Nancy McLernon
07/01/2004
Thanks in large part to election year rhetoric, most Americans are familiar with the term “outsourcing.” By this, I am referring to U.S.-based companies investing in other countries and employing people there rather than here.
But have you heard much about “insourcing?” This is the forgotten side of the current debate. Insourcing is the term describing foreign companies investing in the United States and employing people here rather than there. Because insourcing has a significant impact on the U.S. economy, it bears serious discussion. U.S. subsidiaries of foreign companies currently employ 6.4 million people nationwide. Insourcers are companies such as Sodexho, employing 110,000 Americans; Nestlé, employing 43,000; and Siemens, employing 65,000.
Foreign companies would not have American operations if not for an open international investment system. These policies are the same ones that allow U.S.-based companies to start operations overseas. The debate about outsourcing is essentially one about globalization.
Discussions about global trade commonly focus on displaced workers. We sympathize with the person who loses his job because his employer has found a better and more cost-effective way to produce elsewhere. But what about those who benefit from globalization? I am not only referring to consumers who get a higher quality product at a lower price, but also to those people who benefit more directly—the 6.4 million Americans whose jobs depend on globalization. In determining the overall economic impact of an open international investment system, the benefits, as well as the costs, must be taken into account.
Terms of Trade
According to the most recent U.S. government statistics,
over a 15-year period, the number of insourced jobs grew by 117 percent (an
annual rate of 7.8 percent), while total outsourced jobs grew by 56 percent (an
annual rate of 3.8 percent). The U.S. subsidiaries of foreign companies support
an annual payroll of $350 billion and provide compensation, on average, 19
percent higher than U.S. companies. For example, the typical American worker at
a U.S. subsidiary earns $55,019, while one at a U.S.-based company earns
$46,201. The higher compensation signifies the level of skill required for the
job. In general, U.S. subsidiaries support good, high-wage, high-skill
jobs.
Interestingly, foreign companies come to the United States not just to
produce things for American consumption, but to also create a platform to make
goods for the world. Subsidiaries in the United States produce approximately
one-quarter of all U.S. exports. For example, BMW Manufacturing, a U.S.
subsidiary of the German auto-maker, has been operating in Spartanburg, S.C.,
since 1994. The company employs 4,300 workers in a state-of-the-art, $2 billion
facility. In 2003, BMW exported almost 60 percent of the automobiles it produced
at the plant to 124 markets across the globe.
There is more good news about
insourcing. Direct foreign investment in the United States totaled $82 billion
in 2003, more than twice the total of the previous year. This new investment was
concentrated in high-skill sectors such as technology, pharmaceuticals, finance
and the automotive industry. Increased foreign investment means more factories,
more research and development and more insourced jobs.
According to
historical trends, the increase in foreign direct investment during 2003 could
boost jobs supported by U.S. subsidiaries by as many as 400,000. These
impressive figures show that an open trading system provides tangible employment
benefits and underscores the confidence these companies have in the U.S. economy
and its workers. So, should we be more concerned about the jobs leaving the
United States than the ones coming in? A good job is a good job, no matter where
the parent company is located. Over the years, a company’s nationality has
become increasingly irrelevant.
Businesses are not more loyal to one country
than to another. Decisions are based on what is best for the business. And,
businesses from around the world recognize that it is good for their bottom line
to expand their operations into the United States.
Nancy McLernon is deputy director of the Organization for International Investment in Washington, D.C., a business association representing U.S. subsidiaries of foreign companies.