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Posted on Thu, Dec. 15, 2005

Insourcing adds new economic dimension

By George Avalos

Here's a new term to mull as part of the jobs debate: insourcing.

Yet insourcing, unlike its economic cousins outsourcing and offshoring, may be a positive trend for the statewide and national economies. Insourcing is defined as jobs created by U.S.-based subsidiaries of corporations based in other countries.

And California is at the forefront of insourcing, according to a report released Wednesday by an association of foreign companies with U.S. operations. The Golden State has the most "insourced" workers of any state in the country, with 561,000.

"This does cut against the conventional wisdom in the global economy debate," said Todd Malan, president of the Organization for International Investment. "The Lou Dobbs of the world want us to believe we are losing our entire manufacturing sector and every last job to India and China."

The United States has about 5.25 million insourced employees, according to the report, which the business group compiled from data supplied by the federal Bureau of Economic Analysis.

"The positive flip side of this debate is that foreign companies are coming here and creating jobs here," Malan said.

Over the past five years available for study, California enjoyed one of the fastest rates of growth for insourced jobs among the nation's states. Insourced jobs grew 15 percent over the past five years, the seventh-fastest growth in the nation. Only Maryland, Florida, Wisconsin, Massachusetts, Missouri and New York had faster rates of growth.

Not all is rosy in the world of insourcing, however. During the year with the most recently available data, 2003, insourced jobs dwindled in the United States and California. California's insourced job base shrank 9 percent in one year. The 5.25 million insourced jobs in the United States slipped about 3 percent.

What's more, the clarion call for insourcing has attracted its share of skeptics. Some analysts believe that outsourcing and offshoring remain thorny problems for the nation's economy.

"The average outsourced job is a low-wage, low-skill worker," said Nan Maxwell, chairwoman of the economics department at Cal State East Bay. "The people who are losing their jobs to outsourcing are not the same ones who are qualified to take the jobs that are coming into the country."

Maxwell believes it makes sense for overseas corporations to place operations in such locations as California and other parts of the United States.

"My guess is they are going for skilled labor," Maxwell said. "California has a very highly skilled labor force. But the insourced jobs might not help the people who are losing their jobs from the outsourcing."

Norman Matloff, a professor of computer sciences at UC Davis who has studied issues related to outsourcing and offshoring, said the negative effects of those trends outweigh the positives produced by insourcing.

"Insourcing does exist, but its benefits are minor compared with the exporting of American jobs to other countries and the importing of foreign labor to the United States," Matloff said.

Matloff cited the current job listings posted on the Web site of one major Silicon Valley company, Hewlett-Packard. A search for engineer openings Wednesday found 335 jobs posted for engineers, of which 35, or 10 percent, were in the Bay Area; 41 percent were in the United States; and 59 percent were available outside the United States. The primary foreign destinations were India, China and Singapore, according to a cursory survey of the postings.

Still, plenty of insourcing successes can be found. The average salary for an insourced worker in 2003 was $60,527, up 7 percent from the year before. About 32 percent of the insourced jobs are in manufacturing nationwide, and 24 percent in California.

The roster of foreign companies with U.S.-based units includes many familiar names. In California, insourcing companies include Honda, BAE Systems North America, Hitachi Chemical Co., Hyundai-Kia, Matsushita Electric Corp., Siemens Corp., Sodexho Inc., Reed Elsevier, Roche Consulting, Sony Electronics, Toyota Motor North America, Uniliver United States Inc. and Vodafone America Inc.

But the list also includes Nestle USA Inc., whose units notably include Oakland-based Dreyer's Grand Ice Cream, which raises the question of how many of the insourced jobs came from new operations rather than corporate takeovers.

Small companies are also part of the mix. NRE World Bento Inc., a unit of a Japanese company, makes bento boxes of beef, pork and chicken mixed with organic rice and vegetables. The company opened a Fairfield plant to manufacture boxes that could be sold primarily to customers in Japan. Now, the Solano County firm is broadening its scope.

"We are just starting to sell in the United States market," said Motoyuki Kobayashi, president of NRE World.

George Avalos covers the economy, financial markets, insurance and banks. You can reach him at 925-977-8477 or

These are the top 10 states with the most insourced jobs, ranked by total insourced jobs in the state.

State Insourced Jobs

1. California 561,000

2. New York 382,600

3. Texas 339,300

4. Illinois 254,900

5. Florida 248,900

6. Pennsylvania 227,700

7. New Jersey 223,200

8. Ohio 208,600

9. Michigan 205,000

10. North Carolina 204,600

Sources: Organization for International Investment, U.S. Commerce Department

These 10 states had the largest concentration of insourced jobs. About 4.4 percent of California's private sector work force consists of insourced jobs, which left the state ranked 14th.

State Percent of private sector work force in state

1. South Carolina 8.4%

2. Connecticut 7.3%

3. New Jersey 6.5%

4. Massachusetts 6.5%

5. North Carolina 6.3%

6. Georgia 5.5%

7. Tennessee 5.5%

8. New York 5.4%

9. Michigan 5.4%

10. Indiana 5.3%

Sources: Organization for International Investment, U.S. Commerce Department

These 10 states had the largest percentage gain in insourced jobs over the past five years.

State Percent gain

1. Maryland 54.0%

2. Florida 31.0%

3. Wisconsin 21.0%

4. Massachusetts 20.0%

5. Missouri 18.0%

6. New York 17.0%

7. California 15.0%

8. Illinois 14.0%

9. New Jersey 11.0%

10. Texas 10.0%

Sources: Organization for International Investment, U.S. Commerce Department