CGI Plans to Expand Services Delivery From Small Towns

Montreal-based CGI Group, an IT and business process services company, plans to increase the number of delivery centers it has in small towns and rural areas in the U.S. and other countries, both to cut costs and to attract talent.

To have access to newer resource pools ahead of its competition, the company plans to tap talent in rural areas who would like to stay home rather than migrate to cities, said Donna Morea, CGI's president for U.S., Europe, and Asia.

Deploying staff in rural areas also costs 30 percent less than in major metropolitan areas, she added.

CGI's rural strategy is to go together with the company's expansion in low-cost locations like India, Morea said. The company, which has about 3,300 of its 31,000 staff in India, plans to grow its Indian staff to 5,000 at the end of its fiscal year 2011.

It is not uncommon for service providers and buyers to have centers in smaller cities in the U.S., which are lower-cost locations than the large metropolitan areas, said Anand Ramesh, research director at Everest Research Institute.

But CGI expects that its focused strategy to expand into small towns and rural locations, with a typical population of 50,000 or less people, will give it a competitive edge. The company's target is to have 20 percent of its staff from small towns and rural areas, Morea said. She did not specify a timeline for this transition.

CGI's experience is that if a rural location has universities and broadband access, then it is usually possible to find a talent pool that the company can recruit and retain, Morea said.

The value to customers is that they will have staff who will work with them for a long period, and understand their business, Morea said. The centers typically have about 500 staff.

It is possible and feasible to find many skills, though in a smaller scale in non-metro cities, Ramesh said.

The quality of life does not drop dramatically in the U.S. or Europe when people move to a second- or third-tier location, according to Ramesh. As a result, it is not uncommon to find people who may have worked in a New York, Chicago, or a similar large city wanting to move back to a smaller place like Charleston, South Carolina to work in an IT role, he added.

CGI, which has three rural centers in the U.S., now plans to add two such centers this year in the country, besides also setting up similar centers in Europe and Canada. It also plans to explore setting up delivery centers in small towns in India.

Analysts are however not sure that a rural focus will be very attractive to customers. Several clients talk about rural sourcing but there isn't a lot of real adoption, Ramesh said. At the end of the day, people prefer to pay a 10 percent to 15 percent premium for predictable access to experienced talent, he added.

The rural and small town approach may work for some processes and services, Ramesh said. It does however need careful testing and implementation to ensure it works, he added.

In the quarter ended June 30, CGI derived 60 percent of its revenue from Canada, with another 35 percent coming from the U.S. and 5 percent from Europe.

After the company's August acquisition of Stanley, a supplier of services to the U.S. federal civilian, defense, and intelligence agencies, more than 50 percent of revenue from the U.S. now comes from the government, Morea said. The company plans to balance out its business between commercial and government customers in the U.S. going forward, she said.

One of the requirements for earning federal government civilian and defense business is the ability to deliver services from centers within the U.S., according to Morea. CGI's bid to set up more rural delivery centers may be also linked to its business in this sector, Ramesh said.

John Ribeiro covers outsourcing and general technology breaking news from India for The IDG News Service. Follow John on Twitter at @Johnribeiro. John's e-mail address is john_ribeiro@idg.com

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