With rural communities struggling to keep up with urban powerhouses of economic activity, domestic outsourcing of business services represents one possible solution. High-skill job opportunities distributed beyond the suburbs of technology hubs will help rural communities gain much-needed economic hope and reduce the consequences of brain drain in rural communities. At the same time, urban centers will find relief from the symptoms of growing population pressures such as the California housing crisis and the skills gap in local talent pools. Based on research on startup support policies in Southeast Europe, businesses and governments in the United States should focus on enabling, educating, and empowering rural business leaders to encourage more domestic outsourcing in the future.
Rural America is falling behind. Researchers from urban and rural universities around the nation paint the following pictures: “In 2015, 16.7 percent of the rural population was poor, compared with 13.0 percent of the urban population overall” and “Census data show that the rural job market is smaller now—4.26 percent smaller, to be exact—than it was in 2008.”[i] The gap between urban and rural parts of the country is real, and it is not getting better. Despite these trends, some rural communities are growing, and even flourishing. Rural communities give themselves a better chance for success by engaging more fully with urban centers and other parts of the world economy.
Rural communities and urban companies should enable, educate, and empower rural business leaders to provide domestically outsourced services and engage more in the national economy to bridge the gap between rural and urban economies.
What Challenges Do Rural Communities Face?
Recent ideological trends and voting patterns reveal that rural communities and urban centers have diverged in important ways. Economic challenges are one factor in the ideological differences between urban and rural communities. As noted in the statistical examples above, rural economies suffer important disadvantages. Rural economies historically centered on agriculture and export-based industries such as mining and manufacturing, but these industries have cut jobs as technology has advanced and as globalized sourcing has grown.[ii] Rural communities also face poverty and inequality; in fact, high rates of poverty and inequality are over twice as common in rural counties as in urban counties.[iii]
Not all rural economies suffer from these same challenges. Rural communities near natural wonders and in attractive climates attract tourists and vacation-home owners who support local economies in meaningful ways.[iv]ii These positive aspects of rural communities represent double-edged swords, though, as they still encourage single-industry (tourism-based) economies.
Solutions to the rural economic development problems must be informed by these problems of single-industry economics, global competition, and high levels of poverty and inequality.
How Can Domestic Outsourcing Help Rural Communities?
Domestic outsourcing enables rural communities to address these concerns by expanding rural economies to engage in diversified industries, providing services that compete more effectively in the global marketplace, and increasing the economic benefits for whole communities to combat negative trends toward poverty and inequality.
Domestic outsourcing refers to “firms or governmental entities located in the U.S. contracting with other firms or individuals located in the U.S. for the provision of goods and services.”[v] Instead of contracting with global organizations to provide goods and services, businesses can fulfill their outsourcing needs with labor sourced from labor markets within the United States. For example, a large hotel chain firm may contract with a rural accounting firm to complete an external audit or a small group of ski resorts may contract with a rural technology company to develop a web application.
Many domestically outsourced jobs are skilled positions providing knowledge-intensive business services (KIBS), and researchers predict increased numbers of distributed online workers will result in more skilled jobs moving to rural areas.[vi] This trend is important because KIBS, and especially high-technology employment, have been linked to the relative prosperity of urban economies.[vii],[viii]
Not only do workers in these jobs earn high wages, but the presence of these workers in a community also “augments the real wages earned by workers in non-tradeable sectors.”[ix] As these highly skilled workers expend their higher wages within a community, everyone benefits as money that would never otherwise have left urban centers percolates through the local economy. Research shows these benefits outweigh any perceived negative effects of a changing economy, such as higher costs of living.[x]
How Can Domestic Outsourcing Help Relieve Pressures on Urban Economies?
In addition to revitalizing rural communities, domestic outsourcing benefits urban centers by providing low-cost labor, expanding the national labor pool, and relieving population pressures in urban areas.
