Globalism, Outsourcing, and the American University

1
Globalism, Outsourcing, and the American
University

• By
• Jack M. Wilson
• President
• University of Massachusetts
• August 9, 2004

2
Outsourcing

• The flow of jobs to countries with lower wages
  and higher productivity.
• A huge political hot potato
• Lowers costs
• Raises productivity
• Stimulates economic development around world
• Creates unemployment in the sending sector

3
How big is the problem?

• U.S. labor Department 4633 jobs moved overseas
  in first quarter of 2004.
• This is 2 of layoffs
• Caveats only large (gt50) companies who laid off
  at least 50 persons!
• Indian Nat. Assn. of Software and Services
• 200,000 jobs created in India in year ended Mar
  31, 2004
• 50,000 per quarter
• Someone is missing something somewhere!

4
How big is the problem - 2

• Forrester Research 3.3 million jobs by 2015
• 136 billion in wages lost
• Gartner Inc. estimates 10 of Computer services
  and software jobs to be outsourced by 2004 end.
• Deloitte Research surveyed 100 of the worlds
  largest financial services companies
• Expect to outsource 2 million jobs in next five
  years.
• Outsource 356 billion in operations in next five
  years

5
How big is the problem -3

• According to Business Week
• Intel 3,000 chip design jobs to India by 2006.
• Microsoft 500 software design jobs to India and
  China in 2003.
• Oracle 4000 software design jobs to India in
  next five years.
• Phillips 700 consumer electronic design jobs to
  China in next few years.

6
Cost of Engineers

• U.S. 70,000
• Hungary 25,690
• China 15,120
• Russia 14,420
• India 13,580
• In spite of the wage differential, overseas wages
  make engineers well paid by local standards.

7
Historical Trends?

• Steel making
• Automobiles
• Textiles
• Call Centers
• Engineering
• Software

8
Issues with outsourcing

• Cost
• Language
• Culture

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Cost

• As a country develops, cost advantages tend to
  lessen rapidly, but do not disappear immediately
• Japan quickly lost a cost advantage in automotive
  manufacturing just as Germany had done decades
  earlier.
• Some production moved to U.S.
• India is starting to experience some inflation in
  the call center cost structure.
• Indian Companies are now trying to acquire some
  U.S. companies.

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Strategies for success?

• Protectionism
• History is not kind to this strategy, however
  politically necessary it might become
• Best used in transition and is not and end game.
• Innovation
• Historically our best strategy, but it requires
  investments that we are not making!
• Higher Education seems to be the key everywhere.
• Collaboration between government, higher ed,
  industry, and schools.

11
Why?

• Gail Dundas, Intel Corporation
• You have to look at all the factors. There are
  times when cost effectiveness is a part of it,
  but it is not the stand alone reason. We have
  growing markets, good talented people in those
  markets, and people who are more educated than
  ever before.

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American Universities are the Greatest in the
World!

• Well, yes, but.
• Have you ever visited
• Tsingua University
• Beijing University
• Shanghai Jiao Tong University.
• The Indian Institutes of Technology
• The Max Planck Institutes
• Etc.
• U.S. ranks 6th among O.E.C.D. countries in BA/BS
  by 20s.

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American Public Higher Ed. Under Stress

• To economists, higher education is like
  motherhood or apple pie. It will cure anything,
  from globalization and outsourcing to
  technological change and income inequality.
• Jeff Madrick, Why Higher Learning Gets the Ax,
  New York Times (August 5, 2004).
• Compare Boston and Detroit Aside from climate,
  skill composition may be the most powerful
  predictor of growth.
• E.L.Glaeser, Harvard and A. Saiz, Univ. of
  Pennsylvania

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Reverse the dramatic disinvestment in higher
education
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Messages to our universities

• While the ability to solve complicated models and
  equations will remain important, it will by no
  means be enough.
• Educating Engineers, and all students, more
  broadly to understand
• Communication,
• Culture,
• Economics,
• People skills and team dynamics,
• Entrepreneurship
• Ethics,
• Tapping women and underrepresented minorities
• Take quality and standards to the next level!

