Outsourcing brings Possibilities

Globalization has been brutal to midwestern manufacturers similar to the Paper Converting Machine Co. For decades, PCMC's Green Bay (Wis.) factory, its greased wooden factory flooring worn out smooth by work boots, thrived by making ever-more-intricate gear to plait, fold, and print packaging meant for everything from potato chips to infant wipes.

But PCMC has fallen on difficult times. Initially came the 2001 recession. Afterward, two years ago, one of the company's biggest customers advised it to cut down its machinery costs by 40% and asked it to move production to China. Previous year, a St. Louis holding company, Barry-Wehmiller Cos., earned the manufacturer and without delay cut recruits and nonunion pay. Within 5 years profits have plunged by 40%, to $170 million, and the staff has shrunk from 2,000 to 1,100. Employees have been distressed, pronounces operations manager Craig Compton, a powerfully built ex- hockey player. "All you hear about is China and all these companies closing or taking their operations overseas."

Nevertheless Compton states, he is "probably the most optimistic I've been in five years." Expectation is emerging from an unusual source. As a fraction of its turnaround tactic, Barry-Wehmiller plans to transfer some design work to its 160-engineer center in Chennai, India. By means of experiencing U.S. and Indian designers collaborate 24/7, explains Vasant Bennett, head of Barry-Wehmiller's engineering services unit, PCMC hopes to cut down development expenditure and time, acquire orders it repeatedly missed because of engineering pressures - and continue production in Green Bay. Barry-Wehmiller says the strategy already has boosted gains at some of the thirty two other midsize U.S. machinery manufacturers it has bought. "We can compete and create great American jobs," vows CEO Robert Chapman. "But not without offshoring."

Three years ago, ever since the offshore move of skilled work sparked extensive debate and a political firestorm it has been portrayed as the executioner of good quality paying American jobs. Highly educated tech and service experts have to compete against legions of hungry college grads in India, China, and the Philippines eager to work twice as hard for one-fifth the pay, this is a severe new risk that U.S. workers face.

In actual fact, the worries that these workers hold are not entirely baseless. The major motive of most corporate bean counters jumping on the offshoring bandwagon has been to benefit from such "workforce arbitrage" - the massive wage variance concerning industrialized and developing nations. And without doubt, large layoffs over and over again accompany big outsourcing deals.

The moves can be tough and deep. Other than that a more enlightened, crucial outlook of worldwide sourcing is commencing to emerge as managers get a better solution on its potential. "Transformational outsourcing" is the latest jargon. Many executives are discovering offshoring is actually about corporate expansion, making better usage of expert U.S. workforce, and even occupation formation in the U.S., not only inferior wages abroad. True, the labor cost savings from global sourcing can still be significant. But it's peanuts as opposed to the huge gains in proficiency, productivity, quality, and revenues that is usually accomplished by fully leveraging offshore talent.

Thus CEOs such as Chapman see a probability to spin failing businesses, speed up their tempo of innovation, or sponsor development campaigns that otherwise would have been unaffordable. More assertive outsourcers are steering to produce radical business types which may allot them a position and revolutionize the experience in their industries. High-tech multinationals see offshoring as a means for a broader plan to pass out-of-date office operations and train for fresh competitive battles.