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The Offshoring of Engineering: Facts, Unknowns, and Potential Implications THE OFFSHORING OF ENGINEERING Facts, Unknowns, and Potential Implications Committee on the Offshoring of Engineering NATIONAL ACADEMY OF ENGINEERING OF THE NATIONAL ACADEMIES THE NATIONAL ACADEMIES PRESS Washington, D.C. www.nap.edu
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The Offshoring of Engineering: Facts, Unknowns, and Potential Implications THE NATIONAL ACADEMIES PRESS 500 Fifth Street, N.W. Washington, DC 20001 NOTICE: The project that is the subject of this report was approved by the Governing Board of the National Research Council, whose members are drawn from the councils of the National Academy of Science, the National Academy of Engineering, and the Institute of Medicine. The members of the committee responsible for the report were chosen for their special competences and with regard for appropriate balance. Support for this project was provided by the National Science Foundation (Award No. EEC-0434993), the United Engineering Foundation, a generous gift from NAE member Gordon Bell, and the National Academy of Engineering Fund. The views presented in this report are those of the National Academy of Engineering Committee on the Offshoring of Engineering and are not necessarily those of the funding organizations. Library of Congress Cataloging-in-Publication Data National Academy of Engineering. Committee on the Offshoring of Engineering. The offshoring of engineering : facts, unknowns, and potential implications / Committee on the Offshoring of Engineering, National Academy of Engineering. p. cm. “February 2008.” Includes bibliographical references. ISBN 978-0-309-11483-7 (pbk.) — ISBN 978-0-309-11484-4 (pdf) 1. Engineering—United States—Management. 2. Offshore outsourcing—United States. I. Title. TA23.N275 2008 620.0068’4—dc22 2008013220 Copies of this report are available from the National Academies Press, 500 Fifth Street, N.W., Lockbox 285, Washington, DC 20055; (888) 624-8373 or (202) 334-3313 (in the Washington metropolitan area); online at http://www.nap.edu. Copyright 2008 by the National Academies. All rights reserved. Printed in the United States of America
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The Offshoring of Engineering: Facts, Unknowns, and Potential Implications THE NATIONAL ACADEMIES Advisers to the Nation on Science, Engineering, and Medicine The National Academy of Sciences is a private, nonprofit, self-perpetuating society of distinguished scholars engaged in scientific and engineering research, dedicated to the furtherance of science and technology and to their use for the general welfare. Upon the authority of the charter granted to it by the Congress in 1863, the Academy has a mandate that requires it to advise the federal government on scientific and technical matters. Dr. Ralph J. Cicerone is president of the National Academy of Sciences. The National Academy of Engineering was established in 1964, under the charter of the National Academy of Sciences, as a parallel organization of outstanding engineers. It is autonomous in its administration and in the selection of its members, sharing with the National Academy of Sciences the responsibility for advising the federal government. The National Academy of Engineering also sponsors engineering programs aimed at meeting national needs, encourages education and research, and recognizes the superior achievements of engineers. Dr. Charles M. Vest is president of the National Academy of Engineering. The Institute of Medicine was established in 1970 by the National Academy of Sciences to secure the services of eminent members of appropriate professions in the examination of policy matters pertaining to the health of the public. The Institute acts under the responsibility given to the National Academy of Sciences by its congressional charter to be an adviser to the federal government and, upon its own initiative, to identify issues of medical care, research, and education. Dr. Harvey V. Fineberg is president of the Institute of Medicine. The National Research Council was organized by the National Academy of Sciences in 1916 to associate the broad community of science and technology with the Academy’s purposes of furthering knowledge and advising the federal government. Functioning in accordance with general policies determined by the Academy, the Council has become the principal operating agency of both the National Academy of Sciences and the National Academy of Engineering in providing services to the government, the public, and the scientific and engineering communities. The Council is administered jointly by both Academies and the Institute of Medicine. Dr. Ralph J. Cicerone and Dr. Charles M. Vest are chair and vice chair, respectively, of the National Research Council. www.national-academies.org
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The Offshoring of Engineering: Facts, Unknowns, and Potential Implications COMMITTEE ON THE OFFSHORING OF ENGINEERING WILLIAM J. SPENCER (chair), Chairman Emeritus, SEMATECH LINDA M. ABRIOLA, Dean of Engineering, Tufts University PETER R. BRIDENBAUGH, Retired Executive Vice President, Automotive, Aluminum Company of America STEPHEN W. DREW, Science Partners LLC SAMUEL C. FLORMAN, Chairman, Kreisler Borg Florman General Construction Company SUSAN L. GRAHAM, Pehong Chen Distinguished Professor, Computer Science Division-EECS, University of California, Berkeley LORI G. KLETZER, Professor of Economics and Department Chair, University of California, Santa Cruz ANNE L. STEVENS, Chairman, President, and CEO, Carpenter Technology Corporation GEORGE J. TAMARO, Partner, Mueser Rutledge Consulting Engineers MARIE C. THURSBY, Hal and John Smith Chair in Entrepreneurship, DuPree College of Management, Georgia Institute of Technology Project Staff THOMAS ARRISON, Study Director, Policy and Global Affairs, National Academies CAROL R. ARENBERG, Senior Editor, National Academy of Engineering PENELOPE J. GIBBS, Senior Program Associate, Program Office, National Academy of Engineering ROBERT P. MORGAN, Consultant PROCTOR P. REID, Director, Program Office, National Academy of Engineering
