Rafiq Dossani comments on U.S. business process outsourcing

WASHINGTON - 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 firms 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 USA 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 USA may be overblown.

'Lost in the translation'

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

?Culture, language. U.S. firms are finding the do-it-now culture of the USA 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.

A Dell spokesman told the Associated Press the company was shifting some corporate clients from Bangalore, India, to Texas, Idaho and Tennessee after receiving service complaints.

Gary Beach, publisher of CIO Magazine, recently was on the phone with a Dell agent in Bangalore for 11/2 hours after having problems with a notebook computer. "The guy was very polite, but he had to go to his supervisor after 65 minutes," Beach says. "It was a change in power options in your control panel. You had to switch to 'always on.' ... Duh!"

-Expertise. Many countries are churning out well-educated engineers, scientists and others while some foreigners are coming to the USA 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 firm has no plans to move the factory, even though none of the products is sold in the USA.

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

Kenney notes that some of the businesses overseas are so new that there are few trained managers who know how to properly oversee both service and manufacturing operations.

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

Sanjay Chandra, co-founder of American Leather, a furniture producer in Dallas, does all manufacturing in-house. With hundreds of combinations of styles and fabrics and other attributes to choose from, the firm waits to produce the furniture until orders are received and prides itself on getting the products shipped out in a matter of weeks. Shipments from China are estimated to take about six weeks, after production, according to manufacturers.

"Special order, quick ship doesn't really lend itself to foreign manufacturing because of the time issues," Chandra says.

The shipping headaches may grow. Under rules starting this month, importers are required to electronically send lists to the government in advance of shipments, to help Customs and border protection agents identify high-risk cargo that deserves special attention because of terrorism fears. That is upsetting some importers who say the lists will cost them time and money if there are delays at the borders.

The challenges of importing were also highlighted a little more than a year ago when dockworkers in California were locked out during a labor dispute, stranding Asian imports at sea. The 10-day action that led to the closure of 29 docks was estimated to cost the U.S. economy up to $2 billion a day and forced some manufacturers who rely on foreign parts to shut down.

Keeping supplies flowing

The dockworker strike persuaded Alan Schulman, owner of Glentronics, to stick to his supply method. Schulman, who sells battery-operated, backup sump pumps, has suppliers both overseas and near his headquarters in Wheeling, Ill. When the dock strike started, he was able to switch to his local supplier and continued without any interruptions.

"I always want Plan B."

There are numerous other issues that U.S. firms are bumping into when it comes to working abroad. Many companies find themselves holding more inventory in case there is a supply disruption. That means added costs, because more inventory requires extra space, financing and, sometimes, employees.

"Supply Chain 101 says the most important thing is continuity of supply," says Norbert Ore, who organizes a regular survey of manufacturers for the Institute for Supply Management. "And when you establish a supply line that is 12,000 miles long ... you have to weigh the costs of additional inventory and logistics costs vs. what you can save in terms of lower costs per unit or labor costs."

Shipping business abroad also means relinquishing some control, which for some business owners is easier said than done. And, unless you own the facility and have an employee on-site, fixing any problems that require in-person work involves a lot of time and money. The contracts to set up facilities abroad can also be lengthy, involving months of negotiations and lawyer and consultant costs.

Regional conflicts, such as the periodic clashes between India and Pakistan, also must be considered.

Some move despite challenges

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 relocated abroad.

A wide range of service jobs, such as customer call centers, medical billing and architectural drafting, are also moving outside the USA. 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.

After working in Asia and Europe for 15 years, Philip Ison, president of Ison International, bought an upholstery factory in Tennessee in 1999 and shut it down after two years.

"There was just no profit margin to be made," he says. "With all of the headaches between health insurance, workman's comp, OSHA, you can just keep on going down the list. It's not economically feasible to produce something here that takes a lot of labor."

Ison now produces furniture in Romania and ships the products to Norfolk, Va., before selling in the USA.

"With the Internet and the communication systems that are available at this point in time, it's no big deal to sit here and run the factory," he says.

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 USA.

"Most companies believe it's going to be easier (to shift work)," says Rudy Puryear of Bain and Co., who has consulted with clients on setting up operations abroad. He says he's seen some firms pull back two or three years after shifting to foreign workers or suppliers. "It is a buyer beware situation."