Aug. 8 (Bloomberg) -- General Electric Co., once vilified in the U.S. for leadership in outsourcing jobs, is pulling more information-technology positions back in-house.
Chief Executive Officer Jeffrey Immelt has said GE will add more than 15,000 jobs in the three years through December. About 1,100 will be just outside Detroit in a center for information technology, a field emblematic of outsourcing. So far, GE has hired about 660 people in Michigan, a state that led the nation in jobless rates, making it a symbol of U.S. industrial decline.
“About 50 percent of the IT work was being done by non-GE employees,” Charlene Begley, chief information technology officer, said in an interview at the center. “That strategy may have had its time, but there was a lot of downside. We lost a lot of the technical capabilities that we have to own.”
Bringing more information-technology work back to GE lets the company move quickly to develop programs that respond to technology demands cropping up faster than ever.
“With iPads and whatever mobile devices people want to use, the need for better user experiences is essential to competitiveness,” Begley said. “So we’ve got a team that’s really good at writing user applications that are sexy, impressive and quick.”
Companies such as GE and General Motors Co. that once led in outsourcing are in the forefront of a move in the opposite direction: adding workers back to their own businesses in mature markets like the U.K. and the U.S., said John Keppel, president of information services and chief marketing officer for outsourcing consultant TPI Inc.
The global value of information-technology outsourcing contracts fell 20 percent in 2011’s first half, dragged down by a 51 percent second-quarter drop in the Americas, according to TPI data released July 20.
“GE, GM and companies like them founded the whole outsourcing business,” Keppel said in an interview Aug. 3. “What we’re seeing in America is more about the maturity of the market. Cleary there are some macro-economic factors and political factors that play into that to varying degrees.”
Immelt has worked to locate a variety of GE production sites closer to their markets around the world. The company has increased its information technology workforce 30 percent to 9,600 worldwide in the past decade and plans to expand to 11,000. Immelt also has been boosting exports of equipment such as gas turbines and jet engines.
GE took advantage of incentives such as Michigan’s tax benefits and skilled workforce. Immelt said in announcing the Michigan site in 2009 that GE would invest $100 million, while state officials offered more than $60 million over 12 years in incentives.
“The change in approach is critical, and it comes right from the top,” said Harley Shaiken, a labor professor at the University of California at Berkeley. “He’s addressed it both from the context of GE and in the importance of the U.S. having a vibrant, high-tech manufacturing base.”
The shift marks a turn of sorts for a company where Immelt’s predecessor, Jack Welch, once told CNN that the ideal scenario for business would be to “put every plant you own on a barge to move with currencies and changes in the economy.” In 2004, one of the company’s unions sought a study on whether outsourcing jobs outside the U.S. was damaging GE’s brand.
Anecdotal evidence so far shows a single center employee can handle work for which GE would have needed three outside contractors, said Begley, who also runs the segment including appliances and factory-automation software. She attributed the difference partly to lower costs with an in-house center.
Manufacturing expenses in the U.S. have narrowed in comparison to countries like China and India, helping GE add skilled jobs like the 125 planned at a flagship gas-turbine plant in Greenville, South Carolina, Immelt said in July.
About $17 billion of GE’s $150 billion in sales last year came from exports, a trend that fuels creation of such positions, Immelt said July 13. In the second quarter, about 59 percent of GE’s total sales came from overseas.
“GE was a pioneer in outsourcing of high-technology, high value-added outsourcing” and developed a global production network, Shaiken said. “Clearly, Jeff Immelt is rethinking at least part of that direction.”
There’s a difference between outsourcing, which has driven profits at companies such as International Business Machines Corp. in the U.S. and Wipro Ltd. in India, and off-shoring -- using companies outside a country to provide services within its borders, TPI’s Keppel noted.
Begley said the Michigan center isn’t a case of the U.S. versus India.
“I have huge teams in India and they’re incredible. They’re talented and valuable to GE,” she said. For the Michigan center, “when you get the chance to create a site and cherry-pick the talent that all of GE needs -- there’s something magic there.”
Employees at the center cut across the Fairfield, Connecticut-based company’s swath of businesses in proportion with division sizes and current needs.
This summer, as GE Aviation braces for record production of jet engines that use new technology such as composite blades, the 100 center employees tied to that business are preparing for the surge. They’re developing a way to simulate production that will let plants avoid shutdowns to fix kinks found in test runs.
Collaboration’s payoffs are helping convince other U.S. companies to pull outsourced positions back in-house, said Fred Hochberg, president of the U.S. Export-Import Bank.
“People in the business world, small and large, are finding that having your research and design all co-located has enormous benefits,” Hochberg said in an interview. “The manufacturing process informs the engineering process and then the engineering process informs the manufacturing process.”
GE has a $189 billion backlog of orders, so developing software to manage production is critical, Begley said. Information technology workers also write programs that handle tasks from running a hospital’s network of medical records to comparing power generation in emerging and developed markets.
“Within the IT context, our employees, our businesses, our customers have demands that are 10 times what they used to be,” Begley said. “They need instant data anywhere anytime. And for us to, like, have to call a contractor for that technical skill slows us down.”
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