Offshoring Engineering Jobs Implications for Engineering Careers

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Offshoring Engineering JobsImplications for
Engineering Careers Engineering Educators
March 22nd, 2005Electrical Computer
Engineering Department Heads Association Annual
MeetingNew Orleans, LA
Ron Hira, Ph.D., P.E. Assistant Professor of
Public Policy Rochester Institute of
Technology VP, Career Activities,
IEEE-USA rhira_at_mail.rit.edu 585-475-7052
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(No Transcript)
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Some Definitions

• Outsourcing Classic Make or Buy Decision
• Procter Gamble contracts with HP for IT
  services
• Offshore Outsourcing
• Sending work to outsourcers who operate overseas
• Offshore Sourcing aka Offshoring MNC Captive
  Facilities
• Daimler Chrysler has an RD center in Bangalore
• On-site Offshore Outsourcing Foreign Workers
  On-site
• Tata Consultancy Services, Infosys, Wipro,
  Accenture
• Insourcing (media) Foreign MNCs in US
• BMW in SC, Infosys Consulting
• Insourcing (academics) Making Rather Than
  Buying
• Blended Sourcing, Near Shore, Best Shore, Global
  Sourcing, etc.

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Why Do Companies Utilize Overseas Technology
Talent?

• Cost An Imperative
• Exceptional Talent?
• Politics Access to the Local Market
• Trade, e.g., China Russia Boeing engineers
• Developing Countries Strategy
• Tax Holidays Incentives
• 24/7 Capabilities
• Collaborative Engineering Technology
• Companies Aware Of Possibility Believe It Helps
  Their Performance Trigger
• Fate Of US Workers No Longer Figures Into
  Corporate Decisions

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Overseas Engineers Can Afford To Be Paid Less
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Substituting LaborExpansion Abroad US Layoffs

• Substitution not Additive or Complementary
• India Most Mentioned Destination
• Companies Are Re-balancing Workforce in Favor
  of Offshore Share
• EDS 20k US layoffs 20k offshore hires
• IBM Hewlett Packard
• Intel CSC
• AOL Texas Instruments
• Unisys Siemens
• Knowledge Transfer Knowledge Extraction
• Forcing US workers to train foreign replacements

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How Much Work Has Moved Offshore?

• No One Knows
• No one in government is collecting data
• Commerce Department has pilot study of 335k
  complete
• GAO current government data provide limited
  insight.
• 2million study underway by NAPA
• Companies are reluctant to reveal their plans
• Estimates From Self-Interested Firms Forrester
• Companies Waited Until After Election
• Some High Skill/High Wage Work Is Moving
• We Do Know It Is Accelerating
• Driven by top level management

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Offshoring SaturationJust the Beginning
Saturation
2005
TIME
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Offshore Outsourcing Firms Hiring Briskly

• Hughes Software Systems (HSS)
• Double staff over next 6 quarters by adding 2,500
• Tata Consultancy Services
• Revenues up 44 Profits up 51
• Added a net 3,974 employees in the quarter and
  has now expanded staff by 7,000 this year
• Infosys
• Profits up 49
• To meet vigorous demand for outsourcing, Infosys
  hired 5,010 people during the quarter, slightly
  less than 5,100 hired in the whole of the last
  fiscal year. Plans to hire up to 4,500 more in
  the next six months.

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Wide Variety of Jobs Have Moved OffshoreAny
Task That Can Be Sent Down A Wire

• Accounting
• Programming and Software
• News Reporting Editing
• Legal
• Architecture

• VC Firms Pushing Engineering Design
• Insurance Claims Processing
• Radiology
• Call Centers
• Financial Analysis

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Developing Countries Target RD

• Singapore - 2billion Biopolis - Biotech
• Also targeting Optoelectronics HP Agilent
• China
• Requires high-level tech transfer as part of
  investment
• Attracting recent PhD grads of US universities
• Companies locate RD closer to production
• India
• Wants to be the Global RD Hub
• Drug Discovery and IT RD
• Google, Microsoft, Texas Instruments, Intel, GM,
  etc. etc.

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Just Low Level Work? Sample Intel India Job Ad

• RF Simulation Engineer   (Job 274125)
• In this position you will build various antenna,
  RF channel and PHY/MAC models for various RF
  technologies and simulate platform noise impact.
  You will also interact closely with internal
  wireless product groups to develop solutions to
  enhance RF performance in notebooks.This
  position requires a M.S. or Ph.D. in Electrical
  Engineering with experience in mobile notebooks,
  WPAN, WLAN, WMAN, WWAN and platform noise. You
  must also possess - Experience building various
  antenna, channel, PHY/MAC models, prototypes,
  test systems and simulating the impact of
  multiple radios that are integrated into
  notebooks

Go to www.monsterindia.com
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Economists Debate Trade Theory

• Simple Models Based on Economic Efficiency
• Obviously ? efficiency using cheaper labor
• Assume full employment fast reemployment
• Ignore technological innovation national
  security
• Nobel Laureate Paul Samuelson, MIT
• Bhagwati and Irwin are promoting polemical
  untruths
• Plausible scenarios when Chinas development
  makes US standard of living go down
• Gomory Baumol show this mathematically
• Jagdish Bhagwati, Columbia
• Samuelson is misunderstanding outsourcing
• Net Long-Term Effects on US Are Uncertain

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Both Positive Negative Impacts

• US Developing Countries
• Both gain and lose from offshoring
• Net effects are impossible to determine

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U.S. Impacts

• Lift U.S. Economic Development
• Lower costs
• Open New Markets
• Lift Economic Development Abroad
• Geopolitical and security advantages

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U.S. Impacts ?

