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What Foreign Companies Insource The Most American Workers?

Written by StaffingTalk

What Foreign Companies Insource The Most American Workers?This is Part Two of a two-part series highlighting insourcing, whereby foreign companies invest in American workers and create jobs here. Part One was published last Friday.

We can all agree America needs to get back to work. From President Obama on down to your next door neighbor, job creation is a frequent conversation topic. And job creation is at a 29-year low, according to a recent report released by the Kauffman Foundation.

All jobs are not created equal though, we also all know that. And we wanted to take a more critical look at insourcing, an area where seemingly good paying jobs are still being created, albeit by foreign-owned companies.

“First, I think the most important issue is the quality of the jobs that are being created, not the ultimate ownership of the organization,” says Professor John Budd, Director, Center for Human Resources and Labor Studies, Chair, Department of Human Resources and Industrial Relations, Carlson School of Management at the University of Minnesota.

“U.S. companies can create lousy jobs, and good jobs. Foreign companies can create lousy jobs, and good jobs. We should be applauding and prodding the creation of good jobs irrespective of ownership, and we should be concerned with the creation of lousy jobs irrespective of ownership.”

The Organization for International Investment, a business association in Washington D.C. representing U.S. subsidiaries of companies headquartered abroad, recently released its annual jobs study.

According to OFII’s statistics, U.S. subsidiaries of global companies employ 5.6 million Americans, support an annual payroll of $408.5 billion, invest heavily in the American manufacturing sector and account for more than 18% of all U.S. exports, or $232.4 billion.

“At a time when America is still trying to dig out of recession, creating jobs has never been more important,” said Nancy McLernon, President & CEO of the Organization for International Investment. “Global companies insource millions of good paying jobs each year—and pay workers 33 percent higher than all U.S. companies.”

As we reported in Part One, despite sluggish economic growth here, the U.S. remains the world’s largest consumer market. It’s also the world’s top destination for foreign direct investment. Is there a dark side to that?

“If we really wanted to try to identify a dark side of insourcing, we could imagine some concerns stemming from economic nationalism,” Professor Budd tells Staffing Talk.

If a U.S. company is more likely to reinvest profits in the United States, then insourcing is not as good as job creation by U.S. companies (but this doesn’t make insourcing bad per se).

If insourcing allows foreign companies to export sensitive technology, then this can also be a cause for concern. But the current reality is that U.S. companies are not necessarily better U.S. citizens than foreign companies.”

Professor Budd goes on to point out that U.S. corporations will invest their profits wherever it is most profitable to do so. They have also been accused of exporting sensitive technology to make a sale or inroads into a new market such as China.

“So while we should be concerned with where profits are reinvested, and with the exporting of sensitive technology, it’s not clear that such concerns are sharper in the context of insourcing,” Professor Budd says.

When I was reading various articles on the subject of insourcing in preparation for writing this, I found several taking the view that foreign companies insource to the United States merely to avoid more onerous government regulations and stronger labor unions in their home countries.

For example, the foreign-owned auto plants in the United States, including a billion dollar BMW expansion in South Carolina and new Toyota plants in Mississippi and San Antonio, Texas, are almost entirely nonunion.

“But again, it’s not clear that this is significantly different from the behavior of U.S. companies. So this brings me back to my first point–the real issue is the quality of the jobs being created, not who is creating them.”

Here is a brief overview of some of the larger insourcing firms:

EADS North America: The U.S. operations of Netherlands-based global aerospace and defense giant EADS supports more than 200,000 American jobs coast to coast.

Sodexo, Inc.: French-based food workers and facilities management company employs 110,000 American workers.

BAE Systems: British defense and aerospace company employs over 45,000 workers across the country.

Nestle USA: Switzerland-based Nestlé operates 82 U.S. factories and employs over 42,000 American workers.

T-Mobile USA: German wireless services provider, owned by Deutsche Telekom, employs 41,000 Americans.

Thomson Reuters: Information company, 53% Canadian-owned, employs 26,000 Americans.

Sony Corporation of America: Japanese electronics firm has 15,000 American employees.

BASF Corporation: The largest chemical company in the world is headquartered in Germany and has 15,000 American workers.

