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The Honolulu Advertiser

Posted on: Sunday, December 7, 2003

Sending work overseas has its challenges

By Barbara Hagenbaugh
USA Today

WASHINGTON — As more U.S. companies send work abroad to take advantage of cheap labor costs, some are realizing that operating outside their home country is more complicated than they expected and are bringing the work back home.

Take Jamey Bennett. When he first began selling his LightWedge personal reading lamp a few years ago, everything was made in China. Then the headaches began: Numerous conference calls in the middle of the night. Shipment delays because of a dockworker strike in California. And many problems related to language differences. The problems became so acute that Bennett transferred the manufacturing to Virginia two months ago.

"Managing a significant manufacturing effort in China remotely with a business of our size is very difficult," Bennett says.

"Firms that just believe that this is going to be simple ... very often get burned," says Martin Kenney, a University of California-Davis professor who recently completed a study of companies doing work in India. "This is a very, very complicated business activity, and there are a thousand ways it can go wrong."

Examples of the perils of moving work abroad keep cropping up. Last month, Indiana said it was halting a contract with an Indian company to upgrade its computer system for its unemployment benefits office after politicians and others started an uproar about the work leaving the state, not to mention the country.

Dell recently shifted some of its computer call center work from India. After moving some of its appliance call center work to India a few years ago, GE in May moved the work back to the Phoenix area. It found that workers in India, who don't own many appliances, couldn't relate to the customers' problems. U.S. workers can take more calls because they resolve issues faster, boosting productivity.

Highlighting how sensitive the topic of moving work outside the United States is, spokesmen for Dell and GE declined to comment. But Dell CEO Michael Dell recently told USA Today his company sticks with U.S. employees for many jobs for their skills.

"Most of our (employees) are in the U.S., and it's probably going to remain that way for a long time," Dell said. "The fear of jobs moving from one country to another, at least in our case, is probably greater than the reality."

That doesn't mean the trend will go away. Repetitive and low-skilled manufacturing and services work will likely continue to be sent abroad. But some firms' experiences suggest the hysteria about work going outside the United States may be overblown.

'Lost in translation'

Several major issues confront businesses when they shift manufacturing outside the USA:

• Culture, language. U.S. companies are finding the do-it-now culture of the United States and some American tastes don't easily translate overseas.

Wells Fargo chief economist Sung Won Sohn says companies he has come in contact with have complained of productivity problems. A U.S. furniture importer has had a tough time persuading his overseas manufacturers to "distress" furniture, a popular style in some U.S. markets that evokes an antique feel. His workers don't see the point in taking a new product and making it look older.

And there are language issues. Although many people overseas speak English, phrasing and other issues can crop up when English is not the first language.

"Quite a bit was sort of lost in the translation," LightWedge's Bennett says.

• Expertise. Many countries are churning out well-educated engineers, scientists and others while some foreigners are coming to America to be educated and then return home. But such education often does not replace experience.

Bethlehem, Pa.-based Air Products and Chemicals makes liquefied natural gas machinery in Wilkes-Barre, Pa. The company has no plans to move the factory, even though none of the products is sold domestically.

"We have spent a number of years building up this plant, making major investments and also building up a skilled work force," spokeswoman Kassie Hilgert says. "Both the work force and the technology are not transferable to anywhere else in the world."

• Shipping. Some manufacturers are finding the time, money and extra regulatory burdens associated with shipping products to the United States prohibitive. Those issues were compounded after the Sept. 11 attacks, because import regulations were strengthened.

Some move anyway

Despite all those issues, for some, moving work abroad is the way to go.

Wall Street giant Goldman Sachs estimates that of the 2.7 million U.S. factory jobs cut in the last three years, 1 million have been moved abroad.

A wide range of service jobs, such as customer call centers, medical billing and architectural drafting, are also moving abroad. In the next 15 years, U.S. employers will move about 3.3 million white-collar jobs abroad, Forrester Research predicts.

The main motivation: money. UC-Davis' Kenney and co-author Rafiq Dossani of Stanford University estimate a call center worker who costs clients $12.47 an hour — including equipment and other costs — in Kansas City costs $4.12 an hour in Mumbai, the Indian city formerly known as Bombay. Indiana originally went with the Indian company after its bid for the computer work came in at $15 million, $8 million below the closest competitor.

But while some jobs may continue to be sent overseas, it's clear that others — especially those requiring special skills, quick turnaround times or customer contact — will stay in the United States.