• U.S. Competitiveness/ Innovation System
• U.S. Workforce
• Displace Workers
• Downward Wage Pressure
• Change in Mix of Occupations
• Military Capacity Access Assimilation
• Homeland Defense - Critical Data
• Brain Circulation vs. Brain Drain
• Intellectual Property

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Developing Country Impacts

• Best Path to Growth?
• Comparative advantage is low cost skilled labor
• Spillover Benefits
• Movement up the ladder of innovation
• Learning western business practices
• Macroeconomic Advantages
• Utilize Idle Labor Force

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Developing Country Impacts ?

• Best and Brightest Supply External Markets Versus
  Domestic Problems
• Loss of Sovereignty to MNCs?
• Proper Use of Scarce Resources
• Work on male baldness rather than on malaria
• Help Indian urban in lieu of rural
• Race to the Bottom?
• Potential for Smokestack Chasing
• Mexican Maquiladoras and China

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Jobs Moving OverseasIdeal Scenario

• Before Offshoring
• US Workers do
• A, B, C
• Offshore Workers are
• Idle

• After Offshoring
• US Workers do
• B, C, D
• Offshore Workers do
• A and some of B

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Jobs Moving OverseasPredicted Impacts

• Job Dislocation
• Hope for quick re-employment
• Change in Mix of Domestic Occupations
• US workers will shift to non-tradable jobs
• Cant compete on price
• Will the new mix be better than the old one?

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Jobs Moving OverseasPredicted Impacts

• Downward Pressure on US Wages for Tradable
  Occupations
• Silver lining according to some industry reps
• US IEEE members experienced decline in wages from
  2002 to 2003 for the first time since surveys
  began in 1973
• No One Can Model Impacts on Innovation and
  National Security

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Domestic IT Labor Market Record
Unemployment(source IEEE-USA from BLS)
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1983-2003 Tech Unemployment Rates
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Job Dislocation During Low Job Creation
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GDP Growth Hasnt Translated Into Jobs
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Identifying the Outsourcing Problem

• Companies Substitute Foreign for US Labor
• Acting rationally can save money
• Even high skill jobs
• Education doesnt make you offshoring-proof
• What will go and what will stay?
• Displaced workers need to know what to train for
• Outsourcing Innovation?
• Fate Of US Workers No Longer Figures Into
  Corporate Decisions
• Take latest tools and technologies to the labor

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Identifying the Outsourcing Problem

• Low Job Creation gt Low Reemployment Rates
• Tough Adjustment process
• Despite unprecedented monetary and fiscal policy
  stimulus
• 1 in 3 displaced workers remain unemployed
• Mal-distribution of Costs Benefits
• Workers bear most of the costs
• Differs from 1980s competitiveness

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Unpredictable Longer-term Impacts on Innovation
Security

• What Will Be New Occupational Mix For US?
• Will the best brightest pursue these technology
  professions?
• Where will future technology leaders be
  developed?
• Who captures the wealth jobs created by the
  next big thing?
• Impacts on Military Superiority Homeland
  Security?
• Can economic studies predict this?

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Misdiagnosis of Outsourcing Problem

• Americans have gotten dumb all of sudden
• America doesnt produce enough engineers
• America doesnt spend enough on RD
• Low-cost countries are smart all of sudden
• Frivolous lawsuits have risen
• Lack of broadband deployment
• Productivity growth tautological explanation

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Who Wins? Explains Politics

• Shareholders
• Company executives
• Consumers
• Some existing employees?
• Countries getting those jobs
• Distribution of share of spoils?

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Who Loses? Explains Politics

• Losers
• Displaced workers
• Existing employees subject to the threat of being
  offshored
• US overall?
• Depends on re-employment of displaced workers
• Future technological innovation
• National security

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What Can We Do About Offshoring?

• Maximize Positive Mitigate Negative Effects
• Acknowledge A Problem Exists
• Dont know scale and scope, but do know process
  is accelerating
• No Villains In This Story
• Companies acting rationally
• Workers acting rationally
• Need To Work Cooperatively
• American workers need strong and healthy
  companies
• Do companies that sell to the US market need a
  healthy and vibrant US science engineering
  workforce?

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Human Capital Paradox

• Recognition that Human Capital is important
  Knowledge Economy but
• Domestic knowledge workforce is at risk
• High wage jobs also have high wage differentials
  with low cost countries.
• Employers have less incentive to invest in
  employees who might leave
• No governmental institutions to truly support
  lifelong learning
• Current tax credits are insufficient

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Implications For Engineers

• Need to Manage Your Career(s)
• Tech obsolescence cycle times decreasing
• Creates need for more lifelong learning
• Who pays for this lifelong learning?
• Learning How To Learn VS.
  Hit Ground Running
• Loyalty to Employer
• View yourself as a free agent - consultant

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Implications For Educators

• Train Students for Career(s)
• Train Students for Jobs
• Types of Jobs Going?
• What are the variables that determine whether a
  job goes or stays?
• Skill level?
• Work that can be easily codified?
• How to Increase the HZ
• Frequency mismatch b/w Universities (low Hz) and
  Company needs (hi Hz)
• Lifelong Learning Opportunities

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Implications For Industry

• Larger Geographic Dispersion of Talent
• Understanding Multiple Labor Pools/Markets
• Managing Global Development Teams
• Increased Competition - Increased Opportunities
• Managing Employee Morale/Loyalty
• Backlash
• Keeping valued employees difficult during good
  labor markets
• Increased Need to Interact With Educators

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My Book Published by American Management
Association
Available on Amazon, Barnes Noble