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The Offshoring of Engineering: Facts, Unknowns, and Potential Implications Preface In recent years, the offshoring of high-skill service jobs previously performed in the United States has attracted a great deal of media attention and sparked a spirited policy debate. The decline in U.S. manufacturing jobs relative to the total workforce is a decades-long trend driven by the expansion of international trade in goods and increases in manufacturing productivity. Several important changes in the business environment in the late 1990s facilitated the emergence and rapid growth of services offshoring, including the offshoring of activities with significant engineering content. These changes include advances in information technology, an increase in the demand for certain types of technical skills, and the emergence of appropriately skilled, low-wage workforces in India, China, and elsewhere. Criticism of offshoring and the presumed “hollowing out” of the U.S. engineering workforce are reminiscent of the debates of 20 years ago about U.S. standing in international trade and manufacturing industries. A number of groups and prominent individuals have long argued that offshoring hurts U.S. workers and the U.S. economy. Others counter that offshoring is a benign trend that enables U.S.-based companies and entrepreneurs to develop and market innovations more quickly and cost effectively. Several reports and statements by U.S. science and engineering organizations—including the National Academies report Rising Above the Gathering Storm (NAS/NAE/IOM, 2007)—that have been published concurrently with the offshoring debate have argued that long-term U.S. leadership in science and engineering is at risk. Almost all of them express a central concern that if U.S. companies increasingly move R&D offshore to China, India, and other locations that provide high value in terms of science and engineering human resources, America’s ability to innovate and sustain economic growth would be seriously undermined, leading to a long-term decline. As the present report goes to press in mid-2008, in the midst of a presidential election campaign and a slowdown in the U.S. economy, the globalization of engineering work remains in the news and is still being hotly debated (Shirouzu, 2008; Valcourt, 2008). Throughout the debate about the costs and benefits of offshoring for the U.S. economy and U.S. workers, arguments on both sides have been bolstered by a variety of anecdotes and statistics. Surprisingly, however, little is definitively known about the effects of offshoring on overall services or on specific engineering subfields in particular industries. We do know, despite the paucity of definitive data, that we are in the midst of important global shifts in how and where engineering is being practiced and that these shifts will have major long-term effects on the U.S. engineering enterprise, including engineering education, practice, and management. In January 2006, Wm. A. Wulf, then president of the National Academy of Engineering (NAE), appointed an ad hoc committee of experts to organize, conduct, and plan a public workshop on engineering offshoring and prepare a summary report of the proceedings. The committee met in Washington, D.C., in April 2006 to plan the workshop and other fact-finding activities and to evaluate proposals for commissioned papers on engineering offshoring in specific industry sectors to be presented at the workshop. Approximately 100 participants were invited to attend the two-day event in October 2006 at the facilities of the National Academies in Washington, D.C. Following the meeting, the committee developed its summary report.
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The Offshoring of Engineering: Facts, Unknowns, and Potential Implications This volume includes the committee’s summary and findings, the commissioned papers, and several edited presentations from the workshop. Taken together, these documents provide a snapshot of the current state of knowledge about engineering offshoring in six major industrial sectors, identify gaps in knowledge and future areas for research, and suggest implications for the U.S. engineering enterprise, including educational institutions, industry, government, engineering societies, and individual engineers. On behalf of NAE, I thank the committee chair, William J. Spencer, and the committee members for their considerable efforts on this project. I also want to thank Thomas Arrison, the study director, who managed the project; Proctor P. Reid, director of the NAE Program Office, who provided oversight and was actively involved in the workshop and the completion of the report; Penelope Gibbs and Nathan Kahl from the NAE Program Office who provided critical administrative and logistical support; Carol Arenberg, NAE senior editor, who was instrumental in preparing the report for publication; and Robert P. Morgan, former NAE Fellow, who prepared an extensive background paper for the committee and assisted the NAE Council and NAE Program Office in the development of the project. I also extend the committee’s thanks to the authors of the commissioned papers, workshop attendees, and others who contributed to the project. Finally, I would like to express my appreciation to the National Science Foundation and the United Engineering Foundation for their generous support. Charles M. Vest President National Academy of Engineering REFERENCES NAS/NAE/IOM. 2007. Rising Above the Gathering Storm. Washington, D.C.: The National Academies Press. Available online at http://www.nap.edu/catalog.php?record_id=11463. Shirouzu, N. 2008. Engineering Jobs Become Car Makers’ New Export. Wall Street Journal, February 7, p. A13. Valcourt, J. 2008. Chrysler Begins Overhaul in Engineering. Wall Street Journal, February 19, p. A13.
