Reshoring drive on, but no threat to IT companies, Analysts

US-based Allison Transmission, which makes automatic transmission and hybrid propulsion systems for off-road and truck vehicle manufacturers, had offshored production of double disc grinders, used to accurately size parts, to a machinery manufacturer in Chennai. Last year, the firm reshored work back to the US, says a report by Reshoring Initiative, a US-based organization that is seeking to bring well-paying manufacturing jobs back to the US.

High unemployment rates and a consequent decline in wages in the US, combined with political pressure to create jobs locally, is pushing a growing number of American companies to reshore jobs - in other words, bring back jobs that were once offshored.

The trend is still very nascent, and is mostly in manufacturing, though IT services too have been impacted. General Motors announced last year it would cut the quantum of the company's IT outsourcing from 90% to 10% in about three years. Outsourcing companies such as HP/EDS, IBM, Capgemini, and Wipro now provide GM's IT services — from running data centres to writing applications.

ATM manufacturer NCR Corporation returned some part of ATM production from India, China and Hungary to a new manufacturing facility in Columbus, Ohio. Earlier, Ford Motor said it would be moving some work from Japan, Mexico and India to the US. The Indian work involved steel forging. In 2011, online backup solutions company Carbonite moved back jobs from its facility in Delhi to the US after it opened a dedicated customer support centre in Maine.

Harry Moser, founder of Reshoring Initiative, estimates on his website that 50,000 manufacturing jobs have been reshored to the US since January 2010. He said American companies often don't consider all of the costs involved in sending their manufacturing offshore, such as inventory carrying costs, traveling costs to check on suppliers, intellectual property risks and opportunity costs from product pipelines being too long.

A Boston Consulting Group report last year estimated that a manufacturing revival in the US could bring in 5 million jobs by 2020. Starbucks, Caterpillar, General Electric, Ford, lock maker Master Lock, and Google have all announced some new manufacturing initiatives in the US in the recent past.

Arup Roy, principal analyst with Gartner, said that companies in the US were exploring low-cost locations like Ohio and Canada that were significantly cheaper than the traditional US markets. "This works out well when geographic proximity has redefined the way services are structured and delivered. It also fulfills a political charter," he said.

IT analysts say that some companies involved in new product development want to retain the process in-house. "It's more of a tactical move. Companies may be keen to develop it internally, controlling data privacy and delivery timelines," said Sudin Apte, CEO of Pune-based IT advisory firm Offshore Insights. He said Indian IT services generally would continue to have an edge from the service delivery and cost advantage standpoints.

Sushil Rajpurohit, managing partner in consulting and research firm Knowledgefaber, also believes that India will continue to be majorly a net gainer in jobs. "I know a large US engine company that is planning to set up their first R&D centre outside the US in India. Germany's MTU Aero Engines has set up their only R&D centre outside Germany in India and the same is true for Italian diesel manufacturer Lombardini," he said.