Seeking A Slice Of ‘Onshoring’ Pie

January 8, 2010 Current Commentary Comments Off
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When Ohio’s Democratic Gov. Ted Strickland shared a table at a White House state dinner with Indian businessman Ratan Tata, he was, in the eyes of some, dining with the enemy.

Strickland’s state faced a 10.6 percent unemployment rate in October, higher than the national average of 10 percent. Meanwhile, the Tata Group’s Tata Consultancy Services (TCS) has put itself at the forefront of the global outsourcing industry that many Americans blame for sending jobs overseas. This view is particularly common among Democrats, though it is not limited to them.

So Strickland’s availability to break bread with Tata at the Nov. 24 dinner honoring Indian Prime Minister Manmohan Singh attracted some attention. (But because Strickland was on the official guest list for that dinner, he has not attracted as much attention as some other attendees who were not.)

Rather than look at outsourcing companies as thieves who steal jobs from Ohio, Strickland sees working with TCS as a valuable opportunity to help rebuild his state’s economy. In March TCS announced the opening of a new facility in the Cincinnati suburb of Milford, Ohio. And in November Strickland attended a ceremony at the new facility marking the hiring of its 300th employee.

While outsourcing companies like TCS still employ most of their workforce in their home countries, some are also “onshoring” facilities and jobs in the United States. U.S. companies appreciate having work done in their own time zones, and local workers often are better equipped to understand cultural nuances. Sites in the United States also give the outsourcing companies access to lucrative government contracts that involve data that cannot leave the country due to security or privacy concerns.

To make the case for moving to Ohio even more convincing, Strickland threw in $19 million in tax credits and a state dinner at the governor’s mansion for TCS executives. “The economy is difficult,” the governor said. “I will go wherever I can to find jobs.”

Technology companies are not the only foreign businesses looking to expand on American soil. While American automakers struggled and laid off workers, some foreign car manufacturers brought jobs into the country. In November, South Korea’s Kia Motors started production at its new plant in West Point, Ga., its first in the United States. The lightly unionized South is the preferred U.S. destination for foreign automakers. Mercedes and Hyundai have factories in Alabama. Toyota has one in Kentucky and BMW has one in South Carolina. Honda has assembly plants in Alabama and in Marysville, Ohio.

Having factories in the U.S. enables automakers to avoid protectionist measures on vehicles that will be sold stateside, while taking advantage of land and utility prices that are often lower than in more densely populated places such as Western Europe and Japan. These automakers also benefit from state and local government incentives and from the availability of skilled American labor.

But not all the jobs that are created by a foreign company’s U.S. facilities go to Americans. On National Public Radio, West Point’s mayor Drew Ferguson described the cultural shift that occurred in his town as a result of Kia’s plant opening there. “You begin to see it in the restaurants,” he said, noting that the town’s four Asian-themed restaurants now play host to a mixed crowd of locals and Korean businessmen wearing Kia ID tags. TCS has more than 11,000 Indian employees working in the U.S. on temporary visas and Wipro Technologies, another leading Indian technology company, has 7,000. Ferguson said that he enjoys the new blend of cultures in his town. “It’s a lot of fun,” he said.

But some in the Senate are less excited. A bill introduced last April would bar companies with more than 50 employees in the U.S. from using temporary visas for more than half of their U.S. workforce. The Senate sponsors seem to think that this would induce foreign companies to hire more Americans to staff their U.S. facilities.

I don’t think this is likely. As governors and mayors like Strickland and Ferguson know, competing for large plants isn’t easy, and the U.S. isn’t the only player in the game. Just on the other side of Lake Erie from job-hungry Ohio lies Canada, which, with its liberal immigration policies, would probably be more than happy to welcome foreign companies’ new plants as well as their workers. For U.S. companies that want outsourced work to be done in their own time zones and language, it probably does not matter if the work happens here or a little bit farther north.

More importantly, however, Sens. Dick Durbin, D-Ill., and Chuck Grassley, R-Iowa, who proposed the bill, are missing a larger point. Even if factories and data centers located in the United States do not directly employ many Americans, they still help to strengthen the economy so other jobs can emerge. Regardless of where they hail from, workers at facilities in the U.S. buy their groceries in the U.S., go to movies in the U.S., and pay taxes in the U.S.

Politicians who depict outsourcing as a threat to American jobs mistakenly view trade as a zero-sum game, where someone wins and someone loses. In this mindset, a job somewhere else means a person out of work here.

However, in many cases the choice is not between having a job in America and having a job offshore, but between having a position and not having one. Many of the jobs that are outsourced make sense to do at one pay rate, but not at another. Workers in Bangalore who make $7,000 to $8,000 a year are in many, if not most, cases, holding jobs that would be done by machines — or not at all — if they could not be done at such low wages.

The “job-stealing” argument reminds me of the entertainment industry’s inflated figures for the revenue lost to illegal downloads and pirated disks. Would every pirated album or movie be purchased at full retail price if piracy did not exist? Hardly.

Like children afraid that the arrival of a new sibling means they will get less of their parents’ love, protectionists believe there is only so much prosperity to go around. In the real world, however, parental love and global economies readily expand to meet everybody’s needs.


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