. The availability of skills tend to vary greatly across communities, but some common themes for locations to focus on are improving high school graduation rates and equipping the local workforce with the soft skills needed in a business environment (such as time management, written and oral communication, listening and comprehension, being customer focused, working on teams, etc.). Another cross sectional issue is around the availability of appropriate real estate and infrastructure. Finally, the precursor assumption for any type of outsourcing work is that the community has the telecommunications infrastructure (Internet and phones) to handle an outsourcing center.

In conclusion, as rural America is not necessarily the first site location option for outsourcing firm, there is need for a marketing program to advance an understanding about the competitive nature of rural America. The report provides recommendations for both Fannin and Grayson counties around workforce, real estate, and marketing that could very easily apply to other regions. In this regard, the report recommends that a general marketing campaign be initiated to promote the general concept of low cost domestic sourcing in the United States. This provides for a broad marketing effort that could help counties across the United States be considered for outsourcing work.



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Introduction

Background Over the past two decades, advantages in technology and business processes, when combined with intense pressure to control costs, have driven many businesses to radically increase the outsourcing of functions that are not part of their core competency. These include human resources, data processing, security, accounting, call centers, and even financial and legal analysis. Many of these functions involve routine processes, where a set of rules can be applied and has come to be known as business process outsourcing.

As telecommunication costs dropped and the Internet expanded, certain locations overseas became viable locations for outsourcing operations. However, within the past five years, as these locations have become saturated and their wages increase, the competitiveness structure of overseas outsourced locations is not as compelling as it once was. Indeed, when all factors are taken into account, domestic sourcing (siting an outsourced business in the United States) has become more competitive, particularly in lower cost locations in mid-size metropolitan areas and rural communities. This is driven by a number of factors, such as the desire to be closer to a customer base, government work that requires domestic sites, quality issues, time zones, and even improved cost structures, including tax incentives. This is reflected in the many high-tech firms either opening new outsourcing centers or some even bringing offshore jobs back to the United States.

The site selection process for an outsourcing center takes many factors into account. However, resources are not infinite for site selection decision makers, who often must rely on consultants, selection magazines, known clusters, or even their own perceptions of ideal locations. Given the large number of possible locations, a site selection decision maker’s job is to narrow a list down to a very few viable locations.

In order to better quantify this process TechAmerica Foundation employed the services of a leading outsourcing consulting firm based in California. The firm, Ahilia, Inc., surveyed site selection decision makers to quantify those factors that are most often used during the site selection process. They found that the most critical factors are the cost of doing business (including labor, real estate,

Within the past five years, the cost competitiveness of overseas outsourced locations is not as compelling as it once was.

Major Criteria for LCD Sourcing Selection

• Cost of Doing Business

• Availability of Workforce

• Business & Political Environment



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infrastructure, taxes, etc.) and availability of workforce (skills, pipeline, etc.). Additional factors include the business and political environment of the region and the quality of life.

Objective of report This report builds on that report by using these metrics to conduct a domestic sourcing site selection analysis on two counties in North Texas, Grayson and Fannin counties. The goal of this report is three fold. First, the report aims to provide decision-makers in North Texas with an understanding of how domestic sourcing could fit into their local economy, what their community has to offer to outsourcing companies, and how their community compares. The report itself identifies those types of sourcing businesses that are most likely to be viable options in North Texas and outlines those factors that are potentially attractive to businesses and those that are not. It also provides recommendations for how North Texas could improve its attractive to the business community.

The second goal of the report is to provide outsourcing companies and enterprise site selection managers with an independent assessment of North Texas as a potential selection site for service delivery centers. The analysis contained within this report can be tremendously valuable to site selection decision makers, as considerable time and resources must be spent when evaluating potential sites. Ultimately, it allows for the inclusion of a site that might have been too expensive for the initial selection process.

The third and final goal of the report is to identify lessons learned from Grayson and Fannin counties in order to help other rural communities throughout the United States. Grayson and Fannin counties represent two types of rural communities that exist. Grayson is a rural region with a decent sized city that can that can also draw workforce from surrounding areas, while Fannin is a rural region with a small town as the main population center. Each of these areas has different needs and capabilities that they support and can provide lessons for other rural communities to draw upon.

