Wednesday, May 5, 2004

previous entry | main | next entry | TrackBack (0)

Insourcing roundup

While we're talking about offshore outsourcing, here are a few stories about the benefits that accrue to the United States from insourcing. The Cleveland Plain Dealer's Stephen Koff reports on Honda's Ohio operations as an example of this phenomenon:

Honda, celebrating its 25th year here this summer, has provided a multibillion-dollar boon for central Ohio, with five large factories plus research and engineering facilities and a test track. Last year, it spent more than $7 billion just on parts from 175 suppliers in the state.

Bush cited its success in March when he said that global trade flows two ways, and without it Ohio would not have Honda and its jobs.

In pure dollar terms, insourcing -- whether from Japan-based Honda, or Switzerland-based Nestle, or Dutch-owned Tops markets, to name three firms in Ohio -- has had a significant impact on the American economy. Even counting the steep dropoff that followed the terrorist attacks and recession in 2001, Commerce Department figures show that over the last 10 years, foreign-based companies poured more money into U.S. operations than U.S. companies sent abroad.

Furthermore, most of the foreign investment in the United States came directly from abroad - whereas Commerce Department data show that nearly half the American money sent abroad was actually reinvested earnings.

The Associated Press' Charles Sheehan makes a similar point in analyzing the effect of outsourcing and insourcing in Pennsylvania:

economists note that globalization is a two-way street: States like Pennsylvania also benefit greatly from foreign companies sending jobs to their American subsidiaries, offshoring in reverse.

Dozens of jobs at C&D Technologies, a Lancaster County company that produces electrical power storage and conversion products, are being shipped to Mexico this summer because C&D was losing money. Yet Nissin, a Japanese company also operating in Lancaster County, has 248 employees making dried noodle soups.

In neighboring Berks County, Agere Systems Inc. sent 3,000 jobs to Mexico and Spain after it announced a plant closing in January 2001.

On the flip side, about 190 miles west, Sony's Technology Center-Pittsburgh in Westmoreland County employs 2,400 people, about 20 percent from neighboring Fayette County, where unemployment is consistently above state levels. And they may have to hire more with digital television orders booming.

To be fair, some of the numbers on insourcing are contested. The Economic Policy Institute's Robert Scott and Adam Hersh argue that the number of jobs created due to insourcing isvastly overstated, because those figures include cases of acquisition rather than greenfield investment -- i.e., Daimler's takeover of Chrysler. Unanswered is whether foreign acquisition prevents those firms and jobs from disappearing entirely. For a counter, read the U.S. Chamber of Commerce's April report, "Jobs, Trade, Sourcing, and the Future of the American Workforce.”

posted by Dan on 05.05.04 at 12:00 PM


"Unanswered is whether foreign acquisition prevents those firms and jobs from disappearing entirely."

Does that matter expect to speculate that we would be even worse off? If my net income is zero, and my expenditures put me in the red then I suppose I could be greatful that at least revenue wasn't declining but I'd still be in the red and losing money.

Counting a wash the same as a gain is nothing more than whitewash.

posted by: Oldman on 05.05.04 at 12:00 PM [permalink]

I am 110% in favor of global trade and I think outsourcing is a godo thing for the US economy in the long run. That being said, people employed abroad in order to manufacture/sell products in foreign markets are generally not included when the average person thinks of "outsourcing". "Outsourcing" is generally meant to be people employed abroad in order to serve the home country, not the country they are employed in. If MegaSuperCorp's sales office in Bombay, selling MegaSuperCorp's products to Indian consumers, would generally not be considered "outsourcing". MegaSuperCorp's call center in Bangalore used to handle support calls from American consumers, on the other hand, would be.

posted by: Adam on 05.05.04 at 12:00 PM [permalink]

I'm an insourcer.

I'm a marketing consultant in Chicago who's providing support for an East African telecoms venture. Funded with South African & Middle Eastern (Arab) capital, built with East Asian manufactued equipment (primarily), skilled staffing by Indian infotech support personnel, local stafing for purchasing and sales and adminsitrative, the venture leader and myself are the only Americans invovled.

I'm working at a discounted rate, but my salary is still greater than that paid to everyone working for us in Africa (two dozen people and rising fast) combined. And we've spent a large amount of $$$ in the US for creative services.

But because we don't export any physical goods we have no contact with the Commerce Dept. We just don't exist in a way that would show up in their surveys. All we move out of the US is information and management expertise, and all that comes back is money.

(The IRS sure knows about us though!)

I wonder how much insourcing is being missed like us?

posted by: Shotgun on 05.05.04 at 12:00 PM [permalink]

Please catch Adam's point above. Honda's building of Accords in Ohio for the American market is not insourcing. (To the extent that they're *exporting* American-made Accords, that would be.)

Of course, Ohioans are happy to be building Accords in any case (and to the same extent Honda's Honshu employees are sad).

posted by: old maltese on 05.05.04 at 12:00 PM [permalink]

I'm under the impression the continued existence of American factories is due to domestic content requirements. So Honda, Toyota, et al. must have some production here in order to sell here. Not a stunning victory for free trade, if so.

Not that I'm necessarily for or against domestic content requirements -- just pointing out that the insourcing may not be due to globalization but rather (in this case) good old fashioned protectionism.

posted by: Dan on 05.05.04 at 12:00 PM [permalink]

Foreign auto plants a result of free trade/globilization? Were trade restrictions placed by President Reagen responsible for this foreign presence on american soil? Care to comment on this article?

PS How's my grammer?

posted by: Dan P on 05.05.04 at 12:00 PM [permalink]

The content requirements referred to above ar labelling requirement, not trade restrictions.

I live in central Ohio, about 30 mi from the Honda Plant and I own 2 Accords a 2002 and a 2003. The 2002 was 95% North american content the 2003 was 65% I think that the reason for the discrepancy was that the new 5 speed automatic in the 2003 was not then being manufactured in the US.

Honda established their plants here for at least two solid business reasons. First to be closer to the customers in their biggest market. Second to limit their exposurer to dollar yen fluctuations.

As to the first, although the Accord is a world wide brand name the same car is not sold under the same lables and with the same equipment in all maekets. The Accord sedan in Europe and Japan is not sold as such in the US. A fully optioned out version is sold as the Accura TSX in the US. The Accura brand is not sold in Erope or Japan so the Accura TL (Which is a kitted out version of the US Accord sedan) is sold as the Honda Legend sedan in those markets.

Cars like the Camry and the Accord (US) which are very popular in the united states do not sell well elsewhere. SUVs seem unlikely to catch on in Europe. Manufactures who wish to compete in a global market must design and manufacture in a global market. GM and Ford have been doing it for years. Honda was the first japanese based company to do so.

posted by: Robert Schwartz on 05.05.04 at 12:00 PM [permalink]

Post a Comment:


Email Address:



Remember your info?