Romney's Bain Capital Invested in Companies That Moved
Jobs Overseas

By Tom Hamburger
June 21, 2012
The Washington Post
http://www.washingtonpost.com/business/economy/romneys-bain-capital-invested-in-companies-that-moved-jobs-overseas/2012/06/21/gJQAsD9ptV_story.html

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.


c The Washington Post Company

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