Business Corner

US-based Multinationals Continue to Hire Offshore

By Phil Phillips, PhD, Contributing Writer | May 15, 2012

US workforce continues to hurt under offshore growth trends.

According to the US Commerce Department, and considering US-based companies that have a multinational presence, it is a fact that they increased their labor force by a mere 0.1 percent while expanding offshore employment by 1.5 percent.

While this doesn’t seem like much of an issue on the surface, it does, in fact have one large impact on our US economy and job loss. This modest expansion of US multinational firms in the US in 2010 arrived in a year when the private sector eliminated 0.6 percent of its US workers.

FACTS: U.S. Based Multinationals

• Account for one-fifth of private employment
• 23 million US workers
• 11 million affiliates offshore
• Since 1999 cut US employment by 1 million = 4% decrease
• Since 1999 added 3.1 million workers offshore = 39% increase
• 68% of company employees were in the US, down from 75% in 1999
• Over 2009, capital spending in US rose 3.3%; offshore rose 8.6%

Because the government data is lagging, we do not have 2011 data. We can only speculate from all the announcements by these same companies we read, that the trend will continue. The recent appreciation of the Yuan in China should help slow down the trend on a modest basis going forward, however, the momentum of new plant plans in combination with startups in China alone we feel, will forgo any major change in these trends on the short- and medium-terms. 

In parallel with our multinational dynamics, offshore companies cut their work force in the US by one percent and reduced capital spending in the US by 1.7 percent in 2010.

From a macro-prospective, these large multinationals will continue to do well and labor in this country will grow very slowly while offshore with their domestic growth will triple that of the US.

The concern in our industries—paints, coatings, adhesives, sealants and specialty chemicals—is for the growth and stability at the other end of the size “barbell” illustrated below.

The small- and medium-sized companies with relatively limited resources to expend in globalizing their position, will suffer as US manufacturing remains stagnate and offshore sourcing continues to penetrate the US borders.

The question many of the small- and medium-sized companies in our industries have is: “How do I compete (survive) in this business environment?”

The answer is certainly NOT easy to consider. One answer would be to tell them they won’t be able to compete based on business as usual. However, there are some alternatives:

• Combining with other similar or adjacent manufacturers;
• Joint ventures with competitors;
• Licensing unique technologies to offshore suppliers; and
• Establish offshore distribution.

These arrangements have their respective advantages and disadvantages of course,  but they may be a better choice than the other obvious choice of going out of business.