The new electronic interdependence recreates the world in the image of a global village," wrote Marshall McLuhan in 1962. In the late 1960s, this University of Toronto media professor predicted that electronic communications would radically change our lives by speeding up the transfer of information, turning the world into a global village. In 1976, the film Network said that the modern world no longer comprises individual countries. Instead, it's a network of interlocking corporations without geographical borders.
Today we live with the results of this "rewiring" and "remapping" of the planet. Global corporations have easy access to developing labor markets and demonstrate no allegiance to any one country's workers. Yet this new global village hasn't always been kind to North American engineers.
Indeed, the outsourcing and offshoring trends are here to stay, moving engineering jobs abroad to lower-paid workers. In the U.S., companies with short-and medium-term projects and limited budgets tend to hire contractors rather than salaried employees. Meanwhile, engineers live with vastly accelerated design cycles and learn to work in distributed design teams around the world .
Outsourcing versus offshoring
Outsourcing and offshoring aren't new concepts. According to Bhumika Ghimire, a Schiller University researcher in IT management and outsourcing, outsourcing has its roots in the late 17th century. For example, the making of cloth covers for covered wagons and sails for clipper ships was outsourced to workers in Scotland who imported raw material from India. Today, the trend is more obvious. Outsourcing is a $400 billion a year enterprise and growing stronger every year.
Outsourcing has a simple definition—like the one suggested by John Schluechtermann, project engineer, software design at Force America: using a source (service) external to the company to complete work on a project. About two-thirds of the respondents to the Electronic Design 2005 Reader Poll say their companies outsource jobs within the U.S. So offshoring uses a source located outside the country where the project takes place.
Offshore outsourcing uses low-cost workers in such countries as China, India, and the Philippines. Their tasks often involve customer service, software programming, bill processing, legal research, and X-ray reading. Electronic Design's Poll showed India, China, Europe, Canada, Mexico, and the Pacific Rim (in descending order) as the most popular offshoring areas.
Offshoring affects manufacturing and non-manufacturing sectors alike. According to David J. Wagner's Minnesota Future Work, "Future Work Trends 2004 Report," Northwest Airlines, American Express, Best Buy, and Target Corp. are among the local companies that have tapped TCS America. This company is the U.S. arm of India-based Tata Consultancy Services, one of the world's largest providers of offshore information-technology outsourcing.
Another offshoring firm, SSI, has helped Cargill, General Mills, American Express Financial Advisors Retirement Services, the Minnesota School Boards Association, and Wells Fargo Master Trust and Custody Services find services abroad. Cutting costs is the major reason for offshoring. Forrester Research reports that as many as 25% of the Fortune 1000 companies have offshored labor to cut costs.
McLuhan's prophecy of the global village and its effects on jobs has come to fruition. According to the Economic Report of the President (Jan. 30, 2004) from the Council of Economic Advisors (N. Gregory Mankiw, chairman), "Outsourcing of professional services is a prominent example of a new type of trade. The gains from trade that take place over the Internet or telephone lines are no different than the gains from trade in physical goods transported by ship or plane. When a good or service is produced at lower cost in another country, it makes sense to import it rather than produce it domestically."
What type of engineering work is being outsourced? According to the ED Reader Poll, out of 1274 readers responding (who were allowed to check more than one category), 60.8% was related to manufacturing and assembly, followed by design (52.3%), software development (50.1%), R&D (26.8%), and final test (20.9%).
Cutting costs is the only reason companies take this route, says Walter Shawlee, president of Sphere Research Corp. And the scene has become ugly. "U.S. industry at the moment is a living testament to corporate self-absorption and shortsightedness," Shawlee says. "Experienced employees are routinely laid off as they become costly. Rather than upgrade domestic manufacturing to be more cost-effective and sophisticated, production is scrapped and outsourced overseas."
While layoffs seem to make companies look good on the balance sheet and in the stock market, they irretrievably hollow out businesses in terms of real ability and product quality. "Tens of thousands of highly skilled employees have been shed by top names in the electronics industry in North America, so it is the worst kind of duplicity for them to then cry that they are short of skilled manpower," Shawlee adds.
The issue at hand may go a little further than just assuming companies callously want to displace jobs. Often it translates to supply and demand. A lack of qualified personnel in an area or high regional salaries can lead companies to look elsewhere. While companies may complain that U.S. engineers are too expensive, there are other factors to consider. These include a lack of engineering graduates, a lack of skilled engineers in a geographical area, and a lack of R&D funding.
"It's all about cost," says Frank Van Hooft, director of engineering at QImaging. "If H1B visas are rare, if talented local engineers are rare, then they'll be expensive and potentially unobtainable. This forces companies to look further afield for developers."
Van Hooft adds that if enough companies can't get the engineers they need locally, they'll move their development to areas where they can get the manpower. It's a simple fact that U.S. universities aren't turning out enough engineers. So either the additional engineers come to the jobs (H1B visas), or the jobs move to the engineers (outsourcing to India, for example). Either way, Van Hooft concludes that an equilibrium of jobs versus developers will be reached. The question is where that equilibrium will occur. The trend is that such an equilibrium will occur overseas because of insufficient visas to allow foreign-born engineers to move to the U.S.
Oscar McKee, president of O-MC Signal Research Inc., blames some of the outsourcing situation on the lack of R&D spending—both public and private. He doesn't view outsourcing necessarily as a "bad thing," if used appropriately. But he's concerned about the lack of R&D in this country, both by the government and industry.
McKee believes that if we were to get to the R&D levels we've seen in the past, the development of new technologies would offset the jobs lost to outsourcing. He advocates reversing the trend of fewer Americans going to engineering school and would like to see more money invested in research on alternate energy, such as solar and fuel cells. (For more, see "Engineering Specialties," Drill Deeper 11221)
How concerned are Electronic Design readers about losing their jobs to outsourcing? Only 8.1% were very concerned about losing a job to outsourcing. Twenty percent were somewhat concerned, 34.5% weren't very concerned, and 37.4% weren't concerned at all.
Here to stay
According to Martin Stoehr, member of the technical staff at Maxim Integrated Products, engineers who feel their jobs should stay within the borders of the U.S. have to realize that intellect, know-how, and innovation can't be contained by a line drawn on a map. He suggests that the free market will apply as much to ideas as it does to cell phones.
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