To accomplish these goals, the report uses a number of methods for providing the right context for evaluating North Texas. TechAmerica Foundation, in partnership with Ahilia, collected significant data to provide an accurate understanding of Grayson and Fannin counties in North Texas. Additionally, these data were supplemented with an onsite evaluation that included personal



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interviews with a cross section of individuals from local economic development agencies, chambers of commerce, government statistical agencies, educational institutions, and businesses (including call centers already located in this region).

North Texas has long had a number of established outsourcing companies located there, particularly in the healthcare industry. Recently a number of new outsourcing centers have open there, including a medical bill processing firm and a customer contact center.



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Analysis of North Texas

Comparative Aspect of the LCD Sourcing Model A critical part of the LCD sourcing model is to properly understand the comparative nature of the factors that are measured. Companies, when going through a site selection process, collect the metrics outlined in this report and compare them against industry averages to best determine whether that measurement is attractive or not.

These comparisons are meant to be a general measurement of how each factor compares against the other regions. The metrics often rely on averages and general measurement of each indicator. Certain metrics are subjective and based on feedback and the general impressions a company would get when examining the regions during the site selection process.

Cost of Doing Business

Labor Rates Overall the labor rates in North Texas are attractive and slightly lower than those in other comparable locations, and Fannin’s wage rates are lower than Grayson’s. In addition, in Fannin and Grayson, employee expectations of workplace incentives and benefits are lower than those of larger city workers. This makes the two counties competitive when considering the fully loaded cost of employees.

Real Estate Costs In general, the North Texas area has an attractive real estate market with good availability, low costs, and strong assistance programs. Real estate costs for both locations are low on average. As far as availability, Grayson has a wide range and size of office space readily available, while Fannin has fewer options.

In the case of Grayson, because the economic development organizations own some of the land and properties, they have the flexibility to offer real estate incentives. For example, the Foundation Business Park in Denison and Progress Park in Sherman are owned by the respective cities’ development organizations.

Grayson’s and Fannin’s wage rates prove to be attractive to many companies.



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Even though Progress Park is meant for manufacturing, it could house services companies as well. In Denison, the economic development organization, Denison Development Alliance, owns numerous commercial real estate properties and works closely with commercial brokers in Dallas to attract business.

Infrastructure Costs Infrastructure costs including Internet, T1, and electricity in Fannin and Grayson are comparable to the other locations. The city of Bonham has a fiber optic network in place but it is not widely used currently. Also as rural communities, some locations in Fannin and Grayson are potentially eligible for some USDA programs to improve roads, sewers, and other such public infrastructure.

State & Local Taxes The State of Texas consistently ranks in the top six in studies evaluating best states for business. Studies include those conducted by Chief Executive magazine, CNBC, and U.S. Chamber of Congress.

Texas’s tax structure is favorable to businesses. There are no corporate or personal income taxes in Texas. The current sales tax for Grayson and Fannin is approximately 8.25% depending on the city tax rate. Property taxes in Texas are higher than most states at 3%, but the absolute amount is relatively lower given the lower (on average) property values compared to other locations.

Texas does have a Gross Receipts Tax in place, which has a rate of 1%. For service companies, this means a tax payment of 1% of total revenues less compensation or 70% of total revenues, whichever is lower. However, the state provides a number of tax incentives that allows companies to obtain tax refunds on certain business investments such as real estate, building material, and machinery and equipment.

Economic Incentives Both Grayson and Fannin counties have economic incentives to attract businesses to their areas. These include workforce/training grants, rent/lease breaks, loans, tax breaks, and relocation expense subsidy (Denison). In addition, the City of Bonham has access to Bonham Industrial Foundation, a private non-profit that funds economic development. The economic development

With no corporate or personal income taxes, Texas’s tax structure is favorable to businesses.

Grayson and Fannin counties have numerous economic incentives available to businesses. These incentives are typically customized by the economic development organizations in these counties to meet the unique needs of businesses.



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organizations in these counties do make the effort to customize their incentive packages so as to meet the needs of prospective companies as close as possible.

