February 23, 2004
By John Eckberg
The Cincinnati Enquirer

The globalization of labor transformed U.S. manufacturing in the 1990s, and now it is changing how multinational giants manage service, customer relationships, data entry and other corporate functions.

While a company might once have moved to a Southern state, where labor was abundant and cheap, firms now give birth to divisions half a world away in Malaysia, Ireland, India or Russia.

What's left in the minds of many workers is one searing question: Is my job next?

Known as business process outsourcing or simply off shoring, the trend is a global economic force that is growing and will keep growing through 2015, local and national experts say.

"Cost savings is not the only advantage," said Ramesh Kusre, a consultant in global outsourcing strategies who maintains an office in Liberty Township and has worked with companies that want to locate divisions in India.

"You can also look at reduced time to market, improved processes, access to a highly skilled resource pool and in some cases access to new markets," Kusre said.

Critics say the result of off shoring is clear, particularly in English-speaking nations such as India, where workers are paid a 10th of what they would earn in the United States or Britain. Blue-collar American workers - and increasingly white-collar workers - lose jobs.

Cost control led goliath General Electric to create a call center for in-house technical questions in Bombay, India, said Rick Kennedy, manager of media relations for GE Aircraft Engines, and the company is outsourcing elsewhere as well.

"We've sold $3 billion worth of engines to China in the last five years," Kennedy said. "As part of that relationship, we have begun sourcing some components on engines to manufacturers in China. That's driven by cost, but it's also driven by market acceptance."

Some politicians are beginning to oppose off shoring and have moved to protect government workers.

In late November, the state of Indiana pulled a $15 million contract from an Indian subsidiary of a U.S. company.

U.S. Sen. George V. Voinovich, R-Ohio, co-sponsored an amendment signed into law last month by President Bush that prevented certain federal contracts awarded to private-sector bidders from being directed to off-shore divisions.

The issue has resonated with American voters on the campaign trail in 2004, said U.S. Rep. Dennis Kucinich, D-Cleveland and a longshot Democratic candidate for the White House.

"You have to ask why is it accelerating," he said in a telephone conversation last week while headed to a Cincinnati campaign stop. Harsh Muthal, 52, the senior vice president and country head for telecom for Satyam Computer Services, an Indian technology firm that employs 12,300 worldwide, thinks that outsourcing has kept companies from insolvency.

Based in Chicago, Muthal said off shoring enables American firms to increase market share and be more competitive.

"As the American industry started growing its trade through out-sourcing, the ability of the Indian customer to buy American goods went up," he said. "Ford, GM, GE can now sell products that were beyond the reach of the 250 million in the Indian middle class.

"How much does the American economy benefit because these new markets have opened up because of a new prosperity - more people now buying the products?"

Frank R. Galuppo, vice president of market development for ABC Global Services Group, a N.J.-based telecom services and integration business, agrees. The former president of Lucent Optical Networking Group says the stakes for American industry are steep, particularly for research.

"Price pressure risks, profits and losses associated with the added expense limits any research and development," Galuppo said.

While India is the hot corner for off shoring, other nations are likely to grow in appeal. Russia, for instance, may in a decade become what India is today - and what Singapore was a decade ago.

Kennedy said large companies with an international customer base have no reason not to bring jobs to developing nations because that is where companies can achieve growth.

For GE, about two-thirds of commercial jet engines sold in the late 1980s were sold domestically. Today, half the engines produced are sold overseas. "When we outsource, it's largely connected to the market where we have won contracts," he said.

GE is not the only major local company to find a future in outsourcing.

In September, the Procter & Gamble Co. contracted with IBM for a 10-year, $400 million deal to bring almost 98,000 P&G employees services such as payroll processing, benefits administration and compensation planning.

IBM in January took over P&G's human resource center operations in Costa Rica, the Philippines and England, the fourth outsourcing deal for P&G last year.

Damon Jones, external relations manager for global business services for P&G, said it made sense for the company to consolidate overseas support operations into those three centers.

Otherwise, the company would duplicate services in about 70 countries.

http://www.enquirer.com/editions/2004/02/23/biz_biz1a.html