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How to evaluate domestic IT service provider locations

Stephanie Overby | April 3, 2017
The uncertainty of the future of the H-1B visa programme is causing businesses to take a closer look at U.S. IT service delivery locations.

A tier-one city like New York, Los Angeles or Boston has an exceptionally large and broad talent pool, but also exceptionally high operating costs. Tier-two cities such as Atlanta, Dallas, Denver, and Houston – with several universities and operating costs 10 to 15 percent lower than the biggest cities – tend to get the greatest market share, according to Everest Group.

Tier-three cities including El Paso, Tex., Nashville, Tenn., New Orleans, La., and Omaha, Neb., are just behind the tier-two cities in market share. These midsized metro areas have a decent sized, but less broad talent pools and operating costs that are five to 10 percent cheaper than tier-two options. Small tier-four cities like Mobile, Ala., Des Moines, Ia., and Fargo, N.D. are low cost but have a smaller talent pool, while tier-five town like Midland, Mich. and rural sourcing locations such as Grand Rapids, Minn. have more limited breadth and depth of talent and the lowest operating costs.

everest group 
Click for larger image. Credit: Everest Group

Building a business case for a U.S. IT services location will likely involve some trade-offs. Tier-2 cities offer the advantages of moderate operating cost and breadth and depth of skills, but companies may have trouble attracting professionals with extremely specialized skills more likely to be found in San Francisco or Atlanta, says Garb. Tier-3 and 4 locations may be great options for low-cost transactional IT services delivery (and are becoming increasingly attractive for business process outsourcing and call center work), but not for more advanced skills, according to Everest.

While it may be some time for the future of the H-1B visa program to become clearer, determining the right location for IT service delivery takes a significant amount of research and planning making now a good time to evaluate the options.


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