[Vision2020] Romney’s Bain Capital invested in companies that moved jobs overseas

[Art Deco]

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   Romney’s Bain Capital invested in companies that moved jobs overseas By Tom
Hamburger<http://www.washingtonpost.com/tom-hamburger/2012/03/05/gIQABXKfTS_page.html>,
Published: June 21

*Mitt Romney’s financial company, Bain Capital, invested in a series of
firms that specialized in relocating jobs done by American workers to new
facilities in low-wage countries like China and India.*

During the nearly 15 years that Romney was actively involved in running
Bain, a private equity firm that he founded, it owned companies that were
pioneers in the practice of shipping work from the United States to
overseas call centers and factories making computer components, according
to filings with the Securities and Exchange Commission.

While economists debate whether the massive outsourcing of American jobs
over the last generation was inevitable, Romney in recent months has
lamented the toll it’s taken on the U.S. economy. He has repeatedly pledged
he would protect American employment by getting tough on China.

*“They’ve been able to put American businesses out of business and kill
American jobs,” he told workers at a Toledo fence factory in February. “If
I’m president of the United States, that’s going to end.”*

Speaking at a metalworking factory in Cincinnati last week, Romney cited
his experience as a businessman, saying he knows what it would take to
bring employers back to the United States. “For me it’s all about good jobs
for the American people and a bright and prosperous future,” he said.

For years, Romney’s political opponents have tried to tie him to the
practice of outsourcing American jobs. These political attacks have often
focused on Bain’s involvement in specific business deals that resulted in
job losses.

*But a Washington Post examination of securities filings shows the extent
of Bain’s investment in firms that specialized in helping other companies
move or expand operations overseas. While Bain was not the largest player
in the outsourcing field, the private equity firm was involved early on, at
a time when the departure of jobs from the United States was beginning to
accelerate and new companies were emerging as handmaidens to this outflow
of employment.*

Bain played several roles in helping these outsourcing companies, such as
investing venture capital so they could grow and providing management and
strategic business advice as they navigated this rapidly developing field.

Over the past two decades, American companies have dramatically expanded
their overseas operations and supply networks, especially in Asia, while
shrinking their workforces at home. McKinsey Global Institute estimated in
2006 that $18.4 billion in global information technology work and $11.4
billion in business-process services have been moved abroad.

While the export of jobs has been disruptive for many workers and
communities in the United States, outsourcing has been a powerful economic
force. It has often helped lower the prices that American consumers pay for
products and created a global supply chain that has made U.S. companies
more nimble and profitable.

Romney campaign officials repeatedly declined requests to comment on Bain’s
record of investing in outsourcing firms during the Romney era. Campaign
officials have said it is unfair to criticize Romney for investments made
by Bain after he left the firm but did not address those made on his watch.
In response to detailed questions about outsourcing investments, Bain
spokesman Alex Stanton said, “Bain Capital’s business model has always been
to build great companies and improve their operations. We have helped the
350 companies in which we have invested, which include over 100 start-up
businesses, produce $80 billion of revenue growth in the United States
while growing their revenues well over twice as fast as both the S&P and
the U.S. economy over the last 28 years.”

Until Romney left Bain Capital in 1999, he ran it with a proprietor’s zeal
and attention to detail, earning a reputation for smart, hands-on
management.

Bain’s foray into outsourcing began in 1993 when the private equity firm
took a stake in Corporate Software Inc., or CSI, after helping to finance a
$93 million buyout of the firm. CSI, which catered to technology companies
like Microsoft, provided a range of services including outsourcing of
customer support. Initially, CSI employed U.S. workers to provide these
services but by the mid-1990s was setting up call centers outside the
country.

Two years after Bain invested in the firm, CSI merged with another
enterprise to form a new company called Stream International Inc. Stream
immediately became active in the growing field of overseas calls centers.
Bain was initially a minority shareholder in Stream and was active in
running the company, providing “general executive and management services,”
according to SEC filings.

By 1997, Stream was running three tech-support call centers in Europe and
was part of a call center joint venture in Japan, an SEC filing shows. “The
Company believes that the trend toward outsourcing technical support
occurring in the U.S. is also occurring in international markets,” the SEC
filing said.

Stream continued to expand its overseas call centers. And Bain’s role also
grew with time. It ultimately became the majority shareholder in Stream in
1999 several months after Romney left Bain to run the Salt Lake City
Olympics.

