Acxiom plans offshoring jobs to save money.

AS ACXIOM CORP. OF LITTLE Rock moves closer to completing its buyout, plans for its approximately 7,100 employees are still unclear.

The data mining company showed a PowerPoint presentation to potential buyers earlier this year that projected savings of almost $25 million in the next fiscal year from "offshoring" jobs. And if 100 percent of the cost initiatives are realized, the annual after-tax savings will be $58.8 million in fiscal year 2011--a hefty boost to the bottom line for a company that had net income of $70.7 million in its last fiscal year and more than 10 percent of its 2007 payroll and benefits.

Acxiom spokeswoman Suellen Vann would not comment on the offshoring plans or the presentation, which was filed last month with the U.S. Securities & Exchange Commission.

"We are not commenting on any of the files or anything related to the acquisition since we're in the proxy filing period," Vann said. "And we're letting the materials that we filed with the SEC speak for themselves."

If Acxiom saves money by moving jobs to Poland, as suggested in the presentation, it will be one of the few companies to see such savings. About a third of the companies that have replaced American workers with cheaper work forces in other countries saw their costs rise, and another third realized no cost saving, according to Phillip Hatch, president of Ventoro of Portland, Ore., which has studied the offshoring phenomenon. The third of companies that did enjoy cost savings reported that the total savings were in the 5 to 10 percent range, depending on the sector, Hatch said.

"Very few companies that set off to achieve a cost savings in the end actually do," Hatch said.

Now about a third of the companies that went overseas to find cheaper labor are returning to the United States, he said.

Salaries on the Rise

Earlier this year, Acxiom officials gave presentations to potential acquirers. In the presentation, Acxiom listed "offshoring opportunities" as one of the "pros" for buying the company. In the filing, Acxiom projected that moving work to Poland, where it already has an office, would cost $15 million up front but save $9.9 million on labor and other efficiencies in the fiscal year that will end March 31, 2008. But after the first year's after-tax cost of $2.9 million, the financial picture looked rosier.

For the fiscal year 2009, Acxiom projects an after-tax cost savings of $24.9 million, growing to $43.9 million in 2010 and $58.8 million in 2011. The document doesn't indicate why the figure would grow so much or whether more jobs would be sent overseas each year.

Acxiom also listed projections if only half of the offshore cost initiatives were realized.

Under the 50 percent scenario, Acxiom projects additional first-year costs of $6.2 million related to the offshoring. But after that, the savings would start to mount, reaching $28.2 million by fiscal 2011.

Salaries and benefits are Acxiom's biggest expenses and have been climbing.

For fiscal year 2007, which ended March 31, Acxiom spent $570 million on salaries and benefits, up 28.4 percent from 2005. The number of employees grew 7.5 percent during that period, from 6,600 to 7,100, while revenue increased just 1.5 percent, to $1.4 billion.

Charles D. Morgan, chairman and company leader, saw his base salary climb 8.33 percent to $796,250 between fiscal years 2005 and 2007.

Other top executives saw raises during that period. The largest increase went to Rodger S. Kline, chief administrative leader, who received a pay increase of 22.19 percent to $490,000.

In the presentation to investors, Acxiom projected revenue will grow from $1.45 billion in 2008 to $1.76 billion in 2011. Its net income also will increase from $81.3 million to $169.4 million during that time.

In those projections, offshoring isn't mentioned, but Acxiom does say it will gain $20 million from the sale of its Phoenix building at the end of 2008. Acxiom has a data center and office space in the Arizona capital.

Still, the filings didn't say which jobs would be offshored or where they would come from. In addition to Little Rock, Acxiom has offices around the globe and across the United States including in New York, Chicago and San Mateo, Calif., some of the most expensive markets in the country.

Acxiom has a history of cutting jobs to save money.

For the fiscal year that ended in March, Acxiom had laid off 65 workers per quarter for the first three quarters and about 100 workers in the last quarter.

"Throughout the year our leaders have made business decisions across the enterprise to reduce expenses; these isolated changes were done as needed to prevent wide-scale layoffs that Acxiom experienced a few years ago," Acxiom said in a statement to Arkansas Business in March.

