"Insourcing" Replacing "Outsourcing" as Companies Bring Jobs Back Home

"Outsourcing" is a term that has struck fear in the hearts of U.S. workers, nowhere more so than among those in the manufacturing sector. And in the early part of the last decade, it was hard to argue that outsourcing was something that the U.S. shouldn't be afraid of.

From 2001 to 2007, investment in equipment and software to make companies more productive declined by 15% as a share of gross domestic product and the U.S. manufacturing sector simultaneously lost more than three million jobs. While investment declined, jobs didn't so much disappear as much as migrate to more favorable business locations, according to a recent report from the White House.

"Over the past decade, real business investment in production capacity stagnated. Economic growth in the U.S. relied far too heavily on an unsustainable boom in residential and commercial real estate fueled by an unchecked financial sector," said the report. "The bubble created by this boom distorted our economy and undercut the international competitiveness of our products and services. Companies increasingly chased low-cost labor outside of the U.S., moving their manufacturing production, and some of their services, like call centers and software development, abroad."

Now, however, as companies have accounted for the productivity of American workers as well as transportation, supply chain risks and other costs, production is becoming as economical in the U.S. as it is in other parts of the world, including China. "Outsourcing" is increasingly giving way to "insourcing," as companies bring the jobs they sent overseas back home.

"U.S. manufacturing productivity—which has always been strong—continues to improve, rising nearly 13% since the first quarter of 2009," said the White House. "Combined with an increased cost of labor elsewhere in the world, it is now more cost competitive to invest in American manufacturing workers."

Manufacturing isn't the only sector that's beginning to see a bump. Typically, high-wage services like engineering, research and development, finance and software production can now be more easily traded across countries, leading to an expansion in the U.S. trade surplus in services that has tripled since 2003. "The highly-skilled U.S. workforce continues to be a source of advantage across the service sector," said the report. "Companies 'insourcing' to the U.S. point to better performance in U.S. service centers relative to many foreign locations, offsetting the benefits of lower wages abroad."

Jacob Barron, CICP, NACM staff writer