Squeeze play: is America's offshoring movement hurting black businesses? Many are applying innovative strategies to buck the trend.

IT IS NOTHING LESS THAN THE HOT-button labor issue of our times. The unions have howled about it for years, and the press chimes in regularly with bushels of bad news on the topic. Last year, the story elbowed its way into the presidential debates and became one of the thornier issues in the election. By now, we're all aware of the stream--no torrent--of jobs and businesses that have been crated and unceremoniously shipped overseas. Manufacturing positions migrated long ago, and now you need only call a bank or computer company for a reminder that white-collar businesses have joined the trend: Within seconds, the call is zapped thousands of miles away to destinations we can only dream of visiting such as India, China, the Philippines, or Ireland. Offshoring, the outsourcing of jobs to foreign countries, poses one of the biggest threats to U.S. businesses today.

Despite the offshoring threat, 2005 is shaping up to be a banner year for Mark Wilson, chief executive of Ryla Teleservices Inc., a telephone-service outfit based stateside in suburban Atlanta. A few years ago, Wilson says he worried briefly about losing business to foreign competitors. In fact, in 2002, one of his clients actually did farm out a contract overseas, he says. But Wilson managed to maintain his success. With some companies readjusting their offshoring strategies, Ryla positioned itself to take advantage of a growing offshoring backlash and has reaped the benefits. This year, Wilson plans to add up to 400 new jobs at Ryla's headquarters and has already added 48,500 square feet to accommodate the new changes. The company has also opened up a new center outside of Providence, Rhode Island, with 9,000 square feet of office space to house more than 100 more jobs. Oh, and did we mention that Wilson's business runs call centers, the same telephone bank operations that have relocated practically en masse to exotic locations overseas?

BLACK ENTERPRISE spoke to many business owners like Wilson for an inside look at how offshoring is affecting fledgling and midsize African American companies. True enough, offshoring's force has hit black firms large and small in terms of costs, competition, and revenue streams. But minority-run companies are not shrinking from the threat. Instead, black business owners are not only devising new ways to counteract business and job loss to cheap labor markets but they are also developing strategies to benefit from the trend. Here are some of their success stories, which offer lessons for businesses of all types.

THE MONSTER

Any way you stack the numbers, offshoring is a gargantuan movement that has brought light-speed changes to the U.S. business climate. Worldwide spending on job relocation to overseas offices was approximately $3.7 trillion in 2001 and expected to reach $5.1 trillion this year, according to Robert Kennedy, executive director of the William Davidson Institute at the University of Michigan. Forrester Research, a Cambridge, Massachusetts-based research firm that tracks technology changes, predicts the U.S. will lose 3.3 million service industry jobs to less expensive locations overseas over the next 12 years, accounting for as much as $136 billion in wages. Compared to the 540,000 positions that have been exported so far, the number of exported jobs will grow to 30% to 40% a year.

Economic factors and the growth of technology have contributed to the offshoring explosion in the U.S. First, offshoring can dramatically cut labor costs for U.S. companies. With the low cost of living in developing countries, management only has to pay workers there a mere fraction of the wages that white- and blue-collar American workers earn domestically. The pay gap is particularly wide for white-collar positions: A computer programmer stateside earns an average of $63,000 a year. In India, the same worker earns less than $6,000 a year. A U.S. financial analyst makes approximately $7,000 a month, while his or her counterpart in India makes just one-seventh that amount.

The worldwide spread of fast and reliable Internet and telecom connections means U.S. companies can easily cash in on bargain wage rates overseas. Communications and the transfer of data overseas is now remarkably simple, says Paul Almeida, head of AFL-CIO's Department for Professional Employees. "If your work can be digitized, scanned, or turned into binary code, chances are it is already getting shipped abroad," says Almeida.

COUPLING UP

Despite the discouraging outlook, many black-owned businesses are proving that offshoring does not spell the end of contracting as we know it. Instead, many small to midsize companies are developing innovative strategies such as allying with corporate customers to conquer the outsourcing beast. Staffing Solutions, a Boston personnel service with $7 million in revenues for 2004, partnered with the technical staffing company TAC Worldwide, keeping computer contracts and jobs stateside. Staffing Solutions CEO Earl Tare, head of the company for 21 years, has countered the trade winds so successfully that IT business has grown nearly 40% in the past year.

Before forging the alliance with TAC Worldwide, Tare was at a crossroads when the high-tech and Internet bubble began leaking. Sales in 2001 dropped off 50%, and Tate knew clients were replacing his staffers with cheaper offshore labor. He began investigating Federal set-aside programs to drum up business, but he soon realized his company needed to expand its reach to qualify. So Tare decided to bring in a partner with revenues over $600 million. Staffing Solutions hammered together a joint venture with a majority stake, lifting its business and offering new opportunities to its partner as well. Tate says the alliance has helped boost revenues from $3 million a year to as much as $8 million expected in 2005. By joining forces with TAC, "we've essentially outsourced our ability to fill a job offer," says Tare. The partnership has also helped Tare snare work from Fortune 500 clients, including DaimlerChrysler.

POLITICAL SHELTER

While offshoring is beginning to ravage information technology firms and other white-collar outposts, one niche that has long been a stable source of income for BE 100s firms is still safe: government contracting. The reasons are simple: first, Washington fears potential political fallout if it begins offshoring. And second, Uncle Sam needs to use domestic companies to keep sensitive defense and security information within U.S. borders.