Grayson and Fannin also have access to some state-funded incentives; some of which are specific to rural areas such as the Rural Municipal Finance Program, Texas Enterprise Zone Program, and the Texas Capital Fund.

Airport Access Overall, Fannin and Grayson counties have great airport accessibility. They are located 60 miles from two major hubs – Dallas Fort Worth (DFW) and Dallas Love Field. Both airports are served by a number of national airlines. Moreover, DFW is a hub for American Airlines and also has numerous international carriers including KLM, Air Canada, and Lufthansa. DFW has substantially higher passenger traffic than Dallas Love Field and was the eighth busiest airport in the world in 2011. Grayson County also features the North Texas Regional Airport which along with Sherman Municipal Airport service non-commercial and charter flights.

State Debt Texas has a debt ranking of Aaa, which reflects a stable business environment. In addition, the per capita state debt for Texas at $1,240, which is considered low. This statistic also reflects a secure and steady environment for businesses to operate in.

Workforce

Feeder Colleges & Universities In general, Grayson and Fannin have access to a respectable number of educational institutions. There are two in Grayson and Fannin counties – Austin College and Grayson County College. There are additional institutions in the surrounding area including Southeastern Oklahoma State University, the University of North Texas, the Texas Woman’s University, Collin County Community College, Paris Junior College, and Texas A&M Commerce. Altogether, these eight institutions graduate over 8,200 students annually with majors such as mathematics, computer sciences, physics, accounting & finance, business, and general management.

Austin College, Grayson County College, University of North Texas, Southeastern Oklahoma State University, and the Texas Woman’s University graduate over 7,400 students annually.



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Furthermore, both counties could potentially draw from the student population in the Dallas Metroplex area if they are able to attract graduates to move into the areas.

Stability of Future Workforce Many graduates from rural communities like Grayson and Fannin leave to work in bigger cities. This is especially true of Fannin where opportunities for new jobs are low. Not only does Fannin have a small workforce base because of its small population, skilled workers are scarce and some of its potential workforce needs soft skills training. Fannin could pull labor from some of the rural neighboring communities, but the population density of these areas is low. Grayson, on the other hand, is supplementing its workforce by attracting people from the surrounding counties. These counties typically have a sufficient population to provide Grayson with a decent number of workers.

As mentioned, both counties can potentially attract labor from the Dallas area. However, Grayson has a better chance of doing so especially with younger people, since it has more to offer this group in terms of the quality of life.

Skill Sets of Knowledge Workforce Fannin’s workforce, with lower base level skill sets and limited access to educational institutions than comparable locations, has less opportunity to advance their skills. Grayson County, with its larger population base and already established call center cluster, has a wider selection of skill sets available, including higher level expertise. Both counties are able to tap into additional training facilities and continuing education available through Texoma Workforce Solutions and Grayson County College.

Although Texoma Workforce runs training for both Fannin and Grayson counties, the programs available and sophistication of training is higher in Grayson than that in Fannin. Grayson County College programs are particularly impressive especially those provided through their Center for Workforce Learning that are tailored specifically to the needs of businesses.

Net Migration Potential In general, residents of both Grayson and Fannin prefer to stay if they have the opportunity to do so. However, the younger generation tends to leave post-high school or college graduation for jobs in larger cities for both career

Grayson and Fannin have to compete with the expanding suburbs of nearby cities such as Plano and McKinney to prevent the out-migration of their working population to these areas.



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advancement opportunities as well as quality of life reasons. Fannin and Grayson also have to compete with the expanding suburbs of nearby cities such as Plano and McKinney in terms of preventing the out-migration of their working population to these areas. But given adequate opportunity, they can also draw on the growth in these areas to encourage migration north as workers seek more affordable housing and land.

Current Resource Availability Both counties unemployment level is close to the national level, which implies a general availability of workers. As mentioned, companies could also tap into the nearby Dallas Metroplex populations as well as neighboring counties and the southern Oklahoma area. The Dallas Metroplex area itself has a population of 6.3 million, the fourth largest metropolitan in the United States. Furthermore, Grayson’s largest city, Sherman, is expected to grow 16% by 2015 with 50% of this growth occurring in the 20-44 age demographic.

