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Company A had a large manufacturing operation in the Silicon Valley. Since 2000, it has moved 500 assembly positions to Vietnam. Now because of the economy, quality problems and costs of shipping, the price differential has eroded or has been eliminated. The company now is repatriating those 500 jobs to California.
Company B, based in the Silicon Valley, went to China. There, it established a new manufacturing corporation with 500 Chinese workers. Now the offshoot company has grown to thousands of employees and is returning to the Silicon Valley, where it will employ Americans, who will have Chinese nationals as managers.
In either scenario, human resource professionals face myriad challenges, including, among other things, union issues and intellectual property legalities. These situations should have been foreseen, though, according to
The Mpower Group, a global management consulting firm in Oak Brook, Ill.
In 2005, Mpower projected that companies would begin returning to the United States. Dalip Raheja is president and CEO of Mpower, which focuses on strategic sourcing, outsourcing and supply chain management for
Fortune 500 companies. He said companies, like the pair he mentioned above, have seen that the cost savings realized from outsourcing didn’t have positive long-term benefits.
“Because there have been so many major fiascos—the pet food recall, the toy paint—people started realizing that they were making [outsourcing] decisions that they thought were going to save them money. But at the end of the day, they saved a nickel here and it cost them $2 somewhere else,” Raheja said. “You lose 20 percent market share, you’ll take the 5 percent cost any day.”
As a result, more companies will be bringing operations back to the United States. Here are some issues and some practices for solving them:
Issue No.1: Educating HR Professionals
Sometimes, when some companies send operations overseas, HR professionals are kept out of the loop or their input on the execution is limited, said Mark Foster, partner with
Burgeson, LLP, a San Jose law firm. He specializes in foreign direct investment projects worth hundreds of millions of dollars on behalf of U.S., Japanese, European and Indian investors.
“HR people have not been typically trained very well in financial and accounting and investment-related, share-price-related issues. Nor are they trained well in intellectual property issues. I think education of HR professionals, especially the VPs and managers of HR, is important so they understand that they are where the rubber meets the road,” Foster said.
A company’s HR team should know about protecting, identifying and enforcing the company’s intellectual property (IP) with regard to the employees, Foster said. As part of hiring packages, there should be a “nondisclosure and invention assignment agreement.” HR professionals are integral in explaining the agreements, enforcing them and getting them signed.
“I would emphasize continuing education—ongoing seminars every quarter for HR—if I were in-house as general counsel,” he said.
HR should be cognizant, too, of the details of who owned the idea—the company or the foreign operation that was performing the work. For example, suppose an American rug manufacturer moved its weaving operations to India and is bringing them home. If the company hired Indian workers under a subsidiary, then it still retains its intellectual property for the weaving operation. The process is protected under Indian and American law.
But suppose the company doing the work wasn’t a subsidiary but an Indian contract company doing work for several American companies. “It gets very muddy,” Foster said. “If they take all your drawings and methods and the way that you’ve been weaving the carpets for 150 years and they improve them, boy—you need to have a clear understanding of who owns the improvements and who is coming back to the U.S.
“If the Indian textile company is pulling up stakes and bringing its company to the United States, for example, there’s likely to be abasis for a dispute about ownership of that IP.
In that scenario, HR would have to focus on key hires, like vice presidents of engineering, manufacturing, and research and development. It would have to caution upper-tier management to be careful in hiring decisions.
“If you hire someone coming from a competitor, you don’t want that person to bring legal disputes with them. Make sure the new hires, especially at the executive level of science, disclose previous work for American companies and previous patents,” Foster said.
Issue No. 2: ‘Rigor and Planning’
Another issue is knowledge continuity management, or the rigor and the planning that went in when work went overseas. What training occurred? How were people brought on board in the foreign country? How were tools and templates assimilated into the company’s foreign operations?
It now falls to the HR professional to get people in place who can rebuild what was lost, Raheja said.
“There are robust plans put in place when you send work overseas and, at a minimum, you need the same rigor and vigor when you bring it back,” Raheja said. “People think it’ll be easier, but it’s a lot harder. When you shut down your operations, I can guarantee you, most corporations did nothing to protect the knowledge that they had. All the best practices, the 30 years that ‘Joe’ had fixing the machines? ‘Joe’ is gone. They got rid of ‘Joe.’ Protecting the knowledge continuity management was ignored at that time. Now you have to start from scratch.”
Issue No. 3: Unions
Many jobs sent off shore were unionized jobs, Foster said. Your company might be returning those same jobs to nonunionized shops. “The company needs to have a clear personnel strategy and corporate strategy [concerning whom] it hires and the job descriptions and how it plans to operate,” Foster said. “Figure out what the approach to unionization efforts will be and what their general HR compensation and their work rules will be.”
He suggests following the examples set by transplanted Japanese and German auto industry companies. They largely weren’t unionized, and they offer a good approach from an overall management perspective: how to structure the working environment, compensation and everything else.
Issue No. 4: Equal Employment Opportunity
Foster makes note of a long history of “pretty ugly litigation” against a number of foreign companies with large U.S. operations. Those have resulted in large settlements by companies that didn’t heed U.S. laws regarding equal employment for gender, religion, age and other types of discrimination.
“This is a huge HR challenge, coming into a typical foreign enterprise and setting up a subsidiary here. You have to educate the foreign owners about EEO laws and making sure those [laws] are well enforced,” he said.
Along those lines, be aware of cultural differences that might affect operations as a whole, Raheja said.
“However your company was getting the work done, that was being done in a different cultural context. And now you’re lifting the whole thing up and bringing it back here,” he said. He pointed to Korean Airlines, which was shuttered because of its shabby safety record. But on examination, company officials realized they were taking practices developed in the Western world and trying to apply them in a different cultural context in Asia.
“In that culture, you don’t question authority. If the chief pilot said something, they’d sit back … [and say] ‘I can’t question it,’” Raheja said. “When they changed it, it went from worst to the best. HR has to say, ‘It may not work here.’ The focus on quality in one situation is totally different from another.”
Heidi Russell Rafferty is a freelance writer and editor who lives in Lexington, Ky.
Expert Says Innovation Is Key to HR Outsourcing,
SHRM Online Global HR Discipline, July 2010
Reverse Outsourcing Presents Unique HR Challenges,
SHRM Online Global HR Discipline, May 2010
Glossary of Outsourcing Terms,
SHRM Online HR Discipline, November 2007
Negotiating HR Outsourcing Contracts: Service-Level and Pricing Issues,
SHRM Online HR Discipline, May 2005
When in Rome: Note Cultural Differences When Training, Expert Say, SHRMOnline HR Technology Discipline, June 2009
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