The Times Union
By Elizabeth Benjamin
March 6, 2005

INSOURCING AN OVERLOOKED ECONOMIC BENEFIT

ALBANY - With all the dark talk lately about the outsourcing of American jobs to countries like India, China and Mexico, globalization tends to get a bad rap.

But there is a positive, often-overlooked side to the growing global economy, according to a 2004 study released by the Organization for International Investment, a trade association representing U.S. subsidiaries of foreign companies.

It's called "insourcing" - the investment in America by foreign companies that brings with it a whole host of benefits like jobs, revenue, infrastructure, products and intellectual capital.

"There's a lot of evidence that globalization benefits the U.S. economy ... that doesn't get into the political discussion as much as it should," said Matthew Slaughter, an associate professor at Dartmouth College's Tuck School of Business, who authored the study entitled "Insourcing Jobs: Making the Global Economy Work for America."

According to the study, multinational companies with a majority of foreign investment employ more than 5.4 million workers through their operations in the United States. That's about 5 percent of the country's private-sector employment, up from 3 percent in 1987. All told, those workers were paid more than $307 billion, more than 6 percent of all U.S. private-sector labor compensation.

This isn't to say that insourcing is making up for the rapid outsourcing taking place in many industries. Indeed, a 2003 study by the University of California at Berkeley contends that 14 million white-collar jobs could be lost to low-wage countries such as India, China and Mexico by 2015.

But insourcing is occurring, Slaughter said. Using data from the U.S. Commerce Department's Bureau of Economic Analysis, the study ranks New York second in the nation for the number of workers employed by foreign subsidiaries: 394,700. And 72,700 of those jobs, or 18.4 percent, are in manufacturing, a sector in which the state lost more than 220,000 jobs between 1993 and 2003, according to the state Department of Labor.

The Empire State lags far behind No. 1 on the list - California - with 616,400 foreign-funded jobs. But it's ahead of No. 3, Texas, which has 351,400.

Among the prominent foreign-based companies with roots in America is Tokyo Electron Ltd., the world's No. 2 manufacturer of semiconductor production equipment.

TEL has embarked on a $300 million research and development center at the University at Albany's Albany NanoTech complex. The center is TEL's first dedicated R&D facility outside Japan.

New York state officials have been aggressively courting technology companies, particularly - when it comes to the Capital Region - those associated with the nanotechnology industry. The state pledged $100 million over seven years to TEL.

That cash undoubtedly helped New York beat out two other communities to land TEL's R&D center and the estimated 300 well-paying jobs it will have when fully staffed.

But there is no silver bullet when it comes to attracting foreign business, said the Tuck School's Slaughter. State incentives alone - in the form of tax breaks or cold, hard cash - won't do the trick. It's actually a mix of things that lures a company, from a well-educated work force to an area's quality of life.

Some factors - like the weather - state officials can't do anything about. But weather isn't necessarily a make-or-break factor for high-tech companies.

Chris Kramer, vice president of strategic accounts for Austin, Texas-based TEL America, said company officials decided Albany was a good fit for them because of its proximity "to the best minds - both academic and in the industry." He also credited Gov. George Pataki's "vision" of a high-tech corridor in New York for giving the state an edge over other states.

TEL isn't having any trouble attracting employees to Albany, Kramer said, because people want to do the kind of work going on here.

"I joined TEL seven years ago, and there were 13 people in New York state, mostly serving and supporting IBM," he said. "I probably never would have thought we'd have more than 50, but now we have more than 100."

Even though that's only a third of TEL's eventual payroll, Albany Mayor Jerry Jennings said the city is already experiencing a boon from the company's presence and from those of other companies at the NanoTech complex, like Sematech.

"It's not just about new workers, it's about an attitude about the region," Jennings said. "There's more interest now than there ever was from new companies that want to come in here. ... We're in the global market now."

Jennings declined to name the companies that have called him. But Pataki announced during his 2005 State of the State address that IBM Corp., ASML Holding N.V. of the Netherlands and several other companies are planning projects that could create 600 jobs at the NanoTech complex.

According to Empire State Development Corp., the state's economic development arm, New York's share of gross property, plant and equipment from foreign affiliates reached $63 billion in 2002, the most recent data available.

The top investing country was the United Kingdom at $13 billion; Canada ranked No. 5 at $7.3 billion.

To help attract business to New York from overseas, Empire State Development has nine foreign offices, including two in Canada and one each in Tokyo, Mexico City, London, Israel, South Africa and Chile. These offices are largely staffed by contractors who both bring in new business and also serve as a point-of-contact for companies seeking information about New York.

The combined budget for these offices is $1 million a year.

Why has insourcing been largely ignored in the debate over globalization?

Said Slaughter: "The incidence of globalization hurting the economy is often quite concentrated, while the benefits are often quite diffuse."

In other words, a community feels the pain when a company closes up shop and relocates its jobs overseas. But when the entire computer industry benefits from research and development done by employees working for a foreign company's U.S. subsidiary, it's not quite so obvious.

On the other hand, Slaughter said, no one should gloss over the fact that not everyone can benefit from insourcing.

"Those who get hurt when jobs leave the country tend to be most visible at the local level," he said. "I'm the first to acknowledge there are real distributional impacts."