Article 43
American Solidarity
American Solidarity - Time To Stand Up
Saturday, August 07, 2010
Some Manufacturing Heads Back To USA
By Paul Davidson
USA TODAY
August 6, 2010
Faced with rising costs, General Electric is moving production of its new energy-efficient water heater halfway around the world. The country it’s leaving? China. The one it’s bringing 400 jobs and a newly renovated factory? The United States.
A small but growing band of U.S. manufacturers including giants such as General Electric, NCR and Caterpillar are turning the seemingly inexorable offshoring movement on its head, bringing some production to the U.S. from far-flung locations such as China. Others that were buying components overseas are switching to U.S. suppliers.
Ford Motor said Wednesday that it’s bringing nearly 2,000 jobs to its U.S. plants by 2012 from suppliers, including those in Japan, Mexico and India.
Experts say the initiatives could moderate job losses that have dramatically shrunk the U.S. manufacturing industry. “I think we’re going to start to see a slowing of lost jobs, and we’ll see some jobs coming back,” says Simon Ellis, an analyst for IDC Manufacturing Insights. “At some point, it will balance out, and we’ll reach an equilibrium.”
There are myriad reasons for the shifts, often called “onshoring” or “reshoring.” Chinese wages and shipping costs have risen sharply in the past few years while U.S. salaries have stayed flat, or in some cases, fallen in the recession. Meanwhile, U.S. manufacturers have been frustrated by the sometimes poor quality of goods made by foreign contractors, theft of their intellectual property and long product-delivery cycles that make them less responsive to customer demand.
Several cite the drawbacks of tying up valuable capital in huge overseas shipments, and want to bring assembly closer to engineers, suppliers and customers, concerns that mounted as makers slashed costs in the downturn. Others are simply weary of midnight phone calls and multiple annual trips to Asia.
“A lot of companies who have gone there to take advantage of cheap labor are starting to tell us that if you (calculate) total ... cost and don’t just look at wages, it’s actually NOT WORTH IT,” says Jeremy Leonard, consultant for Manufacturers Alliance/MAPI, an industry-funded research group.
To be sure, examples of companies moving production to the U.S. are dwarfed by the many more still shuttering U.S. plants and moving to China, India or elsewhere. No one tracks such data, but one glaring, if imprecise, barometer is the U.S. trade deficit, which hit an 18-month high of $42.3 billion in May.
Onshoring “is a trickle; it’s not a flood,” says Scott Paul, executive director of the Alliance for American Manufacturing, a trade group. “There’s still more going out than coming in.”
Products that are labor-intensive and churned out in high volumes, such as apparel, textiles and TVs, will likely continue to be made overseas. So will those that are relatively inexpensive to ship but high-priced, such as laptops and cellphones, Ellis says. Goods are increasingly being made near customers, a trend that’s driving U.S. makers to build factories in fast-growing China.
Still, says Jim Campbell, CEO of GE’s appliance unit: “The biggest difference is the U.S. is in the game now.”
Rethinking options
In a June survey by MFG.com, 21% of North American manufacturers said they’d brought production into, or closer to, the continent in the past three months, up from 12% in the first quarter; 38% planned to research such a move in the next three months.
“More companies are looking at their options,” says Sean Correll, senior director of consulting firm Emptoris.
He says most of his firm’s clients, which include 250 of the Fortune 1,000, are weighing onshoring, up from a handful 18 months ago.
Meanwhile, many U.S. makers that were planning to move abroad are rethinking their strategies, says Craig Giffi, vice chairman of consulting firm Deloitte.
For decades, offshoring has dominated, driven by Chinese factory wages that were a tenth of U.S. pay. Imports make up about a third of all goods purchased in the USA, up from 10% in the early 1970s, according to the National Association of Manufacturers.
U.S. manufacturing employment, after peaking at 19.4 million in 1978, is 11.6 million, though automation also contributed to sizable job losses. More than 2 million factory jobs were cut in the recession alone. Yet, the U.S. still had 21% of global manufacturing in 2008, more than any other nation.
