Is Farmshoring the Answer to Offshoring?

Currently, U.S. firms are not just looking overseas, but to low-cost communities in rural areas within the United States. This outsourcing of work to domestic rural locations is referred to as "farmshoring." The objective behind farmshoring is to send those jobs that are otherwise destined for a foreign location to low-cost rural location within United States. Although the rural United States cannot compete with extremely low-wages rates in some Asian countries, they do present a viable alternative based on factors other than labor cost. The important factors in making a decision in favor of farmshoring may include cost savings, quality improvement, staffing issues, operational expertise, etc.

In addition to the lower start-up cost and shorter gestation period, there are several other benefits associated with farmshoring jobs. Information security is a major issue with offshoring. Foreign countries may have lax or poorly enforced laws for the protection of personal data and privacy. Data security is another major concern, such as government security clearances required for defense-related contracting. There are also language and cultural barriers associated with offshoring, as well as complying with foreign laws and tax regulations; not to mention multiple time zones.

There are two important requirements for "farmshoring" jobs. The first is the availability of low-cost skilled labor: the second is the presence of an advanced telecommunication infrastructure. Metro areas in Midwestern states, such as Omaha, Des Moines, and Sioux City, usually meet these requirements. Nebraska and North Dakota have been the traditional locations for call centers and back-office operations.

There are a range of industries that have farmshoring potential, such as computer system design and related services, Web services, data processing, scientific and technical consulting, accounting, tax preparation, payroll services, business support services, control instruments manufacturing, medicine manufacturing, etc. Developing rural economies through an infusion of outside business activity is referred to as exogenous economic development. As a result of this infusion, the region gains a new industry sector and, in turn, spurs further endogenous development to support the new industry in the region.

Recent examples of farmshoring include the opening of a new reservation center by Northwest Airlines in Sioux City that created 330 local jobs; and the moving of several new high-tech companies, such as CGI-AMS and Northrop Grumman, into rural southwest Virginia.

For all its potential, rural communities need to realize that farmshoring is not a straightforward solution for their development; it must offer a value proposition that goes beyond lower costs. The development capacity of rural areas can vary greatly. The state plays an important role in this endeavor by providing the necessary infrastructure and supporting targeted training initiatives to help meet the need of industries engaged in farmshoring. It requires a careful look at local assets and limitations and political will to attract, develop, and retain farmshored industries.