Competition for Labor Supply Competition from nearby larger cities is stiff with many young workers leaving Fannin and Grayson for better jobs and higher quality of life. Locally, not much competition exists. In call centers, where traditionally attrition rates are generally high, Grayson and Fannin enjoy a lower than average attrition rate. For example, one local call center reports that about 20% of employees have been with the company for at least 10 years.

Business & Political Environment

Business/Political/College Consortium In general, both Grayson and Fannin counties have a good degree of alignment between business, government, and education organizations.

In Grayson County, there is very good coordination and cooperation across the economic development agencies and Chamber of Commerce as they (purposely) occupy the same building. In both Denison and Sherman, this cooperation is evident in the multiple joint projects and coordination that happens among all the institutions. Both the Sherman and the Denison economic development



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offices have good integration with Grayson County College and Texoma Workforce Solutions.

For Fannin, specifically Bonham, because it is small, there is a personal level of interaction that makes attaining goals easier. When tangible opportunities have arisen, the development organizations in Fannin have worked together to attract the business.

At the state level, as can be expected, business and government organizations tend to be more focused on larger opportunities.

Political Support As with all locations, direct political support is disparate. City, county, and state governments, in general, tend to focus on their own operations and initiatives, with little integration between all three government levels. In the case of Fannin and Grayson, support is felt most profoundly at the city level followed by at the county level. The Texas Governor’s office, as mentioned previously, tends to support larger investments. Consequently, local economic development offices get access to them only on occasion. Grayson County has experienced this State-level support a handful of times, while Fannin has not had the opportunity thus far.

Technology and Vendor Ecosystem Due to the relatively low population levels of rural communities, some vendors have not expanded into them. Other vendors provide limited reach, choosing to serve these rural communities from nearby metro hubs or sharing support services across large geographic areas. Grayson, because of its close proximity to larger cities like McKinney and the Dallas Metroplex and its larger size, has a rather strong ecosystem. Fannin is served by a smaller number of vendors and gets more limited service. However, it’s been observed that vendors present in Bonham tend to provide a more personal and higher level of customer service. For example, delivery companies will accommodate local businesses schedules and be more flexible with their delivery and pickup hours.

The Sherman and Denison economic development offices in Grayson County have good integration with Grayson County College and Texoma Workforce Solutions.

In Fannin, the development organizations have worked together to attract business when tangible opportunities were present.



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Quality of Life With the exception of commute time, Grayson and Fannin counties score high in all other quality of life factors. Cost of living for both counties is below the national average and very favorable, and in fact, the Sherman/Denison area in Grayson County is ranked the 9th least expensive urban area in the United States in ACCRA’s 2011 Cost of Living Index.

There is excellent availability of hospitals and healthcare providers in the area including the Texoma Medical Center, which is the region’s state of the art healthcare provider. Further, both locations enjoy the absence of a state income tax. Housing is quite affordable in both locations – 4,000 square foot homes in Bonham can be bought for as low as $290,000. Although the property tax rate is higher than most states, the assessed amounts are often lower than other locations because of the lower property values. Fannin and Grayson also enjoy low crime rates.

In Grayson, the K-12 school system scores high with the Sherman High School system has been ranked in the top 4% of schools by Newsweek for the past 4 years. However, the school facilities in both Grayson and Fannin need improvement. In addition, Fannin does not have adequate childcare facilities to support working families.

Grayson and Fannin’s location puts them in close proximity to a diverse array of entertainment and recreation:

The Dallas Metroplex area has arts, culture, and professional sports

Within 30 minutes from Grayson, there are casinos in Durant in south Oklahoma

Lake Texoma, with 2 state parks and several small islands, offers a great recreational spot for boating, fishing, and camping

Hagerman Wildlife Refuge within Grayson is a 11,300 acres haven for birds and other animals

Weather in both Grayson and Fannin are generally good. On average, there are no severe cold weather problems or extreme heat waves. Thunderstorms are common in this area, which sometimes results in the occasional isolated flood. More serious, but less common, are tornadoes and hurricanes.

Other than commute time, Grayson and Fannin scored highest in the quality of life factors. Both counties’ cost of living is below national average with the Sherman/Denison area ranked the 9th least expensive urban area in the United States.