The tide may be easing, if not quite turning. Wages for Chinese factory workers, bolstered by recent strikes, have jumped 15% a year the past decade, Ellis says, but they’re still a fraction of U.S. pay. Shipping costs are up about 71% the past four years as a result of higher oil prices and cutbacks in ships and containers in the slump, says IHS Global Insight.
With the cost gap between the U.S. and other countries narrowing for other expenses, such as class-action lawsuits, making products in the USA is now about 22% higher than the average of nine of its largest trading partners, down from 32% in 2006, according to a study by Leonard.
For GE, the increase in foreign costs tipped scales already shifting to the U.S. for certain products. The industrial giant announced last year that it will move assembly of its energy-efficient water heater from Chinese contractors to its own factory in Louisville in 2011. The company took advantage of a 2005 labor contract under which employees at the new plant in Louisville will be paid an average of $13 an hour, down from $22 prior to the agreement.
GE also got state and local tax credits of $25 million over 10 years, and federal incentives that encourage the manufacture of energy-saving products.
At the same time, the year-old water heater is a high-tech, high-growth model it can delay heating if electric rates are high ח and “something we would like to control,” Campbell says. “We don’t want to just park that with another company to build. When you have it in your plant, the cycle time (is) faster, and you can do launches quicker.”
For example, he says, making the device in Louisville already has allowed engineers to work closely with production managers and assembly-line workers to perfect the product’s design via prototypes. The approach has helped the company eliminate redundant parts and trim per-unit costs by $20.
By contrast, he says, with the heater made in China, “You ship it abroad, guys make it, and if there’s a problem, it’s not going to be fixed initially.” The company, he says, also worries that China’s recent decision to let its currency rise against the dollar will “drive our costs up.”
GE plans to make other advanced products in the U.S., noting a 30% Chinese cost advantage likely has tilted to roughly a 6% U.S. edge when figuring lower inventory expenses and fewer delivery snafus.
Within five years, he says, GE plans to move a “significant piece” of overseas appliance production to the U.S., creating hundreds more jobs.
NCR was similarly motivated by a more nuanced view of costs when it decided to move manufacturing of ATMs sold in the U.S. from China, India and Hungary to a new 260-employee plant in Columbus, Ga., last October. The ATMs scan checks, providing an image receipt, and let customers put cash and checks into them without an envelope.
Besides uniting engineers with assembly-line workers, NCR wanted designers to be close to suppliers, customers and universities that quickly trained employees, says Peter Dorsman, head of global operations. Large bank customers, he says, came up with the idea for the ATMs.
“You’re including suppliers and customers in the design activity so when it gets to the marketplace, you go from one or two units to mass production quickly,” Dorsman says.
Quality issues
Others have grown frustrated by the spotty quality of foreign goods. Sleek Audio, which makes high-end earphones, has moved most manufacturing from Chinese contractors to its plant in Manatee County, Fla., in the past year. Contractors have turned out poorly soldered cables, defective connectors and torn flanges, says CEO Mark Krywko. The start-up once had to scrap several hundred thousand dollars’ worth of earphones due to a bad cable, and production mistakes have cost it millions of dollars in retail sales.
“You would have batches that were good and batches that were bad,” Krywko says, adding that he had to hire four employees to inspect shipments.
Meanwhile, he says, Chinese labor and raw-material costs have risen even as U.S. suppliers cut their prices in the slump. Although making the earphones in China is still 20% cheaper, “Dad got a few more gray hairs,” says Krywko’s son, Jason, the firm’s vice president.
The Krywkos also tired of making six two-week trips a year to China. And with China 12 hours ahead of the East Coast, Jason had to call contractors almost daily at about 11 p.m. “My wife loves that,” he says.
The company has hired five employees at its Florida plant and plans to add another 15.
No shipping headaches
Other reasons manufacturers are switching to the U.S.:
Lower inventory costs and fewer shipping hassles. Diagnostic Devices, which makes blood-glucose testing strips and monitors for diabetics, has to ship about 20% more product than it needs because of the month-long trek ships take to the U.S. from contractors in China and Taiwan, says Chief Operating Officer Rick Admani Abulhaj.