"This will be the norm for Acxiom as we move forward--continually review business operations; then, adjust for client contract changes by ending projects in a timely manner and transferring associates to another part of the business, where possible, and eliminating positions when necessary."

In May, Acxiom announced that it was selling to private equity firms Silver Lake Partners and ValueAct Capital for $3 billion.

A Silver Lake Partners spokeswoman said the company won't comment on plans for the company until the deal is closed. A ValueAct spokesman didn't return a call for comment.

At first, it looked as if the sale would have trouble closing. MMI Investments LP, which owns 8.9 percent of Acxiom's stock, said it would fight the sale because the $27.10 per share price was too low. Last week, Acxiom's stock price was trading at just under $25 a share. But on Aug. 14, MMI said in SEC filings that it wouldn't block the sale. Other shareholders and SEC regulators still have to approve the move. A date hasn't been set yet for the shareholder vote.

One study indicates that typically cost savings don't materialize with offshoring, said Hatch, the president of Ventoro.

In some developed countries, such as India, the pay rates are rapidly becoming comparable to those in the United States, he said. "People in offshore markets aren't cheap," Hatch said.

In India, a popular location for offshored technology jobs, labor costs are increasing at a rate of about 30 percent a year, he said. And the turnover rate there is also around 30 percent annually.

"So if you're a U.S.-based company trying to outsource to India today, you're going to have a very difficult time trying to keep your cost under control," Hatch said. "It's so oversold and it's continuing on that path."

Some companies turn to overseas markets not to save money but to find workers because they can't hire qualified employees in the United States.

"Most companies that outsource to China and India and those kinds of places today would actually keep the jobs ... in-house, or at least here in the United States, if they could find the quality and quantity of resources," Hatch said.

Moving jobs overseas can create new headaches for companies.

"You run into languages and cultural differences that are hard to get around," Hatch said.

A common mistake among managers who decide to offshore, he said, "is they think that once the actual transition is done, they can step back, put their feet on the table and life will be bliss. And that's simply not the case."

Managers should expect to make several trips to the overseas offices to ensure things are running smoothly.

Some companies, though, can see a savings by offshoring by paying attention to their people still in the United States, said Kate Nelson, a partner with the consulting company Change Guides LLC of Cincinnati.

"The thing that companies are finding now is that taking care of the people who are still at home ... is also really important," she said.

Nelson said the key is to keep the employees informed. Employees who remain need to feel as if they have a stake in the company, since they will be dealing with the overseas workers.

"People here still have to be motivated and care enough to want that to work," Nelson said. "It really depends on leadership."

But some companies don't say a word to their employees about their plans, fearing everyone will quit, she said.

"People actually don't do that," Nelson said. "So if people quit, they didn't have confidence in the organization in the first place, and it's not really necessarily this latest strategic move."

RELATED ARTICLE: Jonesboro's rural sourcing sees growth.

A JONESBORO FIRM IS HOPING to cash in on the number of companies that have given up on offshoring jobs.

Rural Sourcing Inc. of Jonesboro said it can handle information technology projects for up to 50 percent less than other places in the country. The key to the cost savings is that rural Arkansas is a much cheaper place to conduct business than New York, Chicago or California, said Henry Tortes, the director of business development for the firm.

Torres said the company has worked with more than 80 companies across the United States in the last three years and now has a staff of 24 with most of the employees working on projects for companies. He declined to release revenue figures.

Rural Sourcing received another boost in June when Clarkston Consulting of Durham, N.C., bought 40 percent of the company. Kathy Brittain White, who founded Rural Sourcing, owns the remaining 60 percent.

Clarkston Consulting also handles outsourced IT projects for other companies and has offices across the country.

Torres said the partnership will add 14 jobs to the Jonesboro office in the next 18 months. Rural Sourcing started out as a nonprofit company called Arkansas

Rural Sourcing in 2003. But Torres said companies didn't want to work with a nonprofit, so the idea was scrapped a month later.

Rural Sourcing currently is in Arkansas State University at Jonesboro's business incubator program. Torres said there are no plans to move out of the program at this time.

--Mark Friedman

By Mark Friedman

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