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Opportunities

Call Centers Both Grayson and Fannin counties have strong potential as destinations for call centers. Grayson already has a good call center cluster with several mid-size companies in Denison and Sherman. These companies have been in Grayson for a number of years and prove that Grayson is not only a viable location, but one where call centers can thrive. As a result, the workforce is experienced in call center work and can perform both simple and complex call center work in the areas of inbound, outbound, customer service, sales, and technical support. Given all the parameters, Grayson is capable of supporting larger call centers in the range of 200-300 seats.

Fannin, on the other hand, is more suited to small call centers that over time could support up to 100 seats, given the lack of availability of skilled workforce. These call centers would be more appropriate for entry-level inbound and outbound activities.

BPO Companies As the gamut of BPO companies is very large, Fannin is best suited for companies requiring entry-level workers due to the low availability of skilled or professional labor in these counties. BPO companies, like call center companies are used to conducting training for these types of individuals themselves so as long as workers have basic skill sets associated with high school diploma and work ethic, BPO companies can be successful in training. The types of positions created by this would be data entry positions such as forms processing and simple business processing that are based on a clear business practices or rules such as first level insurance claim processing.

Grayson is suited for the same entry-level work mentioned above as well as higher-skilled BPO jobs such as a variety of administrative processes in insurance or healthcare industry, since there is greater access to skilled labor and there is BPO work already being carried out there. For example, a national healthcare provider has a center in Denison that provides a variety of BPO work, which includes multiple skill levels.

There is strong potential for both counties to be destinations for call center work. Grayson can support larger call centers of 200-300 seats, while Fannin is suited to small ones that could grow up to 100 seats over time.

A benefit of attracting BPO companies in contrast to call centers is that over time the higher skilled jobs can get added as the company’s workforce becomes more experienced and the industry starts to develop.



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One attraction to BPO companies, in contrast to call centers, is that over time higher skilled jobs can get added as the company’s workforce becomes more experienced and the industry starts to develop.

ITO Companies Grayson has the potential to attract ITO service providers as it is able to draw from the skilled labor pool in Dallas Metroplex area and a number of colleges in the area. In addition, companies can take advantage of the State of Texas’s Emerging Technology Program, which provides incentives to organizations involved in developing and commercializing emerging technologies.

Grayson could support larger volume of IT work that requires an associate’s degree such as consumer product tech support and simpler desktop or IT support. On the higher end of the IT spectrum (jobs requiring college degree), on-going application and infrastructure management and IT maintenance work are possible as well because of the higher retention rate in a community like Grayson and the relative older worker population (compared with offshore locations). Grayson could support software product development for start-up as these have smaller teams, whereas larger IT teams would require a larger technical skilled labor pool. Depending on the education level required, Grayson can potentially accommodate IT centers of up to 150 knowledge workers.

Industries While positions and skills are not necessarily unique in entry-level jobs across industries, companies always prefer if a cluster of similar companies exist where they plan to locate. This also helps employees have context for particular business operations, reducing required training time. Grayson and Fannin can potentially tell a good story for the following industries:

Healthcare

Insurance

Electronics

Airlines and Aviation

Video Games*

*State of Texas has specific incentives for video game development (http://www.governor.state.tx.us/film/incentives/miiip/)

Grayson has the ability to attract ITO work and can potentially accommodate IT centers of up to 150 knowledge workers, depending on the education level required.

http://www.governor.state.tx.us/film/incentives/miiip/



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The U.S. government sector or companies in industries that are heavy regulated and/or forbidden to go offshore are another attractive area for Grayson and Fannin. For example:

Military

Veterans organizations

Federal Government

Aerospace/Defense

The challenge in attracting government contracts is that sales cycles are long and require concerted effort from a relationship building standpoint. There could be federal government contract work that would be a good fit given the federal rules that sometimes provide preferences for small businesses, rural communities, and/or economically depressed areas. For example, a call center in Grayson is already doing work for a U.S. government agency.