The company also keeps about $4 million of extra goods in the warehouse in case of delays, forcing it to tie up a total $6.5 million in inventory compared with about $1 million if products are made in the U.S.
If products are defective, replacing them takes five months after figuring squabbles with contractors, shipments of raw materials back to Asia and reviews of new samples, he says.
In September, the company plans to move production of the strips to a new factory in Charlotte, where most of the manufacturing process will be automated to cut labor costs. Monitor-making is scheduled to move to Charlotte by the end of 2011. The firm is hiring 20 employees.
ՕProtection of intellectual property. With intellectual-property laws often enforced less vigorously in Asia, many manufacturers complain about counterfeiting. Farouk Systems, a top maker of hair irons and hair dryers, has spent $500,000 a month battling counterfeiters who put the company’s trademark on copies of Farouk’s products, says CEO Farouk Shami.
“Counterfeiting is killing us,” he says.
To remedy the problem and whittle inventory costs to $50 millionfrom $120 million, Farouk last July moved some assembly of its irons and dryers from South Korea and China to a Houston factory that employs 1,000. Manufacturing costs in China are still about 30% lower. But Farouk believes the appliances’ “Made in the USA” stamp will increase sales to hair salons.
Ease of meeting customer demand. The Outdoor GreatRoom Co. had to order products such as fire pits nine months in advance to fit into its Chinese contractors’ production schedule and account for shipping lags. Most sales are in the fall, forcing the firm to forecast customer design preferences and sales volumes well in advance.
“You’re locked in,” says CEO Dan Shimek. “You might buy the wrong inventory that moves slower than you’d like.”
By moving manufacturing of fire pits and some outdoor shelters to the U.S. the past year, the company now can place orders just three months in advance.
Onshoring also has been a boon for suppliers. Three supplier trade groups joined forces last year for a marketing campaign to push manufacturers to bring production back to the U.S.
“I’d like to reduce the amount that’s offshored by 30% to 40%,” says Harry Moser, a former machine tool executive who conceived the effort. At a May trade fair in Irvine, Calif., 18 of 28 manufacturers that attended asked suppliers for quotes on purchases they would like to switch to U.S. sources.
Sales for vehicle gear supplier Morey are up 70% over last year as makers and fleet managers shift purchases to the U.S., says Vice President Taymur Ahmad.
Morey, which makes devices that track vehicle location, speed and maintenance data, has hired 110 employees at its Woodridge, Ill., plant since October.
“I’m getting business that’s unprecedented,” Ahmad says. “And it’s all from customers that are looking to buy locally.”
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Tuesday, April 27, 2010
The New Secessionists
By Chris Hedges
Truthdig
April 26. 2010
Acts of rebellion which promote moral and political change must be nonviolent. And one of the most potent nonviolent alternatives in the country, which defies the corporate state and calls for an end to imperial wars, is the secessionist movement bubbling up in some two dozen states including Vermont, Texas, Alaska and Hawaii.
These movements do not always embrace liberal values. Most of the groups in the South champion a neo-Confederacy and are often exclusively male and white. Secessionists, who call for statewide referendums to secede, do not advocate the use of force. It is unclear, however, if some will turn to force if the federal structure ever denies them independence.
These groups at least grasp that the old divisions between liberals and conservatives are obsolete and meaningless. They understand that corporations have carried out a coup d’tat. They recognize that our permanent war economy and costly and futile imperial wars are unsustainable and they demand that we take popular action to prevent citizens from being further impoverished and robbed by Wall Street speculators and corporations.
“The defining characteristic of the Second Vermont Republic is that there are two enemies, the United States government and corporate America,” Thomas Naylor, who founded Vermonts secessionist movement, told me when I reached him by phone at his home 10 miles south of Burlington. “One owns the other one. We are not like the tea party. The underlying premise of the tea party movement is that the system is fixable.”