Domestic outsourcing benefits employers because rural communities’ much lower costs of living result in lower labor costs as well. Employers can gain similar cost benefits to offshore outsourcing without needing to manage the difficulties of communicating across time zones, language barriers, and cultural differences.[xi]
Domestic outsourcing also helps address the ever-increasing shortage of highly skilled workers. Concerns about the skills gap between worker abilities and employer expectations are “increasingly prevalent in the USA and globally.”[xii] For example, workforce demographics played a major role in Amazon’s decision-making for the location of their ‘HQ2’ second headquarters.[xiii] Domestic outsourcing expands the national labor pool by involving rural workers who can provide skilled labor.
By removing incentives for large numbers of workers to live in urban centers, distributed workforces would also help relieve many of the socioeconomic pressures present in urban areas by decreasing the demand placed on limited housing, infrastructure, and other resources.
What Stops Rural Communities from Engaging in More Domestic Outsourcing?
Rural communities can engage in more domestic outsourcing as companies and community leaders implement programs and policies that enable, empower, and educate local business leaders. Unfortunately, most rural communities in the United States are simply not equipped to support domestic outsourcing solutions currently.
In a study of startup policies in Southeast Europe, researchers found three ways in which governments can enable, motivate, and empower startup development in a region:[xiv]
- Enablement policies support new business setup and remove legal barriers to startup creation.
- Education and promotion policies motivate new business growth through public promotion of educational events focused on changing mindsets and worker skill sets.
- Empowerment policies increase success rates for local businesses by providing resources for startups and facilitating business connections regionally and nationally.
By implementing policy measures related to these three areas, governments can help create an environment that provides a positive feedback loop to attract more and more startup development to a region.
How Can Private Businesses Support Domestic Outsourcing?
Though rural governments and community policy makers may have more influence in their individual communities, private business initiatives for rural economic development provide some of the best models for effectively supporting domestic outsourcing.
For example, Microsoft’s TechSpark project involves a variety of tactics meant to enable, educate, and empower rural economic growth.[xv] Specifically, the project helps enable new business setup and growth by providing broadband internet connectivity in underserved areas by using unused TV frequencies. The TechSpark project also educates future rural workers by teaching digital skills to area youth in partnership with 4-H organizations. Lastly, the TechSpark project helps empower business leaders by providing digital transformation workshops for startups and established companies.[xvi] This valuable resource helps rural businesses compete by introducing them to modern technologies that increase organizational efficiency.
With initiatives like Microsoft’s TechSpark, large organizations can combine their corporate social responsibility efforts with the added benefits of increasing their skilled labor pool and relieving population pressures in urban hubs. As businesses have pledged billions of dollars to alleviate housing shortages in places like California, they should also consider creating initiatives supporting business development in other regions. By doing so, they can address a root cause of many urban population pressures instead of the symptoms.
Rural policy makers can use initiatives like Microsoft’s TechSpark program as templates for supporting rural economic development.
How Can Rural Organizations Engage in a Global Economy?
Efforts to support rural economic development should focus especially on training rural workers to have in-demand skills and on connecting rural businesses with professional interest groups and companies that may contract for business services.
Rural workers currently lack many in-demand skills, so rural economic development should first help address the employee skills gap with increased investment in STEM education programs and technology development training for both youth and adults.[xvii]
Rural business owners must also build business connections to engage in domestic outsourcing. Improved technologies continue to enable more effective communication between remote teams, but leaders of rural organizations must pay extra attention to the importance of social networking for business development.[xviii] Without the benefit of physical proximity, effective leaders must engage in networking online and by traveling more than urban organizations. Rural communities and private businesses can help by hosting regional and national conferences and other events to gather rural businesses and facilitate domestic outsourcing contracts.
By enabling, educating, and empowering rural business leaders, rural communities and urban companies can support domestic outsourcing and benefit rural and urban communities and private businesses. Domestic outsourcing represents a long-term strategy for addressing the economic challenges of single-industry economics, global competition, and high levels of poverty and inequality. The current worker skills gap and poor public policy for supporting rural economic development make a quick transition impossible, but research and current initiatives have marked a path for future success.