Washington's determination to keep security information stateside means high-level contracts with agencies such as the Department of Defense will likely keep companies like Axiom Resource Management Inc. unscathed in the current offshoring rumble. The management consulting firm, based in Falls Church, Virginia, has developed solid footing with contract defense work in areas such as homeland security. "It's simple," says Renard Johnson, CEO of METI, a BE 100s computer support and engineering outfit based in El Paso, Texas. "In my opinion, there is no way the U.S. will ship out work with top-secret clearances." As a result of contracts with military and government agencies, including the U. S. Air Force, the Department of Agriculture, and the Federal Aviation Administration, METI's $55 million in annual revenues look to be relatively safe in the face of the offshoring onslaught.

BEHIND THE NUMBERS

Offshoring's effect on the U.S. job market gets plenty of ink here at home. But often ignored is a growing countertrend: a rising backlash against offshoring is influencing companies to steer a large number of jobs back to domestic shores. And many black business owners are seizing upon this change. Wilson caught wind of the backdraft with call-center contracts from major corporate clients. "We're finding that some companies are realizing that U.S. customers can get frustrated with overseas help or are conscious of job losses here when they call a help desk. As a result, many companies are starting to couple overseas operations with centers based here at home," says Wilson. The end result of corporate adjustments to offshoring is a boost in Ryla's revenues, which are expected to hit $7 million in fiscal 2004.

Wilson and others say that some firms that were once eager to ship large amounts of work outside the U.S. are now more selective. Last year, Dell Computers reversed its offshoring plans after funneling much of its customer-service work to India. The company brought much of that work back to the U.S. after sensing a backlash from American consumers that threatened to put a dent in its bottom line.

FACE TIME

Interpersonal connections can also safeguard businesses from the offshoring vacuum, according to Wilson and other African American corporate executives. CEO Daniel Perkins of MTS Technologies, a BE 100S industrial/service company, says his firm's emphasis on personalized support and face-to-face contact is key in the current offshoring climate. His company, with $200 million in annual sales, focuses on software development and desktop support, two lines of work that require face-to-face interaction. Perkins has a generalized concern about offshoring, but close contact with customers keeps his clients happy. "Our clients need for us to be nearby," says Perkins. "Whatever applications and troubleshooting we do, we make sure there is a presence so our clients can see someone is reacting or concerned."

STANDING OUT

David Steward, the chairman of top-ranked BE 100s service company World Wide Technology, says he has kept ahead of the offshore groundswell by spending on proprietary wares that no competition can duplicate--at home or overseas. Ten years ago, when offshoring was beginning to creep into U.S. high-tech markets, his St. Louis-based company reassessed its strategy of helping companies use a variety of technology to track and manage production and orders. The company shifted to focus on unique solutions to fit each customer, which requires large hardware expenditures. "We were forced to evaluate our model when we were a back-office resource-planning company making $75 million in annual revenues. That meant we had to spend $50 million a year on servers, networking equipment, EDI, XML, and bolt-on applications to develop programs uniquely designed for certain industries," says Steward. The result: World Wide now has grown to a $1.4 billion business.

STAY FLEXIBLE, OPEN, IN THE KNOW

Make no mistake. "Offshoring is a trend that might be modified over time, but it's certainly not going away," says Kennedy, who has researched the effect of offshoring in the United States. But the impact need not be fatal. "The lesson here for business leaders is to focus on the activities you do best and where you have an advantage, skills that need to stay close to headquarters or a physical presence. Any activities outside of that, you should consider partnering up with a company with an offshore presence or establish your own," says Kennedy.

Offshoring "is the same as any other business challenge," says Steward. "We have to face up to the task and use the same entrepreneurship and innovation to rise to the occasion."

CAN'T BEAT THEM ...

LONNIE SAPP WITHSTOOD THE OFFSHORING WAVE AND HAS TAKEN IT FOR QUITE A RIDE.

There was no avoiding the bleak future of back-office work in the U.S. A few years ago, with more and more jobs drifting overseas, Lonnie Sapp decided he had no choice but to john the offshoring trend, not fight it.

Today, Sapp is arguably one of the highest-ranking African Americans in the offshoring business. He is chief operating officer for OfficeTiger, a company that has built a sizeable back-office presence in India, grinding out tasks large and small for a host of major financial institutions and Fortune 500 clients And business is booming for the firm. OfficeTiger mushroomed from 250 workers in early 2005 to 1,200 at the start of 2004, with employees located in India as well as Sri Lanka, New York, and London. And Sapp says the company's current head count for 2005 is more than 2,500 employees. In 2004, OfficeTiger not only snared contracts with eight of the 12 largest financial institutions in the United States, it also gained big-four accounting operations and a host of American and European law firms as loyal customers.

After the company launched in 1999, Sapp joined OfficeTiger in 2000 as vice president of operations in the U.S. But soon, OfficeTiger tapped him to supervise a number of services for clients in India, including number crunching, software tweaking, and report generating.

Sapp moved to Chennai, India's fourth largest city, where he now supervises a bustling office of 200 financial analysts and more than 1,000 legal researchers and document processing professionals. Sapp has built an operation that mirrors office outsourcing schemes in the U.S., except for one crucial difference: His office works around the clock.

To hear Sapp tell it, the writing was on the wall, "Taking into consideration the post dot-corn technology boom and the resulting corporate outsourcing fallout, it simply made sense to take my career offshore, and OfficeTiger afforded me the opportunity to do so," says Sapp, Sapp says his story shows that African Americans should not retreat from global trends. "The world is evolving toward a more level playing field for all people," says Sapp. "Those who do not think, act, and accept these changes will be left behind. I think African Americans should start thinking outside of their comfort zones and step up to challenge the status quo."