SUBSCRIBE E-NEWSLETTERS AWARDS COLUMNS MULTIMEDIA CONFERENCES ABOUT US RESEARCH

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.

Tuesday, July 7, 2015
Write To The Editor Reprints

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.

Newsletter Sign-Up:

Benefits
HR Technology
Talent Management
HR Leadership
Inside HR Tech
HRENow
Special Offers

Email Address



Privacy Policy

"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."

Send questions or comments about this story to hreletters@lrp.com.

 

Copyright 2017© LRP Publications