The Ideal Target Given the current conditions in Grayson and Fannin, targeting outsourcing or technology companies with the following characteristics would have the higher success rate:

Mid-sized businesses ($500M-$2B) that are already in the Dallas/Fort Worth area, who would like to retain some people, but move to a more low cost environment (larger companies are not ideal because they have mature sourcing strategies that are already in place and difficult to scale)

Skill set required is general or entry-level – specialized skill sets can be grown over time

Service or product can be delivered online, virtually, or over the phone

Requirement for U.S.-based services provide a competitive advantage (i.e. providing customer service for premier accounts)

High level of interaction required with U.S. office or U.S.-based customers (time zone and language strengths)

Indian service providers planning to set up centers in the United States

BPO service providers focused on healthcare and/or electronics verticals

Regional companies with onshore call centers only (e.g. Southwest Airlines)



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Recommendations While the following recommendations were developed based specifically on the assessments of Grayson and/or Fannin counties, many of these may also be applicable to other rural areas with similar characteristics. Following this section, the next one addresses the lessons to be learned for other rural communities.

Workforce Enhancement Workforce is the greatest challenge in rural areas because the workforce is generally low density, which restricts availability of labor and skills. While it may not be possible to quickly increase the labor pools available, a region can improve the skills of its workforce. Here are a number of ways communities like Fannin and Grayson can enhance the quality of their workforce:

Expand basic workforce training in the area of soft skills (such as showing up to work on time, working collaboratively with colleagues, focusing on the job while at work, taking responsibility for your work and actions, etc.). See the following video as a good example of what Grayson County College’s Center for Workforce Learning put together: http://www.youtube.com/watch?v=2xqohv2fNW4. A greater integration of these concepts into the high school settings could expand its impact. This is a critical element for not only hiring decisions but also for continued employment, productivity, and advancement. An IT workforce skills study by BATEC found that these soft skills include the ability to:

• Communicate (orally and written) in a professional and courteous fashion

• Work productively and collaboratively in teams and groups

• Be customer service focused

• Listen and comprehend

• Be resourceful, constructive, and practical when solving problems

• Analyze, prioritize, evaluate, and work with minimal supervision

• Comprehend concepts when expressed in quantitative terms

• Be flexible as job duties often change and evolve

Provide apprenticeship or internship opportunities through local companies

Workforce is the greatest challenge in rural areas because the workforce is generally low density, which restricts availability of labor and skills.

http://www.youtube.com/watch?v=2xqohv2fNW4



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Create a program to require some work experience as part of the high-school experience (student-run cafeteria, radio station, snack shack, graphic design studio, etc.)

Allow nonprofits or educational groups to use school facilities after hours to provide training, tutoring, childcare, mentoring, and other activities to help children continue to advance their education and to stay out of trouble

Integrate online tools into the course curriculum to help supplement regular curriculum (see http://www.khanacademy.org/)

Fannin could also benefit from having a community college located within the county. While Grayson County College has a satellite campus in Fannin, it only serves some of the needs of Fannin County residents and poses a challenge in terms of easy access to higher education. Currently, the closest full community college is located in neighboring Grayson County.

Real Estate Availability Availability of real estate is key for businesses planning to set up operations. For Fannin, availability of commercial and office space can be improved. One idea is to have city or county land appropriated to the economic development corporation with a set of guidelines on what types of companies can use it and in what manner. This would allow them to offer land or space at a reduced rate to qualified companies as an incentive to locating in Fannin and give the EDA a source of income to use for future prospects in terms of job creation grants or rent subsidies. Another idea is for the city or county to loan money or to guarantee loans for speculative build to a qualified builder. This would encourage a builder to take on speculative build project in Fannin by lowering their risk.

In order to compete with other rural, nearshore, and offshore locations, Grayson and Fannin must focus on increasing high school graduation rates.

Soft skills training, the provision of apprenticeships or internships, and programs that allow high school students to get work experience and supplement their curriculum, are some of the recommended ways to do this.

http://www.khanacademy.org/



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Extrapolating the Pilot – Outsourcing in Rural Communities Grayson and Fannin provide good case studies for rural sourcing since each place represents opposite ends of the rural sourcing spectrum: Fannin being a small community synonymous with small town America, while Grayson is a good example of a suburban or exurban area, often considered a Tier 3 city.