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Universities must connect to communities.

• Work force development
• Community needs in bio-, nano-, info-, medical-
  technologies.
• Educating underrepresented groups
• Collaborating with industry
• Research and Venture Capital are the fuel-air
  mixture for innovation.
• Technological entrepreneurship

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UMass Focus and Mission

• UMass is a state-wide, high-quality learning and
  discovery institution that transforms the lives
  of students and communities in Massachusetts.
• The path to the economic and social development
  of Massachusetts and its diverse regions goes
  through UMass.

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A Substantial Economic Force and Higher
Education Resource

• 1.5 B enterprise in FY04 (326M state
  appropriation- 400M- in FY05)
• Over 320M in sponsored research (90 outside of
  Rt 128)
• 5 campuses and 80 off-campus sites throughout the
  Commonwealth
• 14,000 employees, making UMass a major employer
  across the state
• About 58,000 undergraduate/graduate/continuing
  education students
• UMassOnline 14,700 students in workplace
• Over 10,000 graduates annually
• Over 450 BS/MS/PhD programs
• Over 320,000 alumni 2/3 living and working in
  Massachusetts
• 1.2 B capital program with huge deferred
  maintenance needs

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A Major Force in Research, Development and
Innovation

• Over 300M in R D ranking 3 in
  Massachusetts, 4 in New England, top 50 in US
  (Over 150M of RD is in the life sciences.)
• Targeted RD initiatives in emerging fields
  such as gene silencing, bioinformatics,
  nanotechnology, remote sensing, green chemistry,
  vaccine development and renewable energy
• Office of Commercial Ventures and Intellectual
  Property generating over 25M in annual
  license income, ranking UMass in top 20 US
  universities
• Mass Technology Transfer Center home to new
  state-funded center to promote tech transfer from
  public and private universities to Massachusetts
  companies
• High Tech incubators located in Lowell and Fall
  River, housing more than a dozen companies, with
  several successful spin-offs (e.g., Konarka),
  plans for New Bedford and Springfield
• Corporate partnerships RD and license
  agreements with companies ranging from Biogen and
  Sepracor to Natick Labs and Raytheon

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Recent UMass Successes

• Federal Grants
• 40 M UMA ERC in Atmospheric Sensing (with
  Raytheon)
• 17 M UMD/Tufts Botulinum Center
• 16 M UMW Immunology Grant
• 12 M UMB-Boston Science Ed Partnership
• 3 M UMB BATEC Grant
• Tech Commercialization
• 20 M CVIP last year and 13 M in Q1 of this year
• 10 M Licensing of RNAi (Araios start-up)
• State Support
• 100 M Emerging Technology Bill
• 25.9 M Faculty and staff contracts funded
• 10 M Supplemental
• 2.7 M Star Store at UMD
• Philanthropy
• 20 M Environmental initiative
• 3 M Blais Chair to Craig Mello at UMW
• UMass Online
• 12.7 M in UMassOnline

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A Recent Case in Point

• CASA And Engineering Research Center
• Collaborative Adaptive Sensing of the Atmosphere
• University partners UMass Amherst, University of
  Oklahoma, Colorado State University, and the
  University of Puerto Rico, Mayaguez
• Industrial partners Raytheon, IBM, MA/COM,
  Vaisala, Vieux and Associates, Telephonics, and
  The Weather Channel
• Government partners NSF, NOAAs National Severe
  Storms Laboratory and Oak Ridge National Labs

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CASA Not an accident

• Began with 1 million donation from John
  Armstrong, former VP of IBM wihcih was matched to
  create the Armstrong Chair at UMA.
• David McLaughlin fills chair.
• Research Constellation develops with Computer
  Science Professor Jim Kurose and others.
• Research funding grows
• Local investment to prepare ERC
• Governor gives 5 million match in difficult
  time
• Potential 40 M Center is funded.

