With increasing pressure on companies to reduce costs and maximize value for their existing customer bases, technology has emerged as a critical enabler of innovation and competitive advantage. For the past several years, U.S. businesses have looked to offshoring software development projects as a means to accomplish both cost savings and innovation.

In 2009, BDO Seidman reported that nearly two-thirds (62%) of CFOs at leading U.S. technology businesses said their companies were outsourcing some job functions. However, fewer than half (42%) of CFOs indicated they are offshoring. This figure is down from 79% in 2008. The two most common functions offshored were manufacturing (54%) and IT services or programming (46%).

According to PayScale, a market leader in global online compensation data, a senior software engineer in Silicon Valley earns an average of $110,000 annually, while an offshore senior developer earns an average of $60,000. Therefore, proponents of offshore software development claim lower offshore labor costs will result in a cost reduction of approximately 50%. However, expectations that savings from offshore outsourcing would be directly proportional to lower hourly rates have not been met. Timelines and costs have been exacerbated by serious problems with quality control, knowledge transfer, cultural differences, and employee turnover.

As a result, technology CFOs are now choosing the U.S. (22%) as a future outsourcing location over China (16%) and India (13%). Also contributing to the decline of offshoring is the fact that American businesses are concerned about the uncertain business and political climate of international markets as well as data privacy and security issues.

According to an InfoWorld article, the U.S. IT market has added 25,000 jobs in the first two months of 2010. According to U.S. Labor Department statistics, this is the largest month-to-month gain in IT staffing since 2008.

In part, this increase is due to a new trend in IT outsourcing called “Homeshoring”. Basically, homeshoring is a low-cost domestic sourcing model. Homeshoring is about assembling project-centric, cross-functional development teams in a development center located away from high rent, high labor rate areas of the U.S. like San Jose, Boston, Los Angeles, and other major metropolitan areas.

Homeshoring uses U.S. resources that understand U.S. business, culture, and work ethics. The homeshoring model reduces the high costs associated with offshore travel, training, and project management. Another factor contributing to the increasing popularity of homeshoring is the fact that the U.S. remains one of the best markets for technical talent. U.S. engineers have a reputation for driving innovation and successful project implementations.

According to an article in the L.A. Times, Century City-based Northrop Grumman Corporation chose Corsicana, Texas and six other small cities as locations for employees who develop software and troubleshoot technical problems for clients hundreds or thousands of miles away. It cost Northrop about 40% less to have the work done in Corsicana than in Los Angeles – savings comparable to what they could have achieved by sending the work overseas.

A biannual survey conducted by Archstone Consulting in partnership with Duke University found in-house wages in major U.S. metro markets run $75 to $100 an hour, as opposed to $20 an hour in India. However, as salaries in India increase because of past market demand, average software developer wages of $35 – $40 per hour in small-town America are becoming more cost competitive. And, this is only the beginning. As the trajectory of costs (wages, infrastructure, and program management) in offshore locations continues to accelerate at a much faster rate than in the U.S., small-town America’s cost structure is becoming even more appealing. According to researcher IDC, homeshoring is expanding by 20% per year and “on track to explode”.

Some of the most desirable U.S. homeshoring locations are small- and mid-sized cities in the Midwest, like Omaha, Nebraska, because they offer:

• Cheaper cost of living
• Central time zone
• Neutral accents
• Well educated workforce
• Similar culture
• Consistent legal systems under one federal jurisdiction
• Less expensive and less complicated travel
• Midwestern values and work-ethic

Omaha is quickly becoming one of the more popular homeshoring locations. The city boasts an overall cost of living index score of 80.98. This means Omaha’s cost of living is almost 20% less than the U.S. average cost of living. Additionally, Omaha has several leading universities and colleges that are producing first-rate technical talent.

Organizations interested in the homeshoring model may want to consider Baldwin Hackett & Meeks, Inc. (BHMI). BHMI is an enterprise application development organization that has been in business for over 24 years. Since 1986, the company’s entire staff and development center have been located in Omaha. BHMI supports clients around the world, and in a wide range of industries.

BHMI is known for completing projects on time, within budget, and at the highest level of quality. The company specializes in developing custom applications that meet complex business requirements. This includes creating software with robust processing capabilities, powerful user interfaces, real-time information viewing, secure data access controls, and much more. Due to BHMI’s highly-productive centralized operations, it is frequently able to perform development work in half the time of many offshore development organizations. This fact alone enables BHMI to effectively compete with the offshoring pricing model.