Why fewer U.S. jobs are going overseas

By Jim Jubak

Your job may be safer than you think in 2007.

The great tide of offshoring that has sent millions of U.S. jobs to low-wage countries such as China and India seems to be slowing. If I'm reading the signs correctly, U.S. workers are facing lower odds this year of seeing their jobs sent overseas in the name of corporate cost-cutting than at any point in this decade.

We all vividly remember headlines like these: "3.3 Million U.S. Service Jobs to Go Offshore" or "Near-Term Growth of Offshoring Accelerating." And we remember projections, like this one in a research report from Forrester Research, that 3.3 million U.S. service jobs are headed overseas by 2015.

Those headlines and that report are from 2002 and 2004, reflecting a huge increase in jobs sent overseas in the early years of this decade. But they don't tell us much about what's going on right now.

I think recent evidence shows that we're seeing a deceleration in the rate at which jobs are being shipped abroad, mostly because of a crisis in global logistics, the systems that get stuff from here to there on time. The evidence could even indicate that we're headed for a pause in offshoring as companies cope with the consequences of the rush to move everything from manufacturing to assembly to customer service to low-wage countries.

My evidence, largely anecdotal, falls into two categories. The first examples are a few representative companies deciding now whether to keep jobs at home or send them to low-wage countries. The second category is evidence that the costs of offshoring are rising and the benefits shrinking, which will lead more and more companies to rethink their offshoring plans in the coming months.

Europe, then the United States

Because the manufacturing sector was the first to send massive numbers of jobs overseas, it's also the source of my examples of companies that have reached a balance between high-wage and low-wage countries. And because European companies are under greater pressure from unions and national governments to preserve jobs at home than companies in the United States, my examples at this stage all come from European economies. But I think the evidence will soon show similar changes among U.S. companies.

Take Jubak's Pick Luxottica Group (LUX, news, msgs). The company has jumped into manufacturing sunglasses in China big time, with its second factory in that country going into production in 2006. But the company isn't shipping existing jobs from Italy to China. Luxottica is using production from its low-cost Chinese factories to meet new demand created by rising sales in China and other markets. The existing six highly automated factories in Italy continue to run full-out. This isn't some altruistic gesture by Luxottica, either. The company's big Italian presence allows it to keep on top of trends of the moment in a fashion business. Being "just down the road" from Italian fashion capital Milan and from the fashion brands that it licenses -- such as Dolce & Gabbana, Ferragamo and Prada -- enables Luxottica to supply better service to these "customers" and to the retailers that actually sell these high-end labels.

Luxottica isn't unique by any means. Germany's Putzmeister, the world's biggest maker of the giant pumps used to shoot concrete up hundreds of feet during the construction of office and apartment towers, splits its production between high-wage Germany and the United States and low-cost Shanghai. The Shanghai plant mostly serves the booming Chinese construction industry. German and U.S. operations meet the demands of developed-world construction companies for specialized machines. Both the high-wage and low-wage operations, then, are close to the customers they serve. Employment at the company as a whole climbed by 418 workers (18% in 2005) with 166 new jobs created in the high-cost German economy.

I expect more companies to follow this path. Not because CEOs around the globe will all one day wake up and say, "Hey, wouldn't it be neat to save jobs in high-wage countries?" but because the economics of operating a global business push them in this direction.

The devil in the details

Sending jobs by the millions to low-wage countries has a simple logic at its origins: Companies can make products or provide services for less when they pay their workers lower wages.

The slowdown in offshoring that I see has a similarly simple origin: The benefits of making products and providing services in low-wage countries disappear when you can't get products to customers on time or when the product doesn't work as expected when it finally does reach the customer.

In short, what's causing the slowdown in offshoring is a crisis in global logistics. You've probably been a victim of this crisis over the holiday shopping season. I was.

That's what led me to start thinking about a slowing of offshoring. I got hit with a big problem in getting a SpongeBob Lego to my daughter for Christmas. (For the details on my vision of a Christmas collapse in logistics, see the video that accompanies this piece.) But you had much the same experience this shopping season if you tried to buy Ugg boots or other products.

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