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CASA What does it mean?

• Ensure leadership in research in area.
• Collaboration positions key Massachusetts
  employers for continued success.
• Raytheon microarrays of collective radars
• IBM Real time data analysis from multiple
  sources.
• Yields possibility for new company spin-offs.
• Provides economic stimulus in western Mass.

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Another Case in Point

• RNAi Discovery (2 of 3 researchers at UMassMed)
• Promises opportunities for both research and
  treatment of genetic or DNA and RNA based
  diseases.
• Science magazine designates this as the number
  one discovery of 2002.
• Initial license for 10 million to existing
  company.
• New company created in Worcester.
• Worcester positioned to be the center of
  development of RNAi technologies

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And there is more

• Konarka Technologies Lowell
• Avant Immunotherapeutics Fall River
• Green Chemistry Boston Lowell
• Fisheries and Marine Sciences Dartmouth
• UMass Amherst BayState Partnership

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The Vision

• Innovative Undergraduate programs
• Engaged, Interactive, Service, URP,
  International, Wired
• Broad Graduate Programs of Distinction
• Nano-, Info-, Enviro- and Bio- Tech Public
  Policy, Medicine, Management, Health Professions,
  Education, etc
• Research doubling to 600 million (15 per year)
• Washington Office?
• The Maintenance Contract for our degrees
• A Proud and Connected Alumni group
• UMass Club ?, Basketball, Hockey, (Football?)
• A Community of Supporters
• Business, Legislative, Media, Federal
• An Enhanced Endowment
• Appealing Physical Facilities

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ST Role of the UMass Presidents Office

• Advocate for Matching Funds from the Governor for
  UMass Amherst ERC and Lowell Nanotech Center
  Proposals -- 6 M COMMITTED
• Advocate for UMass Role in ST Proposals with
  Governor and Legislature ENACTED
• Secure Support from Industry and Tech Councils
  (High Tech, Bio, MassMedic, Telecom, Software,
  etc.) ACHIEVED, ONGOING
• Establish UMass High Tech Executive Council
  FIRST MEETING HELD
• Co-sponsor ST Roadmap and Strategic Alliances
  Study RELEASED IN FEBRUARY
• Launch CVIP Development Fund (100 K) 10 GRANTS
  AWARDED
• Launch ST Initiatives Fund (1 M) 7 GRANTS
  AWARDED
• Support Mass Taxpayers Study of UMass Policy/Reg
  Reforms RELEASED IN MAY
• Develop Campaign to Market UMass as a
  high-quality learning and discovery institution
  SavingOurChildren UMassOnOurSide Imagine

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The Changing Environment Presents Challenges and
Opportunities for UMass

• Individuals without a high quality 4-year degree
  have difficulty achieving middle-class status in
  Massachusetts.
• Regions outside Boston/128 are generally not well
  positioned for economic growth in the Innovation
  Economy.
• The state is steadily losing its market share of
  national RD funding.
• Massachusetts suffers from stagnant population
  growth and a brain drain.
• Massachusetts is not effective in capturing the
  high-end manufacturing jobs that result from
  RD.
• Other states (and nations) are aggressively
  competing with Massachusetts for talent and
  innovation.

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UMass Can Reposition Itself as a Key Resource to
Meet New State Challenges

• Strategic investments (public and private) in
  UMass can directly address the above challenges.
• Given its quality, relative affordability and
  retention of graduates in the state, UMass can
  help grow/keep a highly-educated workforce.
• Given the geography of its campuses, UMass can
  extend the economic benefits of RD to
  under-developed regions of the state.
• Given its strong record of RD growth and recent
  ST successes, UMass can help the state
  maintain/expand its RD leadership.
• Given its commitment to industry links and econ.
  devt., UMass can help the state capture more of
  the economic benefits of its RD base.

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Saving Our Children
UMass On Our Side
Imagine
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Globalism, Outsourcing, and the American
University

• THANKYOU!