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Many Factors Drive U.S. Firms to Buck Outsourcing Trend, Consider Onshoring





By Eric Stavriotis   Outsourcing

For decades, U.S. based businesses have looked overseas to locate their manufacturing, production and call center operations in emerging countries with strong labor forces, low wage rates and favorable business climates. The offshoring trend continues, but in recent years, more and more companies are finding it beneficial to reverse course and move select operations back to the U.S. and neighboring countries—a phenomenon known as onshoring or nearshoring.

There are many reasons companies consider onshoring. One is a sharp increase in wage rates in countries such as India that have experienced tremendous economic growth from years of job creation from multi-national companies, at a time when U.S. wages have risen at approximately the pace of inflation. Another is the volatility of transportation costs – both in delivering goods to the customer and moving raw materials to the production site – and the time involved in moving materials and goods long distances. Throughout much of 2008, U.S. firms also had to contend with a weak dollar against foreign currencies, resulting in higher-than-expected labor rates.

In addition to simple cost motivations, some companies are also re-examining the impact of offshoring on their corporate reputation. At a time when corporate social responsibility is considered a significant factor in business success, companies may think twice about employing workers in countries with poor human rights records or overly lax labor standards. In the case of customer service call centers, some companies are deciding it makes sense to pay more for U.S. workers who may be better able to serve and communicate with customers. And, some consumers simply prefer to do business with firms that commit to a domestic workforce. Add to this the fact that high quality, affordable labor is available in many smaller U.S. markets, and it is not surprising that the onshoring trend is gaining currency.

Companies that have moved overseas departments closer to home in recent years cut across all product lines: AT&T, Dell, Priceline.com, Host Analytics, Alocira, Expedia, HP and Monster.com, are a few.
 
For instance, Host Analytics recently opened a professional services and customer support center in Ponca City, Okla. "While conventional wisdom suggests tech firms will save money by off-shoring, we are finding that is no longer always the case," said Jon Kondo, CEO, Host Analytics, when the move was announced in October 2008. "Much of the cost benefit previously associated with off-shoring is being offset by changing financial conditions in the U.S. and developing countries. And while larger U.S. professional centers attract significant technical talent, competition among firms to retain their services is steep and costly.”

AT&T recently opened a, call center in Birmingham, Ala., signaling the return of 360 jobs that once had been shipped to other countries. The Birmingham center is part of Dallas-based AT&T’s strategic initiative to relocate about 3,000 jobs from multiple overseas countries to the Southeastern U.S., AT&T Alabama President Fred McCallum told Birmingham News in September.

In August, Priceline.com Inc. announced that it has signed a long-term lease to establish a new 45,670-square-foot customer contact center in Wyoming, MI, that will support customers who make hotel reservations through Booking.com, the company’s international business unit. "One reason Michigan was selected is that it has a sizeable pool of talented professionals who possess the specific and wide-ranging skills required for the various functions of the call center," said President and Chief Executive Officer Jeffery H. Boyd at the time of the announcement.

California-based Alorica, a fast-growing technology company, avoided overseas locations in announcing plans in May to open a call center in Terre Haute, Ind., slated to employ 600 Hoosiers by the end of 2008 and additional expansion plans in 2009. "It is our goal to help increase the potential for future job growth in Terre Haute while fulfilling the needs of our clients," said Andy Lee, Alorica’s founder and CEO. "We also know that the fact that we have not closed any of our locations in the history of our organization helps give the people of Terre Haute the confidence they need to join our ever-expanding company."

Recently, Jones Lang LaSalle’s Strategic Consulting team assisted Maynard-based Monster.com in its initiative to strengthen its North American customer service by leading its national search for a new call center operation that will employ 350 people. The team looked at over 3,000 locations using a selection criteria and weightings that were client-specific and customized to Monster.com’s needs before selecting a site in Florence, S.C for a groundbreaking in late 2008.

