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The Outsourcing Boomerang

By Olga Kharif Ask techies what they think of Wipro, and they'll probably respond that the Indian outsourcer is the enemy for taking away American jobs. After all, the info tech giant now writes computer code, mans call centers, and provides tech support to the likes of General Motors (GM), Delta Airlines (DAL), and Microsoft (MSFT) -- all of which used to employ Americans for these tasks. Since 2000, Wipro's staff has increased from fewer than 7,000 to 31,517 workers. The U.S. lost more than 540,000 tech jobs in 2002 alone (the most recent year for which data was available from the Labor Dept.).

Yet, Wipro (WIT) could end up being the techie's hero. In the past 18 months, it has taken on 300 U.S.-based consultants, and that's just the start, says Pratik Kumar, the company's corporate vice-president of human resources. The outfit is actively recruiting U.S-educated MBAs, most of them Americans. And Wipro isn't alone. From startups to giants, companies based in such offshoring havens as India, China, Taiwan, South Korea, and Ireland have begun setting up U.S. bases -- and hiring U.S. workers.

SELLING POINT. Judging by various outfits' plans, this trickle of reverse offshoring may well turn into a flood. In their attempts to pacify U.S. customers spooked by offshoring failures and bad publicity, these companies could end up creating more jobs than they take away. A recent study by economic think tank McKinsey Global Institute has found that every dollar a U.S. company spends on outsourcing results in $1.12 to $1.14 in additional work here.

Foreign investment for setting up U.S. subsidiaries and plants doubled, to $82 billion, between 2002 and 2003, according to the Commerce Dept. That means 400,000 new jobs, most of them tech-related, figures the Organization for International Investment, a trade association based in Washington, D.C. Over the same period, outsourcing has taken away about 300,000 U.S. jobs, according to tech consultancy Forrester Research. So, on a net basis, foreign outfits have actually added some 100,000 U.S. jobs.

There's plenty of incentive to keep the trend going. For starters, foreign companies often find that having a U.S. base can be a big help when selling to the lucrative U.S. market. That's one reason Fremont (Calif.)-based Infosys Consulting (IC), a subsidiary of Indian outsourcer Infosys (INFY), plans to hire about 500 consultants -- most of them Americans -- over the next two years, says Basab Pradham, senior vice-president and head of worldwide sales.

Also, new regulations essentially mandate that outsourcers have a presence in the U.S. For example, the Sarbanes-Oxley Act threatens execs at public companies with prison terms if they can't ensure the reliability of their IT systems and financial reporting. As a result, some U.S. companies now demand that outsourcers complete some of the most sensitive work here in the U.S., says Michael Mensik, a lawyer specializing in outsourcing at law firm Baker & McKenzie in Chicago.

HOWDY, SAMSUNG. As U.S. companies begin to outsource such mission-critical functions as human resources and finance, they still want to be able to coordinate and oversee such work more closely. "What we're beginning to witness is a change in the [offshoring] business model," says Wipro's Kumar. "A lot of outsourcing companies used to be completely offshore. But as they've begun to handle more complex work, they find that they need to have more local expertise deployed."

Research and development of products like chips, which are getting smaller and increasingly difficult to manufacture, often require that suppliers have a presence in the U.S. That's why Samsung Austin Semiconductor (SAS), a subsidiary of chipmaker Samsung Electronics, is expanding its Texas plant, located only a stone's throw from one of its top customers, Dell (Dell). Samsung will pour about $500 million into improving the facility through 2006, creating 300 jobs (the plant already employs about 1,000 people).

"Our customers like us to be just around the bend," says SAS President H.K. Park. That's because although some 70% of the memory chips Samsung ships to Dell are still manufactured in Asia, where labor costs are lower, Dell tests and qualifies these chips at SAS's Texas location. The proximity also makes it easier for the computer maker to collaborate with Samsung on chip design, Park says.

STAR SALARIES. Performix Technologies even found it made sense to move its headquarters to the U.S. from Ireland. Performix, whose software allows call centers to track agents' performance, relocated its head to Burlington, Mass. The startup wanted to be closer to its largest market -- the 78,000 U.S.-based call centers. When Performix was looking for its most recent round of funding, a U.S. venture capital firm agreed to supply the money on the condition that the company relocate -- evidence of how important a U.S. presence is. And the unfavorable euro/dollar exchange rates have ended up swallowing most of the difference between the two countries' labor costs, says Pat Kelly, Performix's chief technical officer.

If the promise of more jobs weren't enough to get American techies to reconsider their take on foreign companies, there's always this: Such companies will pay top dollar for top talent, says Bruce Bartlett, senior fellow with the National Center for Policy Analysis a think tank in Washington, D.C. In their eagerness to make sure they can meet customers' needs, they won't cut corners or take any chances. For example, Performix's U.S. developers create the software's architecture while the company's Dublin programmers do routine coding, says Kelly.

Of course, tech-jobs creations will continue to depend on the state of the U.S. economy. In July, only 32,000 nonfarm jobs were added, according to the Labor Dept. -- well below the expected 235,000. But if the economy stays strong, look for this reverse outsourcing trend to continue. And maybe down the line when you ask an American techie what he thinks of, say, Wipro, he'll say: "That's who I work for." Kharif writes about technology for BusinessWeek Online from Portland, Ore.

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