Offshoring has become something of a dirty word. When President Donald Trump promised on the campaign trail to penalize U.S. companies that move operations overseas, he struck a powerful chord with millions of voters who have watched American jobs get transferred abroad. It’s too early to know how the administration’s policies will play out, but there is no doubt that the tide has been turning in recent years as a growing number of employers opt to bring positions back to the U.S. Much of the focus has been on manufacturing, but other sectors, including information technology, are seeing an uptick in reshored jobs as well.
Offshoring has been a standard U.S. business practice for more than three decades. It peaked in the early 2000s, when U.S. manufacturing and service companies sent jobs to India, China, Malaysia, the Philippines, Brazil, Peru and Vietnam, according to the nonprofit International Economic Development Council. IT firms were among the earliest businesses to join the movement overseas, seeking help to fix the Y2K computer problem in the 1990s and a cheaper labor pool to handle tasks such as low-level coding, legacy software maintenance and tech support.
For the past 15 years, positions have been flowing offshore, but the trend appears to be reversing. “Jobs are coming back to the United States,” says Rosemary Coates, executive director of the Reshoring Institute, a nonprofit research and consulting organization in San Francisco. “For the first time in more than a decade, more manufacturing jobs are coming into the United States than are leaving the country.”
At the beginning of the 2010s, the U.S. was losing about 220,000 manufacturing positions per year, reports the Reshoring Institute. But between 2010 and 2016, companies brought back approximately 338,000 manufacturing jobs to the U.S. from offshore.
IT support roles are also among the jobs coming home, according to staffing and recruiting firm Randstad Technologies. With “hundreds of companies, large and small, deciding to move manufacturing jobs back to the U.S., it is our experience that many of those same companies choose to onshore or have chosen to reshore their IT support services as part of that overall strategy,” says Jim Larkin, director of pursuit strategy and innovation at Randstad in Philadelphia.
In 2012, General Electric, one of the early leaders in the offshore outsourcing movement, announced that it would bring back thousands of jobs, including IT work. Since then, scores of employers have followed GE’s lead, according to reports compiled by the Reshoring Institute, including GM, Target and Visa, which all announced plans to bring tech jobs back in-house in 2017.
IT contractors and company leaders moving their IT support operations back to the United States will need to lean on HR to effect a smooth transition, say reshoring experts, and planning is paramount. Before IT leaves a foreign locale, companies need to consider employment contracts, scout U.S. locations, assess workforce skills and secure tax incentives. It’s a challenging and complex process, but it offers broader lessons for HR. The strategies you pursue to aid in IT’s transition can be used to help bring any type of business home.
Advantages Are Narrowing
Why the shift back to the U.S.? Increasingly, business leaders are finding that the benefits of offshoring just aren’t as substantial as they once were. Besides, there’s something to be said about being able to find critical IT support down the hall rather than across the ocean.
Companies of all types may have initially realized the cost savings they sought when they moved overseas, Larkin says, but over the last decade the differential has started to shrink in some places. For example, labor costs in India have been rising 10 percent year over year, he notes. Wages and benefit costs also have been increasing substantially in China and other foreign nations.
Some of the jobs that were in those countries now go to Eastern Europe, particularly Romania, or to the Philippines, Larkin adds, but many employers are coming home.
“There are plenty of companies that have a good offshore experience, and reasons to offshore are valid. But after they’ve their dipped their toe in the pool, a lot come back,” he says.
Many businesses were not factoring in the true costs when making the leap offshore, says Craig Shaneck, sales manager for TPA Technologies, an IT recruiting firm based in Boston. Now, “there are better metrics about what it is costing you,” he says. “The hourly rate is not the end-all, be-all metric. The offshore partners will say, ‘Sure, we can do it for this, for so much an hour,’ but what is the total cost?”
An arrangement that requires taking an 18- to 20-hour plane trip to straighten out problems can be difficult to maintain. “There’s more management and oversight and soft costs attached to offshoring,” Larkin says. And the quality might not be what you’re used to. If employees, customers and managers receive sub-par service from overseas tech support, “user revolt” may result, making it more likely that companies will reshore operations, he says.