“Opening the new customer support service center stems from an initiative to bring North American customer support in-house to ensure Monster.com leads the online recruitment industry in proactive service,” said Art O'Donnell, Executive Vice President, Service at Monster.com. Florence was an ideal choice for its rapidly developing labor market and deep talent pool, favorable wage rates and the cooperation of local and state governments. “This presents a win-win for Florence area job seekers who will have access to impressive learning opportunities as well as for our North American customers, who will enjoy the best service in the industry,” O’Donnell said.

Other companies making the play for US-based call center operations include:

• Dell relocated a call center operation from India to Idaho last October;
• Expedia-Tata Group moved from India to Ohio in August 2007;
• ExpressJet Airlines chose to use Alpine Express, a US-based company which staffs virtual call centers with home-based agents, in February 2008; and
• HP announced plans in February to increase its Beaverton, OR call center staff by 500.

Production Operations Also Returning Home
Call center operations are not the only businesses to realize the benefits of returning operations back to U.S. soil. Many manufacturing companies striving to combat the ever-increasing oil, labor and shipping costs are seeking manufacturing operations here at home.

According to Penske Logistics’ “2008 Third Party Logistics Provider CEO Perspective” released October 6, reverse globalization or on-shoring is gaining popularity across the board.

Among the recent manufacturing operations landing on US soil are:

• DSA LLC, the privately held company known for making the heaters that warm football players on the sidelines, relocated its production to Bowling Green, Ky., from China, citing shipping costs as a major factor in this move.

• Emerson also recently brought some of its appliance motor production operations to the U.S. and Mexico from Asia, in part to offset rising transportation costs.

• Chino, Calif.-based Bertolini Corporation, Inc. is opening a manufacturing operation in Lawrenceburg, Tennessee, creating some 150 new jobs within 3 years of the operation’s start-up.

• Telsa Motors, Inc, a Silicon Valley automotive start-up company, announced in September plans to build at $250 million facility in San Jose for the manufacture of electric sedans, brining 1000 new jobs to the area.

Making Onshoring Work
The appeal of onshoring may seem marginal to some companies, but the benefits can be greatly enhanced if firms utilize a location advisory practice with international experience and expertise in state and local incentives. A real estate specialist with sophisticated knowledge of wage rates, business climates, labor availability and other factors around the world can help a firm determine the optimal location, domestic or foreign, to meet the entire matrix of corporate needs.
 
A top-notch location advisory team helps companies establish key criteria and assign weightings to each factor to quickly home in on a short list of possible locations. Then, the team works with cities and states on the short list to ensure that the company taps into all appropriate incentives availability to expanding firms. Such a thorough process is likely to sweeten the deal by millions of dollars over the term of occupancy, and may result in other benefits, such as fast-track approvals on new development.

Here are a few tips to get started:

1. Take stock in your requirements – start with your supply chain and understand where you get your goods and services and where they’re going.

2. Do you research – in general, data is a great tool to help you make your decision, but it should not drive your decision. Companies must spend time in the field, reviewing the market and interviewing local officials. You must literally do the legwork to ensure the location is right for your needs. Companies in general need to spend more time in the field than they anticipate.

3. Incentives should be the icing on the cake – not the cake itself. State and municipal incentives should not be the driving force in any location decision. While incentives can have a strong initial financial impact on a company’s bottom line, corporate leadership should base location decisions on factors that will have a much larger impact on the company’s success over the long term.
 
Despite these very turbulent economic times, opting to come home for highly skilled, highly trained and highly caring employees in the U.S. is making sense for many companies seeking increased service levels and a higher degree of overall customer satisfaction.
 
Eric Stavriotis has negotiated more than $700 million in incentives for Fortune 500 and middle market clients. Specializing in corporate strategy, he is responsible for analyzing the quantitative and qualitative aspects of alternative site locations and making recommendations based on project specifications and investment benchmarks. He can be reached at eric.stavriotis@am.jll.com
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  posted on 3/19/2009   Article Use Policy




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