These examples show the importance of enabling, educating, and empowering rural community members to learn skills, build connections, and provide domestic outsourcing services. Over time, these changes will help create positive feedback loops in rural communities that create valuable jobs and incubate highly skilled workers. Rural economic development will help bridge the economic and ideological gap between rural and urban America and benefit both in the process.
[i] Brian Thiede et al.,“Six Charts That Illustrate the Divide between Rural and Urban America,” The Conversation, March 6, 2017, https://theconversation.com/six-charts-that-illustrate-the-divide-between-rural-and-urban-america-72934.
[ii] Stephan J. Goetz, Mark D. Partridge, and Heather M. Stephens, 2018. “The Economic Status of Rural America in the President Trump Era and Beyond,” Applied Economic Perspectives & Policy 40, no.1 (2018): 97–118, doi:10.1093/aepp/ppx061.
[iii] Goetz, Partridge, and Stephens, “The Economic Status,” 97–118.
[iv] Goetz, Partridge, and Stephens, 97–118.
[v] Annette Bernhardt et al., “Domestic Outsourcing in the U.S.: A Research Agenda to Assess Trends and Effects on Job Quality,” IRLE Working Papers Series no. 102–16, University of California, Berkley, CA, 2015, https://www.irle.berkeley.edu/files/2016/Domestic-Outsourcing-in-the-US.pdf.
[vi] Tessa A. Thomas and Korok Ray, “Online Outsourcing and the Future of Work,” Journal of Global Responsibility 10, no. 3 (2019): 226–238, http://dx.doi.org.erl.lib.byu.edu/10.1108/JGR-10-2018-0039.
[vii] Tom Kemeny and Taner Osman, “The Wider Impacts of High-Technology Employment: Evidence from U.S. Cities,” Research Policy 47, no. 9 (November 2018): 1729–40. doi:10.1016/j.respol.2018.06.005.
[viii] Seungil Yum, “The Interaction between Knowledge-Intensive Business Services and Urban Economy,” The Annals of Regional Science 63, no. 1 (June 2019): 53–83, http://dx.doi.org.erl.lib.byu.edu/10.1007/s00168-019-00920-3.
[ix] Kemeny and Osman, “High-Technology Employment,” 1729–40.
[x] Kemeny and Osman, 1729–40.
[xi] Bob Violino, “Lure of the Countryside,” Computerworld 45, no. 5 (March 7, 2011): 18–21, http://search.ebscohost.com.erl.lib.byu.edu/login.aspx?direct=true&db=buh&AN=59946712&site=ehost-live&scope=site.
[xii] Robert W. Robertson, “Local Economic Development and the Skills Gap: Observations on the Case of Tampa, Florida,” Higher Education, Skills and Work-Based Learning 8, no. 4 (2018): 451–468, http://dx.doi.org.erl.lib.byu.edu/10.1108/HESWBL-05-2017-0033.
[xiii] Robertson, “Local Economic Development,” 451–468.
[xiv] Ales Pustovrh et al., “How to Create a Successful Regional Startup Ecosystem: A Policy-Making Analysis,” Lex Localis – Journal of Local Self-Government 17, no. 3 (2019): 747–68, doi:10.4335/17.3.747-768(2019).
[xv] Pedro Hernandez, “Microsoft TechSpark Tackles Skills Gap, Digital Divide in Rural Areas,” eWeek, October 6, 2017, http://search.ebscohost.com.erl.lib.byu.edu/login.aspx?direct=true&db=buh&AN=125569388&site=ehost-live&scope=site.
[xvi] Hernandez, “Microsoft TechSpark Tackles Skills Gap.”
[xvii] Tessa A. Thomas and Korok Ray, “Online Outsourcing,” 226–238.
[xviii] Vladimir Menshikov and Ludmila Sinica, “NETWORK CAPITAL AND INFORMATION AND COMMUNICATION TECHNOLOGIES: OPPORTUNITIES IN THE ERA OF E-SOCIETY,” Reģionālais Ziņojums.Pētījumu Materiāli no. 12 (2016): 21–40,96, https://search-proquest-com.erl.lib.byu.edu/docview/2132573637?accountid=4488.