Naylor rattles off the stark indicators of the nation’s decline, noting that the United States stands near the bottom among industrialized countries in voter turnout, last in health care, last in education and highest in homicide rates, mortality, STDs among juveniles, youth pregnancy, abortion and divorce. The nation, he notes grimly, has trillions in deficits it can never repay, is beset by staggering income disparities, has destroyed its manufacturing base and is the planets most egregious polluter and greediest consumer of fossil fuels. With some 40 million Americans living in poverty, tens of millions more in a category called near poverty and a permanent underclass trapped by a real unemployment rate of 17 percent, there is ample tinder for internal combustion. If we do not undertake a dramatic reversal soon, he asserts, the country and the global environment will implode with catastrophic consequences.
The secessionist movement is gaining ground in several states, especially Texas, where elected officials increasingly have to contend with secessionist sentiments.
“Our membership has grown tremendously since the bailouts, since the tail end of the Bush administration,” said Daniel Miller, the leader of the Texas Nationalist Movement, when I spoke with him by telephone from his home in the small town of Nederland, Texas. “There is a feeling in Texas that we are being spent into oblivion. We are operating as the cash cow for the states that cannot manage their budgets. With this Congress, Texas has been squarely in their cross hairs, from cap and trade to the alien transfer and exit program. So many legislative pieces coming down the pike are offensive to people here in Texas. The sentiment for independence here is very high. The sentiment inside the Legislature and state capital is one of guarded optimism. There are scores of folks within state government who are supportive of what we are doing, although there is a need to see the public support in a more tangible way. This is why we launched our Let Texas Decide petition drive. We intend to deliver over a million signatures on the opening day of the [state legislative] session on Jan. 11, 2011.”
Miller, like Naylor, expects many in the tea party to migrate to secessionist movements once they realize that they cannot alter the structure or power of the corporate state through electoral politics. Polls in Texas show the secessionists have support from about 35 percent of the stateԒs population, and Vermont is not far behind.
Naylor, who taught economics at Duke University for 30 years, is, along with Kirkpatrick Sale and Donald Livingston, one of the intellectual godfathers of the secessionist movement. His writing can be found on The Second Vermont Republic website, on the website Secession News and in postings on the Middlebury Institute website. Naylor first proposed secession in his 1997 book “Downsizing the USA.” He comes out of the “small is beautiful” movement, as does Sale. Naylor lives with his wife in the Vermont village of Charlotte.
The Second Vermont Republic arose from the statewide anti-war protests in 2003. It embraces a left-wing populism that makes it unique among the national movements, which usually veer more toward Ron Paul libertarianism. The Vermont movement, like the Texas and Alaska movements, is well organized. It has a bimonthly newspaper called The Vermont Commons, which champions sustainable agriculture and energy supplies based on wind and water, and calls for locally owned banks which will open lines of credit to their communities. Dennis Steele, who is campaigning for governor as a secessionist, runs Radio Free Vermont, which gives a venue to Vermont musicians and groups as well as being a voice of the movement. Vermont, like Texas, was an independent republic, but on March 4, 1791, voted to enter the union. Supporters of the Second Vermont Republic commemorate the anniversary by holding a mock funeral procession through the state capital, Montpelier, with a casket marked Vermont.Ӕ Secessionist candidates in Vermont are currently running for governor, lieutenant governor, eight Senate seats and two House seats.
“The movement, at its core, is anti-authoritarian,” said Sale, who works closely with Naylor and spoke with me from his home in Charleston, S.C. “It includes those who are libertarians and those who are on the anarchic community side. In traditional terms these people are left and right, but they have come very close together in their anti-authoritarianism. Left and right no longer have meaning.”
The movement correctly views the corporate state as a force that has so corrupted the economy, as well as the electoral and judicial process, that it cannot be defeated through traditional routes. It also knows that the corporate state, which looks at the natural world and human beings as commodities to be exploited until exhaustion or collapse occurs, is rapidly cannibalizing the nation and pushing the planet toward irrevocable crisis. And it argues that the corporate state can be dismantled only through radical forms of nonviolent revolt and the dissolution of the United States. As an act of revolt it has many attributes.
