Notebooks account for more than 50 percent of Japan’s PC market, and many products are developed specifically for that demanding market. As a result, Japanese design and development teams have great depth of skills in all design and development areas. They also are very strong in design-for-manufacturability, because most Japanese firms do their own design, development, and manufacturing (although lower value PCs and other products are increasingly being outsourced to Taiwanese companies).
Engineering employment in the U.S. PC industry has remained stable in recent years in spite of some offshoring of new-product development. One interpretation is that offshoring may have been well established by the late 1990s and has not greatly affected U.S. engineering employment since then. By 2000, U.S. PC makers had either outsourced development and manufacturing to ODMs or, in the case of IBM, had assigned development to teams in Japan and had offshored manufacturing. As a result, much of the hardware, mechanical, electrical, and electronics engineering required for product development was already offshore, as was the industrial engineering associated with manufacturing. Software engineering, engineering management, and a relatively small numbers of jobs in the various hardware, mechanical, and electrical disciplines necessary to support product design and management were left in the United States.
One result of the offshoring of notebook PC development is that capabilities have been created in Taiwan, such as design-for-manufacturability and designing for small form factors, that can be applied to new product categories, such as handheld devices, smart phones, and digital music players. The fact that U.S. engineering employment in the PC industry is not growing during a time of rapid growth in demand and a proliferation of products and models probably indicates that more engineering is being done outside the United States. ODMs that have gained capabilities in the PC industry are now becoming major suppliers of mobile phones and are likely to become involved in other mobile consumer devices.
Reports and data from our interviews show that Taiwanese CMs and ODMs are rapidly expanding their engineering capabilities. Quanta, the largest notebook ODM, employed about 3,500 engineers in 2003. Since then, Quanta has opened a large new R&D facility outside Taipei that is expected to eventually house 6,000 engineers. The company is also adding engineers in China. Other ODMs have also increased their engineering resources as they take over most of the development and production of the global notebook industry. One interviewee at a U.S. PC maker estimated that the ratio of in-house engineers to ODM engineers on its development projects is about 1:3 for consumer desktops, but closer to 1:1 for notebooks and commercial desktops. A smaller PC maker, by contrast, had only 50 engineers overseeing its ODMs, which develop all of its products.
Most of the work that has moved offshore is transactional engineering, including board layout, tooling, electrical and mechanical engineering, and software testing. These jobs require engineering skills and experience in specific areas, such as power management, EMI, and heat dispersion.
Most engineering work related to manufacturing has also been moved offshore, although there are enough high-level industrial and process engineers in the United States to oversee manufacturing in both places and travel to Asia to troubleshoot when necessary. These jobs do not require great analytical skills, but because a large share of the engineering work required for new-product development falls into the transactional category, the number of engineers offshore can be very high.
For instance, the world’s largest CM, Foxconn, is said to have 10,000 tooling engineers, including 2,000 designers (Datamonitor, 2005). Many of these may be technicians with less than a four-year degree. Nevertheless, this example shows how a Taiwanese company can employ large numbers of low-cost engineers for more routine work that must be done very quickly to bring high-volume production on line. As one U.S. executive said, “We don’t do much PCB layout, tooling, or testing any more. You can’t compete with the large numbers of Asian engineers for that kind of work. The U.S. can’t compete on numbers of engineers. We have to take what we’re great at in the U.S. and leverage the rest of the world’s skills.”
The more advanced engineering work is, the less vulnerable it is to offshoring. Taiwanese and Chinese engineers and companies are considered weaker in system-level design and in software than U.S. engineers. In addition, they lack the ability to develop entirely new products that are likely to appeal to the U.S. market. All of the notebook vendors we interviewed agreed that they would not turn over concept design, product management, or product architecture to an ODM and that they only buy off-the-shelf designs from ODMs for low-end products or when they need to fill out a product line very quickly.
One PC maker said that a relatively small number of inhouse engineers is necessary for performing the advanced tasks that remain in the United States. Even though these are critical activities, they are not where the bulk of the engineering work is. The same point was made by two top engineering executives at U.S. PC companies. As one of them told us, “The jobs that are really important and are in