Communities Like Grayson Communities Like Fannin

Typical Population in Main Cities 50,000 or more 25,000 or Less

Typical Skill sets Available

Mostly Low- to Mid-Level, Some High-Level

Mostly Low-Level, Some Mid-Level

Typical Size Limits for an Outsourcing Firm

BPO/Call Center: Up to Maximum of 300 Employees IT: 100-150 Employees (depends whether Associate or Bachelors required)

BPO/Call Center: Up to maximum of 100 Employees

Typical Outsourcing Activities

All levels for Call Centers and BPO, Low-Level ITO

Call Centers, Low Level BPO

Main Challenges • Workforce Availability • Workforce Retention • Marketing

• Workforce Skill set • Workforce Availability • Marketing • Real Estate Availability • Business Ecosystem

Educating Economic Development Offices With the goal of educating local economic development personnel and others on the outsourcing industry, programs and materials should be developed to help bridge the knowledge gap and to provide a road map for attracting the outsourcing community. We recommend that the following topics be covered:

What service providers look for in LCD locations?

What are the benefits of locating in a rural community?

• Affordable labor rates

• Low real estate costs

• A committed and loyal community and workforce

Grayson and Fannin are good rural sourcing case studies since each represents opposite ends of the rural sourcing spectrum.



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• Workforce are native English language speakers

• Workforce have similar culture as customers served (American customers)

• In U.S. time zones

• Ability to locate more resources offsite (in the rural location) than one can when offshoring because of close proximity, same time zone, etc.

• Close proximity to vendor, travel to vendor easier and less costly

What major challenges are present in rural settings and how to overcome them?

• Availability of skilled workforce

• Availability of suitable office space

• Infrastructure – phone, Internet, power/electricity

• Remoteness – transportation for accessibility

• Support services such as staffing, computer and networking support, etc.

Workforce challenges vary depending on the type of community. For those similar to Fannin, workforce skill set and availability can be addressed by focusing on high school graduates. This include adding curriculum in high school that trains students in soft skills that will equip them for work life such as time management, personal financial management, written and email communications, dressing for business, etc. Another aspect is investing in programs that increase high school graduation rates such as Jobs for America’s Graduates (www.jag.org) or programs that help link high schools to the workforce such as internships and mentoring.

In larger communities like Grayson, workforce retention and availability are more of an issue, because the labor pool has more options as far as employment within the community. They also have opportunities to seek employment in nearby large cities. (Refer to the Recommendations section for more information on workforce enhancement.)

The lack of appropriate real estate and infrastructure usually exists predominantly in smaller rural communities. These communities can work on the development of appropriate real estate and infrastructure through USDA Rural Development office’s Business and Economic Development Programs, as well as Electric and Telecommunications Loans and Grants. Some states also offer fund for rural or economic development that can be used for the right

Recommended areas for educating development offices • What service

providers look for in LCD sourcing locations

• What are benefits of rural locations

• What major challenges are present in rural settings and how to overcome them



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project. (Refer to the Recommendations section for more information on improving real estate availability.)

Workforce Enhancement In the previous section covering recommendations for Grayson and Fannin counties, a number of workforce enhancement recommendations were outlined. These recommendations can also be applied to other rural communities. Communities should also consider adopting Grayson County College’s 3-prong approach to help strengthen their labor base:

In addition to traditional academic programs, the college’s Center for Workforce Learning (CWL) offers additional avenues for education and training:

• Open enrollment – anyone can enroll in continuing education classes conducted in-person or online covering business, healthcare, and technical topics

• Customized training – CWL works with local businesses to provide training that is tailored to meet specific needs of organizations with attendees receiving education credits upon successful completion

Grayson County College works to establish and maintain close ties with cities and area counties, as well as with businesses to ensure their programs remain relevant and that companies are aware of their education and training options.

CWL aims to incentivize companies to provide training to their employees through the state and local training grants that it receives.

Recommended Marketing Programs Marketing programs can help with not only outreach and branding of locations, but also with dispelling myths about rural locations. Many of the programs outlined in the Recommendations section for Fannin and Grayson can be applied to other rural communities.

By promoting domestic sourcing in general in America rather than focusing on just domestic sourcing projects in rural America, organizations can broaden the audience and appeal, while also including rural locations as part of the presentation. It is recommended to pursue the following:

Grayson County College’s 3-prong approach is a good one to emulate to strengthen the labor pool of rural communities.