“The only way we will ever stop these wars is when we stop paying for them,” Naylor told me. Vermont contributes about $1.5 billion to the Pentagon’s budget. “Do we want to keep supporting these wars? If not, lets pull out. We have two objectives. The first is returning Vermont to its status as an independent republic. The second is the peaceful dissolution of the empire. I see these as being mutually complementary.
“The U.S. government has lost its moral authority,” he went on. It is corrupt to the core. It is owned, operated and controlled by Wall Street and corporate America. Its foreign policy is controlled by the Israeli lobby. It is unsustainable economically, socially, morally, militarily and environmentally. It is ungovernable and therefore unfixable. The question is, do you go down with the Titanic or do you seek other options?”
The leaders of the movement concede that sentiment still outstrips organization. There has not been a large proliferation of new groups, and a few old groups have folded because of a lack of leadership and support. But they insist that an increasing number of Americans are receptive to their ideas.
“The number of groups has not grown as I hoped it would when I started having congresses,” said Sale, who addresses groups around the country. “But the number of people, of individuals, of websites and the number of libertarians who have come around has grown leaps and bounds. Many of those who were disappointed by the treatment of Ron Paul have come to the conclusion that they cannot have a Libertarian Party or a libertarian Republican. They are beginning to talk about secession.”
“Secessionists have to be very careful not to be militaristic,” Sale warned. “This cannot be won by the gun. You can be emphatic in your secessionism, but it won’t happen by carrying guns. I don’t know what the tea party people think they are going to accomplish with guns. I guess it is a statement against the federal government and the fear that Obama is about to have gun control. It appears to be an assertion of individual rights. But the tea party people have not yet understood how they are going to get their view across. They still believe they can elect people, either Republicans or declared conservatives, to office in Washington and have an effect, as if you can escape the culture of Washington and the characteristics of government that has only gotten bigger and will only continue to get bigger. Electing people to the House and Senate is not going to change the characteristics of the system.”
The most pressing problem is that the movement harbors within its ranks Southern secessionists who wrap themselves in the Confederate flag, begin their meetings singing Dixie and celebrate the slave culture of the antebellum South. Secessionist groups such as the Southern National Congress and the more radical League of the South, which the Southern Poverty Law Center has labeled a racist hate group, openly embrace a return to uncontested white, male power. And this aspect of the movement deeply disturbs leaders such as Naylor, Sale and Miller.
What all these movements grasp, however, is that the American empire is over. It cannot be sustained. They understand that we must disengage peacefully, learn to speak with a new humility and live with a new simplicity, or see an economic collapse that could trigger a perverted Christian fascism, a ruthless police state and internecine violence.
“There are three or four possible scenarios that will bring down the empire,” Naylor said. “One possibility is a war with Iran. Another will see the Chinese pull the plug on Treasury bills. Even if these do not happen, the infrastructure of the country is decaying. This is a slower process. And they do not have the economy fixed. It is smoke and mirrors. This is why the price of gold is so high. The economy and the inability to stop the wars will alone be enough to bring us down. There is no escape now from our imperial overstretch.”
Chris Hedges spent two decades as a foreign reporter covering wars in Latin America, Africa, Europe and the Middle East. He has written nine books, including Empire of Illusion: The End of Literacy and the Triumph of Spectacle (2009) and War Is a Force That Gives Us Meaning (2003).
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Monday, November 16, 2009
Five Years Later
When the power of Love overcomes the love of power, the world will know peace.
- Jimi Hendrix
Five years ago - the CWA AND AT&T DISCARDED US.
Some folks have new jobs and NEW CAREERS.
Some are HOLDING ON to what they have, and STILL LOOKING for MEANINGFUL WORK.
Some cling to the belief that RETRAINING is the answer.
Some lost A LOT.
Some lost HOPE.
Some SEE NO LIGHT and may be ready to GIVE UP.
