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By Karen McMahan

For more than two decades, outsourcing (or offshoring) has sparked considerable debate among economists, politicians, employers, and employees. Critics blame the passage of NAFTA, CAFTA, and GATT for many Americans their losing jobs to foreign countries as employers seek lower-cost labor.

While no one can deny the painful effects of outsourcing on American workers, what has been lost in the debate is the economic benefit of insourcing, which occurs when U.S. subsidiaries of foreign companies create jobs in the U.S. As the economy becomes increasingly globalized, more jobs will become targets for both insourcing and outsourcing.

The rhetoric about jobs has centered on job loss from outsourcing, particularly in the manufacturing and customer service sectors. Opponents of outsourcing cite worries of a lower standard of living as high-paying jobs in manufacturing, technology, and engineering are moved offshore in favor of lower-paying jobs.

But what are the facts? How can you see opportunity instead of threat?

Largely ignored in the debate has been the increase in new direct foreign investment in the U.S. From 1988 to 2003, direct inward foreign investment increased by 325.7% to $1.2 billion on a historical cost basis (U.S. Department of Commerce, Bureau of Economic Analysis, 2003). This rate is approximately three times faster than the average annual employment growth rate in the U.S. during the same time period.

Although the number of jobs from insourcing does not yet equal the number lost to outsourcing, the gap has been narrowing in the past quarter century (Michael Walden & William Neal Reynolds, North Carolina State University, Feb. 2005). In 2004, U.S. subsidiaries of foreign companies accounted for 6.5 million jobs nationwide (more than 4% of all U.S. employment) versus 10 million lost to outsourcing. According to the Organization for International Investment (OFII), the goods that U.S. subsidiaries manufacture in America to export globally account for 20% of all U.S. exports (more than 1% of all U.S. employment).

Moreover, jobs created from insourcing pay considerably more on average than do similar jobs in American companies. In 2004, the average annual compensation for employees of U.S. subsidiaries was 31% higher than for those in the non-subsidiary U.S. private sector. Insourced jobs have average annual employee compensation of over $65,000 (Walden & Reynolds, 2005).

A 2004 study from the Organization for International Investment reported that insourcing contributes to a rising U.S. standard of living through companies' own operations and their interactions with other domestic U.S. companies. Because insourcing companies increasingly purchase their intermediate needs from domestic suppliers, they institute supplier standards that improve their performance and that of their competitors.

According to the U.S. Census Bureau (2004), the top ten states for foreign investment were California, New York, Texas, Florida, Illinois, Pennsylvania, New Jersey, Ohio, Michigan, and North Carolina. In North Carolina, for example, 1 out of every 16 jobs belonged to the U.S. operations of foreign companies (U.S. Census Bureau, 2004).

Direct foreign investment in the U.S. through research and development has also grown. Since 1992, private-sector R&D by U.S. subsidiaries has grown from 9.2% to 14.4%. This figure means that insourcing companies perform more R&D per worker than do other firms in the broader U.S. economy.

In heavy manufacturing (e.g., computers, automobiles, electronics, machinery), foreign companies have added 400,000 jobs in these sectors in the U.S. since the mid-1990s. During the same time period, U.S. companies sent 300,000 jobs offshore to foreign countries in these same industries.

The September 2006 issue of CIO discussed the growing popularity of insourcing, particularly for organizations with stable financials. Citing a poll of executives from 70 outsourced companies in North America, only 4% would not consider taking back, in-house, some or all of their services. A number of reasons were cited, including disenchantment with the promised benefits of outsourcing and changes in service providers.

A book entitled INsouring Innovation, by Silverstein, DeCarlo, and Slocum, discusses how CEOs need to consider insourcing innovation in their companies. While these authors are not referring to insourcing as direct foreign investment, their theory does have positive implications for the insourcing-versus-outsourcing debate. They argue that CEOs need to view "innovation as a value proposition that can be measured and controlled on a project-by-project basis, not as an aggregate mass of return on investment." The authors challenge businesses to address innovation by using TRIZ, a Russian acronym that means the "theory of innovative problem solving." They contend that an organization can improve innovation by "(1) growing innovative capability from within, (2) innovating persuasively, not sporadically, and (3) driving innovation with measurable project ROI."

Throughout history, major shifts in the workplace have occurred. Predictions of economic collapse, lower standards of living, and so forth accompanied those changes. While changes do create disruption for a while, inevitably the economy stabilizes, the workplace adjusts, and so do the people.

What critics fail to realize is that, over time, globalization raises the standard of living in foreign countries. In fact, this change is already happening in some parts of China and India as well as other countries that have been the beneficiaries of large-scale offshoring. As this trend accelerates, more companies will have to re-think their strategies in order to remain competitive.

Analysts predict an increase in the number of companies repatriating services as they seek to engage in a more balanced strategy that insources some jobs and outsources others. The key for job seekers is to pay attention to trends and ensure that their skills and education are aligned with these emerging trends.

Karen McMahan is a Job and Career Transition Coach and Certified Professional Behavioral Analyst. She is the president of Do-It-Write, Inc. in North Carolina and has more than 15 years of experience writing job search and career marketing materials for executives worldwide.

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