Language barriers, time-zone differences, cultural mix-ups, unfamiliar laws and regulations, and infrastructure issues can make it challenging to get the job done efficiently overseas. Moreover, workers’ physical security in places where there is social and political unrest is also important to consider.
Cybersecurity is yet another risk. A 2016 University of Maryland study ranked 44 countries based on their vulnerability to cyberattacks. China and India were among the most susceptible nations. The U.S. was rated the 11th safest country in the world. (Denmark, Norway and Finland were the most secure.)
“Security is a bigger and bigger concern. You hear about one kind of disastrous security breach after another,” says Shaneck, who is based in Dallas. It’s especially a problem for companies that contract out their IT work overseas. “You’re not as sure [protocol] is being complied with as when you own it. Are your data, intellectual property and even trade secrets secure?” he says.
HR professionals have particular reason to be concerned about privacy breaches because of the personal nature of the information they collect, says Carol Olsby, SHRM-SCP, who runs Carol Olsby & Associates Inc., an HR consultancy in Seattle.
In the end, “to be global is not as easy as you think,” she says. “A lot of companies say, ‘We want access to talent, so we’re going to this country.’ But they don’t understand the landscape, they don’t understand how to monetize the situation. Home is easier to manage,” Olsby says.
Planning the Journey
Rosemary Coates, executive director of the Reshoring Institute, a nonprofit research and consulting organization, offers the following advice for companies that are considering reshoring businesses of any type:
Unwinding Overseas Operations
Once company leaders decide to bring jobs back to the U.S., HR professionals play a key role in helping to choose where to relocate and find qualified IT workers—no easy feat these days—while keeping the talent pipeline full.
You may need “to be a bit aggressive in going in and making the business case on why you need to be involved” in the reshoring process, says Brad Boyson, SHRM-SCP, executive director of regional operations in SHRM’s Middle East and North Africa office.
“You have to get your hands dirty. Earn the credibility of the organization. There’s nothing unique about IT, but you do have to know IT,” Boyson says. “And you need to be the champion of the change. You have to give people confidence that the change is going to happen and that you believe in it."
There’s no reason the reshoring process can’t be handled smoothly—and it must be to ensure that business operations continue. “You have to understand the timeline,” Olsby advises.
IT services can continue for a while in both locations to smooth the transition and avoid downtime, Boyson suggests. “And make sure you do small-scale testing. The beauty of IT is that you can plan many layers of redundancy so it’s a seamless process.”
For an effective transition, avoid sudden operational changes. “The worst thing you can do is just flip the switch,” Larkin says. You don’t want someone to call the same 800 number one day as the day before and get a completely difference experience, he says
Effective knowledge transfer is critical. “Your best practices should all exist in written form,” Larkin says. “You should be able to transport those back onshore so you’re able to leverage those materials. It has to be well-planned, and all parties have to be communicating so that everybody is singing from the same hymn book.”
Even though countries other than the U.S. tend to be more vulnerable to cyberattacks, there’s an urgent need for companies that reshore their IT operations to protect against growing cybersecurity threats. (Source: Risk Based Security.)
data breaches occurred in 2016, including four of the largest breaches ever.
of the announced data breaches in 2016 that exposed user data came from the United States.
billion user records were lost by U.S. organizations in 2016.
Remember the Foreign Workers
An important but often overlooked issue is that workers in many countries typically have employment contracts and are not at-will employees. “HR really has to work with legal counsel overseas to make sure the company is compliant” with the contracts, Olsby says.
The amount of notice you need to give workers who are about to be let go varies by country. “Your company may have a plan to [transfer IT operations] in this amount of time, but the laws in a country may require more time,” she says. “You have to understand the landscape.”
In China, for example, employers laying off workers must follow strict procedures and, in some cases, get government approval. At least 30 days before initiating a mass layoff, a business is required to present a plan to the workers’ labor union or to all employees if there is no union, according to Grace Yang, senior attorney with the law firm Harris Bricken and author of China Law Blog. The employer must consider any comments it receives, revise its layoff plan accordingly and then file a report with authorities.