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Making sure that domestic and rural sourcing is properly represented at outsourcing conference

Help subsidize cost of rural community EDA to sponsor outsourcing conferences

Engage the services of an organization that knows the outsourcing space and community to proactively market and pitch rural America, using this report as a case study

Promote a domestic sourcing initiative to get all the local economic development officers (whether at the state or federal level) on message so they feel comfortable pitching domestic sourcing. They could be key resources for assisting in site selection decisions for companies.

Include outsourcing messaging in existing PR efforts

Exceptions to the Pilot In a number of ways, Grayson and Fannin appear to have several factors in their favor. These factors do not always exist in rural communities. Some challenges could potentially exist with other rural areas:

Community colleges may not be established or may not be as comprehensive as Grayson County College in all rural settings

The close integration between the economic development organization, chamber of commerce, and workforce development agency are not typical everywhere as they are in Grayson

Grayson has good building and office space available but more often than not, rural communities would likely lack supply of needed building infrastructure

Grayson has a cluster of outsourcing companies already set up including call centers and BPO providers; this is atypical of most rural communities

Many rural communities are not located near a major metropolitan area and international airport such as Grayson and Fannin’s close proximity to the Dallas Metroplex area and DFW airport


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References U.S. Census Bureau http://www.census.gov/

Various Demographic and Geographic information

Moody’s http://www.moodys.com/cust/default.asp

Public Debt Ratings and Information

The Tax Foundation http://www.taxfoundation.org/

State, Local and Federal tax information

American Community Survey http://www.census.gov/acs/

Comprehensive survey conducted by Census Bureau that shows what the U.S. population looks like and how it lives. Data includes housing statistics, cost of living information, commute times, etc.

QuickFacts http://quickfacts.census.gov/qfd/index.html

Similar to above; U.S. Census Bureau overviews of data searchable by city, county, and state.

FBI Uniform Crime Reports http://www.fbi.gov/ucr/ucr.htm

Crime Rates

K-12 Schools

ACCRA Index http://www.coli.org/

Cost of Living Data

F.E.M.A. http://www.fema.gov/

Natural Disaster and weather information

B.L.S. http://www.bls.gov/

U.S. Bureau of Labor Statistics for all sources of labor information

Commerce Website of Selected Cities For information about state and city economic incentives

http://www.census.gov/

http://www.moodys.com/cust/default.asp

http://www.taxfoundation.org/

http://www.census.gov/acs/

http://quickfacts.census.gov/qfd/index.html

http://www.fbi.gov/ucr/ucr.htm

http://www.coli.org/

http://www.fema.gov/

http://www.bls.gov/


About the Research Firms

TechAmerica Foundation TechAmerica Foundation’s mission is to educate executives, policymakers, press, opinion leaders, and the public on the size, scope, outlook, and impact of technology and to promoting technology led ideas that advance economic growth and U.S. competitiveness.

Launched in 1981, TechAmerica Foundation is a 501(c)(3) non-profit, non-partisan affiliate of TechAmerica, which is the leading voice and resource for the U.S. technology industry. The Foundation disseminates award-winning industry, policy, and market research covering topics such as U.S. competitiveness in a global economy, innovation in government, defense and federal IT forecasts, technology employment and international trade indicators, and other areas of national interest.

It also organizes conferences and seminars to explore pertinent issues with government and industry representatives and to share the foundation’s findings with the public.

Ahilia Ahilia is a marketing consulting firm focused on global services and technology industries. Ahilia specializes in knowledge-based marketing and has advised companies and government agencies on projects such as market assessments, influencer management, and services definition. Ahilia’s in-depth knowledge of the Global IT, BPO and Technology Services industries is what differentiates Ahilia from other consulting firms and marketing agencies. Ahilia’s consultants are all senior executives with extensive experience in global services and technology – they can bridge the gap between strategy, operations, and marketing as well as understand what buyers want and the most current trends in the industry. Founded in 2007, Ahilia services its client base from offices in Davis, CA and Bangalore, India.

Documents

USDA - Domestic Sourcing in North Texas (public-IAOP)