Volvo Group North America: Swedish car company has over 10,000 American workers.

Alstom: France-based global transportation infrastructure and energy company employs about 6,000 American workers. .

Source: The Organization for International Investment

For a complete list of the Top 20 insourcing states click here.

To view state by state job insourcing information for all 50 states visit OFII’s Jobs By State page.

{ 4 comments… read them below or add one }
  1. Tom

    This article raises some really good points. Kudos to Staffing Talk and the writers for taking on such a big and important subject, even though it does not fall squarely on the shoulders of the staffing industry. Jobs are something we all care about, both in the industry, and as Americans, so I hope you continue to explore these tough topics. I totally agree with Professor Budd. We live in a very interconnected world and this is no time to be quaint and provincial about the source of jobs. But we all should indeed care about the quality of those jobs. You mentioned the auto industry in the article, an industry I know well. Toyota employs about 25,000 manufacturing and R&D workers in North America, so obviously they are a big insourcer. When they went to open and staff their new San Antonio plant they needed 850 temporary and full-time employees. They received 14,000 applications for those non-union jobs. So obviously there is a tremendous need for job creation. And to further your point all jobs are not created equal, I will mention a Wall Street Journal article that details the labor costs – and differential – between an existing Toyota plant that pre-dated the San Antonio facility, and the GM plant in Arlington. Non-union Toyota pays competitive wages of $15-20 per hour, which is grow to $21-25 per hour over a few years. But with benefits, one industry researcher estimates Toyota’s total labor costs to be about $35/hour, versus $81/hour for GM, including its legacy retirement and healthcare costs. That means that if Toyota did no better than match GM’s Arlington levels of productivity, it would still have a $1,000 per car cost advantage in labor alone. But it will exceed GM’s level of productivity. GM’s 3,000 workers in Arlington operate in a decades-old plant that is landlocked by development, making many potential cost-saving changes to flow and efficiency impossible. GM’s body shop is housed in a separate building, which was built in 2000. The bodies are transported on an elaborate, enclosed conveyor to the final assembly area, where they are painted and stored before being bolted onto frames. GM managers say they would use a more modern layout that would help boost the plant’s productivity even more, but GM can’t afford to shut down operations and completely rebuild the plant. Toyota, meanwhile, is deploying all of its latest manufacturing thinking and technology to reach new levels of efficiency via smaller, lighter machinery with a simpler design that takes up less space than previous generations of equipment. Smaller machines mean Toyota can spend less on the building that houses them, while simpler design means those machines are cheaper to install, easier to maintain, much less likely to break down and easier to fix if they do. You can see through this real life illustration that we shouldn’t merely look at the workers side of job creation and wages, but that there is a real difference in the economics on the employer’s side as well.

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  2. David Gee

    You said a mouthful Tom. Seriously, thanks for weighing in with your deep insight about a subject you obviously know a lot about. There are lots of ways you could take this discussion and debate, foreign-owned firms versus domestic, good quality jobs versus poor, union versus non-union. We obviously aren’t going to have the definitive or last word in any of those areas, but we do want to get people thinking, talking and commenting. Thanks again for your thoughtful comments. That was a very striking scenario you described with the automobile manufacturers.

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  3. Koleen Singerline

    This is some interesting research David. I hadn’t thought of job creation from this angle.
    There is lots of emphasis on foreign car makers and where they build plants, but very little said about other foreign companies that have a big US presence. The US worker using his weekly paycheck to pay the bills doesn’t really care where the company owner lives. It’s a job and we need all of them we can get.

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  4. David Gee

    Glad you found this interesting Koleen, hope others did as well. The automakers are a good example to use because there are some very distinct differences in the way the foreign and domestic automakers do business, hire, train and pay their employees and so on. But I didn’t intend for this to be an essay on the automobile industry. There are lots of other places to go for that. I was just trying to get into the broader issue of job creation. For me, the takeaway is that yes, there is a difference between jobs that pay well, offer challenges, opportunities for advancement, and those that don’t. But that most people don’t care whether those jobs are sourced by a company based in the U.S. or another country. I love Professor Budd’s statement, “We should be applauding and prodding the creation of good jobs irrespective of ownership.” I agree.

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