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January 22, 2013

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U.S. Industry Starts Repatriating Jobs

By Larry Walsh

For much of the last two decades, we’ve heard a steady stream of reports about the U.S. losing jobs to emerging economies as big enterprises outsourced and offshored jobs to China, India, Mexico and other low-wage markets. Now, those jobs — as well as their development and manufacturing infrastructure — are migrating back to the U.S.

The repatriation of jobs and infrastructure is rising to a rate comparable to the offshoring trend of the 1990s. U.S. and foreign businesses are establishing or reviving domestic capacity to bring sourcing closer to the addressable market. It follows the basic business axiom of outsourcing and offshoring in the first place: You want capacity where the money is, not necessarily where the savings are.

Driving this trend is a steadily improving U.S. economy and costs.

While U.S. economic growth is anemic, it has remained in the black for the last four years. Critics say this economic recovery is the longest in U.S. history – but, weak and unsteady as it is, it’s a far cry better than the Japanese economy, which has languished in chronic recession since the early 1990s. The return of jobs means there’s anticipation of further growth.

Costs are another driver. Conventional wisdom holds that U.S. companies offshored functions and capacity because of low wages in emerging markets. While it’s true a worker in Mumbai makes about a quarter of his American counterpart’s salary, the total cost of foreign operation negates that initial wage savings. According to the Economist, the cost of offshoring to China is nearly equal to that of U.S. operations; India and Mexico only offer slight cost savings.

This is good news for U.S. workers, as it will translate into tens of thousands of jobs. For U.S. companies, it means greater sales and revenue potential, as a strengthening economy will lift all sectors. And even foreign companies setting up development and manufacturing on U.S. shores will create net-new jobs.

Bringing jobs and capacity isn’t as easy as leasing office space or restoring a shuttered factory. It requires careful planning and coordination. Businesses need to identify the best locations for their U.S. operations, study supply chain logistics and coordinate build-outs. This means understanding labor pools, transportation capacities, climate and tax structures of potential operating locations.

Once a site is selected, businesses have to develop IT and communications infrastructure to support it. This won’t be as easy as taking old gear out of mothballs and pressing it back into service. To take full advantage of technology, businesses will need to invest in new networking, virtualization, security and communications equipment. Likewise, they’ll have to take the entire mobility and “bring your own device” trend into consideration, as workers now come with their own equipment. And, of course, they’ll have to manage the security and duty-free repatriation of data and intellectual property from far-flung markets.

Bringing jobs back to the U.S. is a potential bonanza for the American economy. As with every great migration, businesses need to exercise tremendous data analysis and planning, investment and execution to maximize potential returns. IT management will play a big role in rebuilding capacity and infrastructure, but also in the data analytics that will make repatriation possible.

1 Comment
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