Some Outsourced Jobs Are Coming Back

Aug. 1, 2008 — -- As the U.S. economic slump continues, American jobs are increasingly in short supply: the U.S. Labor Department reported on Friday that employers shrunk payrolls by 51,000.

The decline was smaller than expected but still marked the country's seventh straight month of job losses. The national unemployment rate, meanwhile, has jumped from 5.5 percent to 5.7 percent.

But some experts say there is a bright spot on the jobs front: At least a handful of American companies who had relied on workers stationed overseas are now bringing jobs back to the United States. In addition, foreign companies are continuing to expand U.S. operations and hiring more local residents, instead of flying in foreign staff for business.

It's called "insourcing" or "reverse outsourcing." It's the opposite of outsourcing, the oft-criticized practice of American companies' shipping jobs abroad to take advantage of lower labor costs and other incentives.

Some observers are skeptical that insourcing is yet a significant trend, and one pointed out to ABC News that it cannot easily be seen in economic numbers -- but others see anecdotal cases where it appears to be happening.

Thomas M. Koulopoulos, the author of the book "Smartsourcing," said that in the last three years companies from Dell to Citigroup have been bringing jobs back into the U.S. Part of what's driving the changes, Koulopoulos said, is an emphasis on improving customer service and client relationships.

"There was this illusion that globalization was just about technology and the world is flat because you make it flat, but that only goes so far," he said. "You have to have people there close to the customers."

Proximity to customers was "the paramount reason" for Tata Consultancy Services, an Indian information technology company, to open a new 1,000-person office in Cincinnati, said Tata spokesman Mike McCabe.

Tata, which announced plans for the new office in March, has had sales offices in the United States for years, but the Ohio delivery center will be the company's first U.S. office to house consultants that do the company's nuts-and-bolts work.

Being able to sit down with clients and "understand their challenges, their plans for the future and how we can help them -- obviously, it's much more effectively done in person," McCabe said.

McCabe said that company will look to local candidates to fill most of the jobs at the Cincinnati center.

"We want to have a good understanding of the market, so hiring local talent provides that," he said. "Obviously, they're the people who know the market."

A Monster Plan

Among American companies, the employment Web site Monster is one of the latest to bring jobs back into the U.S. after outsourcing abroad.

The company announced earlier this month that it would open a customer service facility in Florence, S.C., that would eventually employ 300 people. It is shutting down customer service operations that it had outsourced to a company in Asia.

Art O'Donnell, the executive vice president of customer service at Monster, said that turnover at the overseas company made it difficult to train employees to do more than just provide basic help -- how to change a password or activate an account, for instance -- to Monster clients.

"You've got to have a workforce that you can control and you can invest in and grow talent and skills over time, and that usually doesn't happen offshore," O'Donnell said.

He added that in the U.S., Monster will be able to train employees to provide more extensive assistance, such as helping employers design ads that will attract more applications.

Jobs From Abroad

While there isn't data available on the numbers of jobs created by U.S. companies that backtrack on outsourcing, the U.S. Commerce Department reported that, between 2003 and 2007, foreign investment created 447,000 new American jobs.

Michael Corbett, the founder of the International Association of Outsourcing Professionals, said that moves by foreign companies to increase their payrolls in the U.S. and elsewhere is just a part of doing business today.

"The key thing is that companies of all kinds are operating globally and that means they need to have talent located in countries all around the world," he said.

The federal government began a new push to attract foreign companies to the U.S. last year with its Invest in America program. Through the program, U.S. officials reach out to foreign companies interested in U.S. investments and help guide them through Washington's "alphabet soup" of agencies, like the SEC (Securities and Exchange Commission) and the FDA (Food and Drug Agency).

David Bohigian, assistant secretary of commerce for market access and compliance, said that despite the economic downturn, the United States remains an attractive place for companies to invest, thanks in part to its stable government, its talent pool and the transparency with which the U.S. economy operates.

For companies that ship products to the U.S., today's higher fuel and transportation costs provide an extra incentive too, he said.

"When you look at global energy prices, to be able to produce close to your consumers is a key competitive advantage," he said.

But not everyone is sold on the benefits of foreign investment, especially when it comes to job creation.

Alan Tonelson, research fellow at the U.S. Business and Industry Council, a manufacturing trade group, said that most foreign investment comes in the form of foreign companies acquiring existing U.S. companies. That, he said, does not create new jobs and sometimes results in the elimination of jobs.

"It's widely recognized among business experts that when companies join together in some fashion, whether it's an out-and-out takeover or a genuine merger, they're after greater efficiencies," he said. "They want to consolidate and usually that means they fire workers."

Insourcing Obstacles

Tonelson also questions whether "insourcing" by American companies is truly on the rise.

"We have no hard figures. We've got anecdotal evidence," he said. "If we look at the same subject in five years, we may indeed see that it's grown to meaningful proportions. We also may see that it was a flash in the pan to the extent that it ever existed. We simply don't have enough information."

Koulopoulos, who is the head of Delphi Group, a business and technology consulting company, argued that while insourcing is happening, it doesn't always happen easily because of the challenges some businesses face in finding qualified Americans willing to take the newly returned jobs.

Koulopoulos said that Americans were turned off to careers in computer programming and engineering after so many had been moved overseas.

"People don't want to follow that career path because their sense is there won't be jobs for them," he said.

In March, AT&T chief executive Randall Stephenson told a Texas business group that the communications company was having trouble finding qualified applicants to fill 5,000 jobs -- mostly customer service positions -- that it had pledged to move back to the United States from India, according to a Reuters report.

An AT&T spokesman Thursday backpedaled from Stephenson's comments. Michael Coe told ABC News that AT&T had filled more than 2,500 positions and that the company is confident it will fill the rest.

"You always want qualified workers," he said. "And we've been looking for qualified workers, and we've been finding them and filling the jobs."

The company, Coe said, is launching a $100 million program called Aspire to help at-risk students succeed in high school.

"As a company, AT&T is committed to programs -- such as Aspire -- that help prepare more U.S. workers for jobs like the ones we're bringing back," Coe wrote in an e-mail to ABC News.

Manufacturing Left Behind?

Koulopoulos said that one place the country largely isn't seeing insourcing is in the manufacturing sector. That's partly due, he said, to the fact that automation is reducing the number of manufacturing jobs worldwide, not just in the United States.

Those who have lost jobs in manufacturing, he said, often can't easily transition into other careers.

The critical question, he said, is, "How do you redeploy and reskill folks who don't have the luxury to pick and choose their work?"

Ironically, one American entrepreneur says he's using the consolidation of manufacturing jobs to create more work in the United States.

Farouk Shami, the founder and chairman of the Houston-based hair care company Farouk Systems, said that automation is helping him move the manufacturing of the company's blowdryers and flat irons from China and Korea to the United States.

"It takes 70 Korean or Chinese workers 20 minutes to make a Chi flat iron," he said. "Now, in the United States and in Houston, with five people, I can make an iron in five minutes."

Shami, who was first profiled by ABC News Houston affiliate KTRK, said he is building a new facility in Houston that he hopes will house 1,000 new workers within a year. He said he expects to neither save nor lose money through the new venture.

A Palestinian immigrant, Shami said he's just doing his part to help the U.S. economy.

"The only way to recover our economy is if we start manufacturing," he said. "I'm doing my part as a good citizen, that's all."