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The Offshoring of Engineering: Facts, Unknowns, and Potential Implications Acknowledgments This report was reviewed in draft form by individuals chosen for their diverse perspectives and technical expertise, in accordance with procedures approved by NAE. The purpose of the independent review is to provide candid and critical comments that will assist NAE in making its published report as sound as possible and to ensure that the report meets institutional standards for objectivity, evidence, and responsiveness to the study charge. The review comments and draft manuscript remain confidential to protect the integrity of the deliberative process. We wish to thank the following individuals for their review of this report: Cristina H. Amon, University of Toronto Erich Bloch, Washington Advisory Group David Cheney, SRI International Ron Hira, Rochester Institute of Technology Louis Martin-Vega, North Carolina State University Paul S. Peercy, University of Wisconsin-Madison Hal Salzman, Urban Institute Anna Lee Saxenian, University of California, Berkeley Adrian Zaccaria, Bechtel Group Inc. Although the reviewers listed above have provided many constructive comments and suggestions, they were not asked to endorse the conclusions or recommendations, nor did they see the final draft of the report before its release. The review of this report was overseen by George Hornberger, University of Virginia. Appointed by NAE, he was responsible for making certain that an independent examination of this report was carried out in accordance with institutional procedures and that all review comments were carefully considered. Responsibility for the final content of this report rests entirely with the authoring committee and NAE.
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The Offshoring of Engineering: Facts, Unknowns, and Potential Implications Contents EXECUTIVE SUMMARY 1 PART I: CONSENSUS REPORT 1 INTRODUCTION 7 The Goals and Processes of This Study, 7 2 OFFSHORING AND ENGINEERING: THE KNOWLEDGE BASE AND ISSUES 10 Uncertainties about the Future, 10 The Institutional and Historical Context of Offshoring, 13 Trends and Prospects, 15 3 EFFECTS OF OFFSHORING IN SPECIFIC INDUSTRIES 20 Software-Development Industry, 20 Automotive Industry, 24 Pharmaceutical Industry, 26 Personal Computer Manufacturing, 27 Construction Engineering and Services, 28 Semiconductors, 31 4 WORKSHOP FINDINGS AND DISCUSSION 33 Trends and Impacts, 33 Implications for Engineering Education, 36 Implications for Public Policy, 38 ADDITIONAL READING 42
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The Offshoring of Engineering: Facts, Unknowns, and Potential Implications PART II: COMMISSIONED PAPERS AND WORKSHOP PRESENTATIONS Commissioned Papers Implications of Globalization for Software Engineering Rafiq Dossani and Martin Kenney 49 The Changing Nature of Engineering in the Automotive Industry John Moavenzadeh 69 Offshoring in the Pharmaceutical Industry Mridula Pore, Yu Pu, Lakshman Pernenkil, and Charles L. Cooney 103 Impact of Globalization and Offshoring on Engineering Employment in the Personal Computing Industry Jason Dedrick and Kenneth L. Kraemer 125 Offshoring of Engineering Services in the Construction Industry John I. Messner 137 Semiconductor Engineers in a Global Economy Clair Brown and Greg Linden 149 Workshop Presentations Implications of Offshoring for Engineering Management and Engineering Education Anne Stevens 181 An Academic Perspective on the Globalization of Engineering Charles M. Vest 184 Keynote Talk on the Globalization of Engineering Robert Galvin 191 Software-Related Offshoring Alfred Z. Spector 195 Implications of Offshoring for the Engineering Workforce and Profession Ralph Wyndrum 202 Industry Trends in Engineering Offshoring Vivek Wadhwa 209 Offshoring in the U.S. Telecommunications Industry Theodore S. Rappaport 213 Appendixes A Workshop Agenda 221 B Workshop Participants 223 C Biographical Information 229