Coming (Back) to America – Human Resource Executive Online

Coming (Back) to America

While the concept of offshoring processes to lower-cost areas of
the world was all the rage just a few short years ago, experts say that factors
such as a narrowing wage gap and automation are now causing companies to
“re-shore� their operations.

By Andrew R. McIlvaine

For
American companies looking to save money by relocating their call centers and
factories to places that offered low-cost, well-educated labor in stable
environments, countries such as India, China and the Philippines proved to be
very enticing. Now, however, the luster once enjoyed by those countries appears
to be dimming slightly, thanks to a surprising new competitor: The United
States.

Experts
say a combination of factors is leading many companies to “re-shore� their
manufacturing and business-services operations to U.S. locations. These factors
include a narrowing wage gap, concerns about risk and the need for highly
educated workers.

“The
U.S. has excellent human capital—you have higher productivity and the workforce
is better educated than most,� says Kevin O’Marah, chief content officer for
SCM World, a London-based supply chain consulting firm.

Wages
in China and—for certain industries—in India are rising rapidly, as are
turnover rates for the most-skilled employees, while U.S. wage rates have
remained fairly stagnant. Three of the biggest Indian outsourcing firms—Wipro,
Infosys and Tata Consultancy Services—all had double-digit attrition rates at
their India-based service centers last year, reports the Times of India. 

In
India, experienced shared-services-center employees are a prized commodity and
are often lured from company to company with incremental pay raises, says Penny
Weller, senior director and North American practice leader for Miami-based The
Hackett Group’s global business services unit.

“Once
the employees come in and attain a certain level of experience, they’re much
more marketable and willing to jump from one company to another,� she says.

According
to data from SCM World, just over half (53 percent) of companies are planning
to re-shore at least some of their manufacturing operations, says O’Marah.

Concern
about increased risk is a major reason for the trend, he says.

“People
are worried about their IT getting stolen, the very long supply chain, the
massive strike that shut down West Coast ports last year—our data says risk is
the biggest factor leading companies to re-shore,� says O’Marah.

Offshoring
has hardly gone away: Although 60,000 manufacturing jobs were created in the
United States via re-shoring or direct foreign investment last year (primarily
in the Southeast and Texas), between 30,000 and 50,000 manufacturing jobs were
offshored during the same period, according to the Reshoring Initiative, a
nonprofit organization that advocates for manufacturing in the United States.
However, the approximate net gain of 10,000 or so manufacturing jobs stands in
stark contrast to 2003, when 140,000 U.S. manufacturing jobs were sent
overseas, according to the organization.

Within
the United States, some large companies have pulled back from building data
centers in India and are placing them in regions such as the Midwestern U.S.
instead. There, they’ve found that hiring and training local college graduates
has proven to be less burdensome than dealing with attrition costs among IT
workers in India, says Raleen Gagnon, director of market intelligence and
strategy at Milwaukee-based Manpower Group Solutions. In India, turnover rates
were such that one client had to replace its core staff at least three times
during the course of one project, she says.

A
number of small-to-mid-sized U.S. cities are becoming attractive destinations
for the type of business-support center jobs (in areas such as IT, HR, finance
and procurement) that were once routinely shipped overseas to India and the
Philippines, according to a recent report from The Hackett Group. It lists the
top 10 cities in this category as Syracuse, N.Y.; Jacksonville and Tampa, Fla.;
Lansing and Grand Rapids, Mich.; Atlanta; Allentown, Pa.; Green Bay, Wis.;
Richmond, Va.; and Longmont, Colo.

The
cities were chosen based on factors such as workforce quality, cost of living,
flexibility of labor laws, labor cost and quality of infrastructure, says
Weller.

An
all-time-high of nearly 700 U.S. centers of excellence are now up and running,
according to The Hackett Group.

Many
states and municipalities offer tax incentives and other benefits designed to
lure support-services jobs, says Scott Wilson, senior vice president of shared
services at Irvine, Calif.-based Alorica, which has 30,000 U.S.-based employees
and another 10,000 in offshore locations.

“The
opportunity available to companies that are interested in re-shoring is pretty
strong in that there are lots of interested and motivated municipalities that
would love to tell a story about bringing jobs back to the United States,� he
says.

Burdensome
regulations directed at foreign-owned companies are also making some offshore
locations less desirable, says Gagnon. China, for example, has passed a law
requiring that the local workforces of multinationals be at least 80-percent
full-time versus contingent. In Singapore, a new law mandates that 80 percent
of a firm’s local workforce be comprised of Singaporean citizens.

“One
of the biggest problems—and one that doesn’t get discussed much, frankly—is that
foreign-owned companies in China are held to a different standard than
Chinese-owned ones,� says Gagnon. “It is very hard to compete locally, as an
employer, when you’re held to a different set of standards.�

Ironically
enough, automation—often derided as a job killer—is also behind the re-shoring
trend, says O’Marah. 

“The
increase in automation and robotics increases the incentive to bring
manufacturing back to the U.S., because you need higher-level skills in your
operators,� he says. “The shop-floor guys working in these environments need to
understand software programming and robotics controls.�

However,
even as companies re-shore some of their operations while keeping others
off-shore, many struggle with finding the managerial talent needed to keep
things running smoothly, says O’Marah.

“There’s
a big gap at headquarters between the kind of sophisticated, cross-functional
knowledge they need to manage these interconnected networks and the available
talent supply,� he says.

Many
companies are seeking to grow this talent internally by having their managers
broaden their business knowledge through working on cross-functional teams, and
by partnering with universities that have strong supply-chain-management
training programs, including Michigan State and Penn State, he says.

Despite
rising turnover and wages, however, many companies remain committed to their
offshore strategies. At C3/Customer Contact Channels, a Plantation, Fla.-based
global provider of call-center services, the company has doubled down on
marketing itself as an employer of choice to attract talent and keep turnover
levels stable at its centers in the Philippines, Eastern Europe and Central
America.

“We
tout our positive work environment, career paths and development opportunities,�
says Bob Tenzer, senior vice president of HR training and quality. 
“Making people want to work for you is a better strategy than repatriation.�

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