Beyond following the legal requirements, employers should show consideration for the workforce left behind. “It’s important to who you are as a company,” Olsby emphasizes. “You always want to make sure you treat people with respect and dignity. They have been important to your business.”
Some companies offer services to help displaced workers find other jobs, she notes. “You want them to feel that exiting the company was as good an experience as onboarding.”
In other words, don’t leave foreign workers high and dry. “They are not going to forget that. You don’t want to lock yourself out” of that market in the future, Coates says.
Finding Talent Back Home
IT workers in the United States are in high demand, so budget a lot of lead time to find new employees when reshoring, Olsby says.
A project team made up of representatives from HR, the legal department and facilities management―along with various subject matter experts―should meet every week, at least virtually, to discuss goals and progress. “HR needs to be working very closely with the business to understand what kind of competencies will be needed,” Olsby says.
With the IT market being so hot, you should have a secondary staffing plan. “Do we want to use contract workers until we find the right workers? Is there a period of time when we will be using consultants?” Olsby suggests asking.
Choosing the right geographical location at home depends on several factors, including whether skilled workers and facilities are available, the cost of living, and the location of corporate headquarters. College towns may provide a steadier source of talent.
“Rural sourcing” is another strategic approach, according to the International Economic Development Council. This approach allows companies to access reduced labor costs in rural towns—as much as 25 percent to 50 percent lower than in urban locations—and is a growing practice among smaller domestic outsourcing firms that offer specialized IT services and customer service.
Smaller cities that have a strong focus on IT―such as Salt Lake City or Austin, Texas―can similarly be a bargain compared to larger cities, Randstad’s Larkin says.
Your decision of where to set up shop may also depend on whether you can secure tax incentives. Government enticements designed to lure jobs to the United States are snagging some big fish. Last fall, Wisconsin Gov. Scott Walker approved $3 billion in public money over 15 years to encourage Foxconn to build a factory in the state. In exchange, the world’s largest contract electronics manufacturer agreed to invest $10 billion in a LCD panel plant and initially employ 3,000 people, a number that could rise to 13,000.
Foxconn is a Taiwanese manufacturer, but federal, state and local tax breaks and training credits are also available to U.S. companies reshoring jobs in all types of industries, including IT support.
“Usually, incentives are not related to what the job is. They are just incentives for jobs, period,” Coates says. The Reshoring Institute helps company leaders arrange meetings with local, county and state governments, and sometimes with representatives from private organizations as well, to negotiate what types of enticements may be offered.
“Economic development groups are eager to attract jobs to their communities. They may give a tax holiday on property. That’s a big, big one,” Coates says. They are usually very willing to offer companies generous terms to relocate. That’s because “they are aware that every new job is a magnifier, that the new employees will shop, buy cars and houses and TVs. There’s a ripple effect,” she says.
Explore incentives at the beginning of the reshoring process. “It has to happen early, because it’s going to contribute to your cost modeling. You need to know upfront,” Coates advises.
Some executives considering reshoring their organizations’ IT function and other operations to California may decide that the state’s regulatory environment is too onerous. They often look across the border to Las Vegas and Reno, Nev., or to southern Oregon, Coates says, while those bringing back call centers tend to head north to relatively low-cost areas like the Dakotas.
Southern states also are offering lots of tax incentives to attract jobs to the region. “Alabama, the Carolinas, Tennessee are working hard. Texas is turning cartwheels to get companies to come there,” Coates says.
The best leaders don’t just look for pockets of talent back home, they create it themselves by joining forces with local universities and with organizations involved in training and retraining. “Find and partner with them,” Shaneck says. “And talk with county and state governments about where to find workers. Every politician wants to bring these jobs home.”
It’s a long road to get to the last stop in the lengthy reshoring process, and you can expect to face plenty of challenges along the way. It’s up to HR professionals to help their companies successfully map the route back home.
Reeling In Jobs with Incentives
The decision to bring IT operations back to the U.S. often hinges on what tax breaks and other incentives local, state and federal governments can offer. Here’s where you can find out more about what’s available:
Stephenie Overman is a freelance writer based in the Washington, D.C., area.
Illustration by Ellen Weinstein.
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