Some remain DISGUSTED by OUTSOURCING, the RECESSION, and things like the SELF SERVING INTERESTS of unions DISGUISED as ORGANIZED LABOR MOVEMENTS - especially when creeps like CWA big-shot RALPH MALY are mentioned.
Four years ago the Supreme Court ruled AGE BIAS NEED NOT BE DELIBERATE.
Now this…
IF THE CWA DESERVES ANY RESPECT - they’d be supporting the EEOC, instead of the SAME OLD CRAP.
The EEOC filed a Complaint in August of this year concerning AT&T’s practice of NOT REHIRING PEOPLE who went out on VRIP and other force reduction programs. The Complaint says that this is part of a PATTERN of AGE DISCRIMINATION. Over the years, a lot of people have commented about being blacklisted from being rehired.
The EEOC attorney who is handling the case is Louis Graziano. His email address and telephone number are 212-336-3721.
This case is not associated with the CASH BALANCE CASE, Engers vs. AT&T.
The complaint will be on the AT&T RETIREES WEBSITE.
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Tuesday, October 27, 2009
Homesourcing
Another way to save jobs - Homesourcing
We got American middle-class job killers like H1-B ABUSE, MORE H1-B ABUSE, OUTSOURCING, and NEARSOURCING, along with some fighting back like INSHORING, and homesourcing.
Homesourcing enables the transfer of service industry employment from offices to home-based employees with appropriate telephone and Internet facilities.
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A Founders Vision
David Neeleman, the founder and current CEO of JetBlue, is a 45-year-old American of Dutch ancestry born in Brazil. Neeleman is a devout Mormon who baptized over 200 hundred converts during his missionary work in the slums of Rio de Janeiro. Neelemans faith has a profound effect on how he lives his life and runs his company(Friedman 36-37). It his own personal belief that:
Society will be better off if more mothers are able to stay at home with their young children but are given a chance to be wage earners at the same time (Friedman 37).
Neeleman began ғhomesourcing, a term he helped coin, at Morris Air, an airline that he founded and headed before he sold it off to Southwest for $130 million. Morris Air employed over 250 people to run its reservation service (Shellenbarger R12). When Neeleman decided to found his next airline he decided that he was going ԓto have 100 percent reservation at home. It was this philosophy that has guided the firms reservation system ever since (Friedman 37-38).
Homesourcing the JetBlue Way
JetBlue currently employees some 1000 people (representing nearly one percent of the overall homesourced workforce) in its home reservation system; the vast majority of the employees are Mormon women who live in the Salt Lake City area. Most of the women are in their thirties and work part time in a 24-hour split-shift rota (Keating D1). Home reservationists work on average twenty-five hours a week and must come into the JetBlue regional office in Salt Lake City for at least four hours a month to learn new skills and be brought up to date on what is going on within the company (Keating D1).
JetBlue and Outsourcing
So far, JetBlue has resisted the temptation to outsource. The firm has focused more on the productivity gains that are available from homesourcing instead of the wage arbitrage opportunities that are found in India and other low cost labor countries. Neeleman has taken a strong stance against outsourcing saying:
We will never outsource to India. The quality we can get here is far superiorԅ [Employers] are more willing to outsource to India than to their own homes, and I cant understand that. Somehow they think that people need to be sitting in front of them or some boss they have designated. The productivity we get here more than makes up for the India [wage] factor (Friedman 38).
Each JetBlue home reservationist is thirty percent more productive than their traditional counterpart. These productivity gains coupled with high employee loyalty and low employee turnover have provided sufficient reductions in cost to make homesourcing competitive with outsourcing to lower labor cost countries. Domestic homesourced workers also provide a greater understanding of local social and cultural issues that foreign workers may lack (Nevius A34).
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Cost-effective Homesourcing Trend Grows
By Stephanie Armour
USA Today
March 15, 2006
The use of independent contractors to handle customer service calls from their homes is soaring as companies look to cut costs and more employees seek jobs that allow them to work remotely.
