In the automotive and construction engineering and services industries, engineering activity has long been internationalized. However, in the automotive industry today, engineering workforces are increasingly being configured to develop global platforms, rather than to work on products targeting local markets. Construction engineering and services firms that operate globally have always required engineering help in the countries where projects are located. Today, overseas engineers are increasingly performing tasks related to U.S. projects. In general, offshoring of less complex engineering work is increasing in both the automotive and construction industries.
Finally, offshoring of research and development (R&D) to developing and emerging economies such as China and India is increasing rapidly in pharmaceuticals and some other industries. More than half of more than 200 U.S.- and Europe-based companies that responded to a recent survey anticipate that their technical workforces in China, India, and other parts of Asia will increase in the next three years (Thursby and Thursby, 2006).
FINDING 2. More and better data on offshoring and other issues discussed in this report, such as the effects on the engineering workforce and engineering education, are necessary for discerning overall trends. As has been pointed out in other recent reports, better U.S. and international statistics on trade in services and employment would give us a much better grasp of basic trends.
With the emergence of offshoring, a growing portion of the U.S. workforce, including engineers and many other services professionals, have become subject to international competition. For the United States to adopt policies that support continued economic vitality and ensure that the United States remains a premier location for engineering work, policy makers must have a good understanding of changes in comparative salaries, education levels, language skills, productivity and other trends, and the causes of those trends.
Unfortunately, current published estimates and projections on offshoring of engineering include significant uncertainties. McKinsey Global Institute (2005), for example, estimates that more than half of engineering jobs in the industries it analyzed could be performed anywhere in the world. However, it would be wrong to conclude that half of the 1.5 to 2 million U.S. engineers are in danger of losing their jobs in the next few years. Indeed, the U.S. engineering workforce is expected to grow by 13 percent between 2004 and 2014 (CPST, 2006), a substantial increase although smaller than the expected increase in the workforce as a whole. In addition, there are limits to how quickly India and China can improve the quality and increase the quantity of their engineering graduates.
Significant data gaps have prevented policy makers and the public from getting an accurate read on trade in services and offshoring (GAO, 2005a,b; NAPA, 2006; Sturgeon, 2006; etc.), and it may be some time before the most glaring deficiencies are addressed. One difficulty is that offshoring within companies is difficult to track through trade statistics. Another difficulty is that companies are reluctant to make information about their offshoring practices public. Thus industry-specific analyses will continue to be important sources of information but can only provide a snapshot of a rapidly changing phenomenon.
FINDING 3. Offshoring appears to have contributed to the competitive advantage of U.S.-based firms in a variety of industries, and the negative impacts of offshoring on U.S. engineering appear to have been relatively modest to date. However, the negative effects have been much more severe in some industry sectors and for some jobs than others.
Global disaggregation, a long-standing aspect of business models in several U.S. industries, has enabled U.S.-based companies in the semiconductor and PC industries to establish and retain global leadership. The key to long-term success for companies that offshore engineering activities is protecting the interface with customers and the resulting information flow, which feeds into product definition, high-level design, and sophisticated engineering tasks.
Cutting costs was the initial motivation for offshoring of services, including engineering, especially in IT-related industries. However, a major factor in the offshoring of R&D facilities to emerging economies, such as China, is the desire to establish a full-spectrum presence in a rapidly growing market. On the flip side, there has been significant “onshoring” of R&D and other engineering work in some industries as multinational companies based in Europe and Asia establish or acquire operations in the United States. Even some companies based in India and China are investing in R&D in the United States, mainly through acquisitions (see Cooney, this volume).
Although the inadequacy of available data makes it difficult to measure the negative impacts of offshoring on engineering jobs and salaries, we can say that the negative impacts have not been evenly distributed. It is logical to infer that, when certain types of routine engineering tasks are sourced in India or China, the U.S. engineers who performed that work lose their jobs. Even though new jobs may be created for U.S. engineers who perform higher level tasks and those who can move to other sectors, those new jobs do not replace the jobs that were lost. The negative individual and social impacts of mass layoffs in general, not necessarily in engineering, are described by Uchitelle (2006).
FINDING 4. Engineering education at the undergraduate and graduate levels has been a major source of strength for the U.S. engineering enterprise. Even today, engineers