Bain sold its stake in Stream in 2001, after the company further expanded
its call center operations across Europe and Asia.

The corporate merger that created Stream also gave birth to another,
related business known as Modus Media Inc., which specialized in helping
companies outsource their manufacturing. Modus Media was a subsidiary of
Stream that became an independent company in early 1998. Bain was the
largest shareholder, SEC filings show.

Modus Media grew rapidly. In December 1997, it announced it had contracted
with Microsoft to produce software and training products at a center in
Australia. Modus Media said it was already serving Microsoft from Asian
locations in Singapore, South Korea, Japan and Taiwan and in Europe and the
United States.

Two years later, Modus Media told the SEC it was performing outsource
packaging and hardware assembly for IBM, Sun Microsystems, Hewlett-Packard
Co. and Dell Computer Corp. The filing disclosed that Modus had operations
on four continents, including Asian facilities in Singapore, Taiwan, China
and South Korea, and European facilities in Ireland and France, and a
center in Australia.

“Technology companies, in particular, have increasingly sought to outsource
the business processes involved in their supply chains,” the filing said. “.
. . We offer a range of services that provide our clients with a one-stop
shop for their outsource requirements.”

According to a news release issued by Modus Media in 1997, its expansion of
outsourcing services took place in close consultation with Bain. Terry
Leahy, Modus’s chairman and chief executive, was quoted in the release as
saying he would be “working closely with Bain on strategic expansion.” At
the time, three Bain directors sat on the corporate board of Modus.

The global expansion that began while Romney was at Bain continued after he
left. In 2000, the firm announced it was opening a new facility in
Guadalajara, Mexico, and expanding in China, Malaysia, Taiwan and South
Korea.

In addition to taking an interest in companies that specialized in
outsourcing services, Bain also invested in firms that moved or expanded
their own operations outside of the United States.

One of those was a California bicycle manufacturer called GT Bicycle Inc.
that Bain bought in 1993. The growing company relied on Asian labor,
according to SEC filings. Two years later, with the company continuing to
expand, Bain helped take it public. In 1998, when Bain owned 22 percent of
GT’s stock and had three members on the board, the bicycle maker was sold
to Schwinn, which had also moved much of its manufacturing offshore as part
of a wider trend in the bicycle industry of turning to Chinese labor.

Another Bain investment was electronics manufacturer SMTC Corp. In June
1998, during Romney’s last year at Bain, his private equity firm acquired a
Colorado manufacturer that specialized in the assembly of printed circuit
boards. That was one of several preliminary steps in 1998 that would
culminate in a corporate merger a year later, five months after Romney left
Bain. In July 1999, the Colorado firm acquired SMTC Corp., SEC filings
show. Bain became the largest shareholder of SMTC and held three seats on
its corporate board. Within a year of Bain taking over, SMTC told the SEC
it was expanding production in Ireland and Mexico.

In its prospectus that year, SMTC explained that it was in a strong
position to meet the swelling demand from other manufacturers for overseas
production of circuit boards. The company said that communications and
networking companies “are dramatically increasing the amount of
manufacturing they are outsourcing and we believe our technological
capabilities and global manufacturing platform are well suited to
capitalize on this opportunity.”

Just as Romney was ending his tenure at Bain, it reached the culmination of
negotiations with Hyundai Electronics Industry of South Korea for the $550
million purchase of its U.S. subsidiary, Chippac, which manufactured,
tested and packaged computer chips in Asia. The deal was announced a month
after Romney left Bain. Reports filed with the SEC in late 1999 showed that
Chippac had plants in South Korea and China and was responsible for
marketing and supplying the company’s Asian-made computer chips. An
overwhelming majority of Chippac’s customers were U.S. firms, including
Intel, IBM and Lucent Technologies.

A filing with the SEC revealed the promise that Chippac offered investors.
“Historically, semiconductor companies primarily manufactured
semiconductors in their own facilities,” the filing said. “Today, most
major semiconductor manufacturers use independent packaging and test
service providers for at least a portion of their . . . needs. We expect
this outsourcing trend to continue.”

* *

Research editor Alice Crites contributed to this article.




-- 
Art Deco (Wayne A. Fox)
art.deco.studios at gmail.com
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