The number of home-based agents will nearly triple over the next few years, says research group IDC, as major employers and independent call-center providers step up their hiring of contractors to do telephone work from home ח dubbed homesourcing.
The trend is being driven by cost-cutting needs as well as macroeconomic shifts. Here’s why:
· Technology. Advances in technology mean that just about anyone with a computer and a phone can become a virtual free agent. The proportion of households with computers jumped from 8% in 1984 to 62% in 2003, according to the most recent statistics available from the U.S. Census Bureau.
“I have a computer with high-speed Internet access and a hard phone line. That’s pretty much it,” says Martha Libby, 59, of Aurora, Colo., who works about 20 hours a week as an employee for Alpine Access, a Golden, Colo.-based provider of work-at-home call centers with 8,000 employees around the country.
· Rising costs. As the price of gasoline climbs, mounting commuting costs are expected to help fuel the free agent business. The rising cost of living and housing, which has more home buyers living farther from metro areas, is also stoking interest in home-based work rather than long commutes.
Lauren Stiteler, 23, of Charleston, S.C., a senior at the College of Charleston, majoring in business administration, has worked for the past year and a half as a home agent with LiveOps, a call-center provider based in Palo Alto, Calif.
“Whenever I have tests or finals, I can take the time off. And you don’t have to pay for gas,” Stiteler says.
· Available labor pool. Work as a home-based agent appeals to non-traditional labor sources such as college students, stay-at-home parents, the disabled, retirees and those who are caring for adults or children with special needs.
The cost of operating a traditional call center is $31 an hour per employee, including overhead and training, compared with $21 an hour per employee for homesourcing, says Stephen Loynd, an IDC analyst. Employees and agents can earn $8 to $13 or more an hour.
“The employees, with traffic and gas, there are a lot of things that challenge them in getting to work,” says Garth Howard, CEO of Alpine Access. “A lot of people can work from home and be very productive. They commute in bunny slippers instead of traffic. Who wouldn’t want to do that?”
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A Challenge To IT Outsourcing
New Tech Firm Hiring Hundreds In U.S. To Take On The World
By Bob Evans
InformationWeek
October 22, 2009
Two offshore-services execs and a prominent American CIO plan to open IT-services centers across the U.S. as low-risk and and price-competitive alternatives to offshore providers.
Can a U.S.-based IT-services firm staffed with hundreds of American employees working in this country compete on a global scale with offshore providers, global-services firms, and boutique consultancies? A startup founded by two offshore-services executives and a prominent American CIO are betting millions of dollars that their company can do exactly that with a new approach called “inshoring.”
Called SYSTEMS IN MOTION, the company’s plan is to create a handful of U.S.-based centers offering world-class IT services at competitive prices and with less risk, fewer regulatory obstacles, and a level of flexibility and nimbleness that today’s high-change global business environment requires.
The startup company expects to get up to speed quickly by utilizing leading-edge technologies and infrastrucuture such as Salesforce.com’s Force.com, Amazon’s Web Services, and Zephyr Cloud Platform to keep costs low and project cycles short, and to position itself on the front edge of transformative approaches that many enterprises are just beginning to fully comprehend.
For years, we’ve all been told or have allowed ourselves to believe - that the U.S. just can’t compete at that level in the IT-services industry, that U.S. workers aren’t willing to work hard enough to make such a model succeed, that their skills are inadequate for such demanding and sophisticated projects, and that their salary demands are too high to allow such a model to be vialbe in this country.
Well, the founders of Systems in Motion would beg to differ. They’ve begun hiring key high-level personnel at their first development center in Michigan and expect to have about 150 people on board by the end of next year and, if all goes well, more than 1,000 employees at the Ann Arbor center within four years. During that time, they’re prepared to invest $15 million in capital expenditures, with initial funding coming from an angel investment group that includes the company’s CEO and also Preetish Nijhawan, who was a founder of Akamai.
On top of that funding, the three principals are banking that their deep experiences in running and buying from IT-services companies, combined with what they see as significant demand for their U.S-based model, will enable them to hit those targets.
