Rural Sourcing Inc.,which provides information technology (IT) services to clients like grocery business SuperValu Inc. and the Jostens Inc. yearbook company, has grown an average of 150 percent annually over the last four years and laid out huge expansion plans.
How did they do it?
Rather than developing software and supporting clients' technology from a center in India -- a dominant IT outsource location -- or from a so-called "near-shore" site in Mexico, RSI's developers and analysts work in the company's two centers in Jonesboro, Ark., and Augusta, Ga.
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Monty Hamilton, chief executive since 2009, sees a surge of interest in the U.S. as a destination point for IT outsourcing. RSI is one of several American companies offering outsourced software development services in small U.S. cities or rural areas.
"We think we're just as competitive as offshore," Hamilton said. While costs appear lower overseas, there's more to expenses than hourly rates, he said, noting "a productivity factor" that reduces the perceived offshore advantage.
But other developments also make onshoring an appealing alternative to India for some companies, including rising IT salaries and high turnover rates in India.
While IT salaries have been flat in the U.S. during the recession, they've risen 15 percent to 20 percent a year in India in the past seven or eight years, he said. In addition, IT staff turnover in India is as much as 30 percent, a big cost element, as employees there prefer to work for brand-name Silicon Valley companies and aren't as excited about working for Midwest U.S. manufacturing companies, he said.
"India has become a victim of its own success," Hamilton said.
He cited a report from outsourcing consultancy Sylvan Advisory that compared IT outsourcing costs in Hyderabad, India, and Atlanta, Ga., and found the offshore savings marginal when accounting for factors other than perceived hourly rates.
Specifically, in a case involving a company's outsourcing of web development jobs with the expectation of more than 30 percent cost savings, Sylvan found the arrangement actually delivered less value after accounting for productive hours worked, lower quality work, and less employee flexibility.
RSI, founded in 2004, sees two major types of clients, according to Hamilton: those that have been outsourcing IT work overseas, or trying to do so, and those without the internal capacity to do the work themselves.
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"About 30 percent of our new contract signings last year were companies that had previously outsourced this work offshore," he said.
For companies concerned with the risk and complexity of outsourcing overseas, Hamilton said, "we become a great alternative to the offshore," offering low-cost work, a better cultural match and similar time zones.
One client, Jostens, wanted help in developing editing software that students can use to make personalized pages for their yearbooks. The company was looking for lower cost alternatives, and didn't want to take the work offshore, Hamilton said.
The product Jostens developed "enables them now to compete with a lot of the social media," he said.
In addition to RSI, others offering IT outsourcing from small-city America include Systems in Motion, with centers in Ann Arbor, Mich., and Fremont, Calif. Its clients include media giant Thomson Reuters Corp., wireless communications company Alltel Corp., and educational electronics maker LeapFrog Enterprises Inc.
Onshore Outsourcing, with centers in Macon, St. Louis and Joplin, in Missouri, says on its website that the company "emerged from a vision and a belief that corporate America does not have to look offshore to find a highly talented, exceptionally competent and cost-effective IT workforce. In fact, such expertise happens to be living on rural roads right here in America."
Cayuse Technologies LLC of Pendleton, Ore., owned by the Confederated Tribes of the Umatilla Indian Reservation, which formed the company in 2006 with Accenture, has 300 employees and bills itself as a "rural shore delivery center," offering application development and business process outsourcing.
CrossUSA, founded in 1998, serves Fortune 100 clients from rural development centers in small U.S.communities, with "an extremely motivated, enthusiastic and hard-working workforce," the company says on its website.
Meanwhile, advocates of what is called "near-shoring" look to Latin America to promote similar advantages to the onshore firms, including close times zones and better cultural fit.
Hamilton considers near-shore IT firms his competitors.
Mike Barrett, co-founder and CEO of IT outsourcing firm Unosquare, which operates a center in Guadalajara, Mexico, agrees there is some competition, but also sees limits to small-town-based IT outsourcing.
"While I think we can all work together, I do believe rural-sourcing is indirectly competitive with near-shoring and off-shoring, and I believe it will continue to grow as remote locations around the world become more costly to operate," Barrett said.
The problem, however, "is that rural communities do not normally attract top-notch talent, and that is going to be the long-term problem they need to solve," he said.
RSI's Hamilton has a different take.
"There are pockets of great IT talent here in the U.S. that have chosen in live in the (non-metro) areas of our country," he said.
With more than 150 employees, RSI is "aggressively hiring," Hamilton said. He's also "scouring all across the U.S. right now looking for our third center." Ultimately, Hamilton aims to have 10 to 12 development centers in "tier two or three" cities across the U.S. in another five years and to build RSI into a 3,000-person technology company.
The onshore IT outsource market, with an estimated market share of $1 billion, represents "a very small percentage of the overall IT outsourcing marketplace," Hamilton said.
But, he added, it's the fastest growing.