Systems In Motion CEO Neeraj Gupta was an executive with Patni, a $700 million Indian IT-services company; chief delivery officer Michael G. Parks, who runs delivery, solutions and practice development, was CIO at Virgin Mobile USA and NorthPoint Communications, executive VP of IT at Wells Fargo, and a senior VP at American Airlines; and chief marketing officer Debashish Sinha previously headed up marketing at HCL America, a $3 billion Indian IT-serives company.
I had met Sinha during his time at HCL America and last week we spoke a couple of times about Systems In Motion’s strategy.
“About a year ago, Neeraj and I started a discussion on whether the current structure of global services was living up to its promise of creating value for US businesses and the economy as a whole,” said Sinha. “We sensed that while offshore outsourcing was growing, there was a strong pent-up demand for an alternative model for a large portion of the current and future demand for IT.
“The model is needed specially for those companies that don’t have enough scale for leveraging offshore centers, that require tight integration between IT and business, that need to deal rapidly with a changing technology landscape, or that have regulatory considerations that make it difficult for them to create high offshore leverage.”
In response to that need, Sinha said, he and Gupta and Parks designed an operating model that they called “inshore” that’s predicated on delivering service that’s cost-competitive with offshore suppliers while also offering a level of collaboration, innovation, and flexibility that non-U.S. companies would be challenged to match. And the worldwide IT business, he says, is still so large that inshoring will have a huge opportunity to pursue:
Noting a recent Forrester study that says the Global IT Services industry will total $461 billion in 2010, Sinha said, “Offshore services comprises about 20% of that, so there is still a very large marketplace that is ripe to be serviced inshore.”
Their plan includes two strategic elements tied tightly to location and government accommodation. First, it intends to locate its centers close to prominent universities such as it has done with Ann Arbor, where the University of Michigan has 55,000 students, including 7,500 in engineering.
And second, the company’s entire model is predicated on strongly leveraging what it calls public/private partnerships in the form of state and local tax incentives and job-training funds. For the Ann Arbor facility, those financial incentives call for up to $7.4 million in tax rebates tied to the number of jobs created over a 7-year period, plus another $1.5 million from a state workforce-development agency that supports training through local education institutions.
In a company overview called “Inshore Services: A Global Services Redesign Initiative,” Systems In Motion offered the following examples of prospective customers that could be looking for a U.S.-based provider of low-cost, high-quality IT services:
**"The only way I can invest in upgrading my technology landscape is by first lowering the cost of my current IT and engineering operations.” Fortune 500 manufacturing company
**"I’d like to leverage offshore services but my business data is too sensitive and there are too many regulatory concerns. Governance of offshore resources will be a nightmare.” leading healthcare-services company
**"The only thing I’m certain about is that demand in my industry will remain volatile for the foreseeable future. My IT operations need to be flexible in that environment.” large retail chain
**Companies are beginning to question the assumption that “low-cost labor, by default, is an offshore-outsourcing option and that [offshore] is the only source of cost reduction.” Gartner research, 2009
The theory seems to be there, the heart seems to be there, the energy and passion seem to be there, and certainly in the case of Michigan a broad and available workforce is there. But can Systems In Motion convince U.S. businesses that it has the technical scale and operational depth and breadth to handle the type of highly demanding IT capabilities described by the three companies above? Can it find sufficient numbers of IT workers who are not only highly skilled but also highly motivated to jump into a new and so-far untested model where the work will be demanding even if the pay is below traditional norms?
Can Systems In Motion continue to find state and local governments that believe partnership extends beyond agreements and photo-ops and into millions of dollars’ worth of direct investments in an exciting but still emergent model? And more than anything else, will Systems In Motion be able to deliver superb services to its first few clients, on which so very much will be riding?
Tough challenges indeed, but Gupta, Parks, and Sinha are fully aware of all those questions because they’ve all spent many years running and buying from IT-services companies, and their instincts and their research are telling them that it’s time for a new venture driving a new model. This one’s going to be fun to watch.
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