Below is the uncorrected machine-read text of this chapter, intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text of each book. Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.
THE OFFSHORING OF ENGINEERING Facts, Unknowns, and Potential Implications Committee on the Offshoring of Engineering
THE NATIONAL ACADEMIES PRESSâ 500 Fifth Street, N.W.â 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 respon- sible 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. âFebruary 2008.â Includes bibliographical references. ISBN 978-0-309-11483-7 (pbk.) â ISBN 978-0-309-11484-4 (pdf) 1. Engineeringâ United StatesâManagement. 2. Offshore outsourcingâUnited States. I. Title. TA23.N275 2008 620.0068â4âdc22 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
The National Academy of Sciences is a private, nonprofit, self-perpetuating society of distinguished schol- ars 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 Acad- emy 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 initia- tive, 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 Academyâs 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
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 iv
Preface In recent years, the offshoring of high-skill service jobs human resources, Americaâs ability to innovate and sustain previously performed in the United States has attracted a economic growth would be seriously undermined, leading great deal of media attention and sparked a spirited policy to a long-term decline. As the present report goes to press in debate. The decline in U.S. manufacturing jobs relative to mid-2008, in the midst of a presidential election campaign the total workforce is a decades-long trend driven by the and a slowdown in the U.S. economy, the globalization of expansion of international trade in goods and increases in engineering work remains in the news and is still being hotly manufacturing productivity. Several important changes debated (Shirouzu, 2008; Valcourt, 2008). in the business environment in the late 1990s facilitated the Throughout the debate about the costs and benefits of off- emergence and rapid growth of services offshoring, includ- shoring for the U.S. economy and U.S. workers, arguments ing the offshoring of activities with significant engineering on both sides have been bolstered by a variety of anecdotes content. These changes include advances in information and statistics. Surprisingly, however, little is definitively technology, an increase in the demand for certain types of known about the effects of offshoring on overall services technical skills, and the emergence of appropriately skilled, or on specific engineering subfields in particular industries. low-wage workforces in India, China, and elsewhere. We do know, despite the paucity of definitive data, that Criticism of offshoring and the presumed âhollowing outâ we are in the midst of important global shifts in how and of the U.S. engineering workforce are reminiscent of the where engineering is being practiced and that these shifts debates of 20 years ago about U.S. standing in international will have major long-term effects on the U.S. engineering trade and manufacturing industries. A number of groups and enterprise, including engineering education, practice, and prominent individuals have long argued that offshoring hurts management. U.S. workers and the U.S. economy. Others counter that off- In January 2006, Wm. A. Wulf, then president of the shoring is a benign trend that enables U.S.-based companies N Â ational Academy of Engineering (NAE), appointed an ad hoc and entrepreneurs to develop and market innovations more committee of experts to organize, conduct, and plan a public quickly and cost effectively. workshop on engineering offshoring and prepare a summary Several reports and statements by U.S. science and engi- report of the proceedings. The committee met in Washington, neering organizationsâincluding the National Academies D.C., in April 2006 to plan the workshop and other fact-finding report Rising Above the Gathering Storm (NAS/NAE/IOM, activities and to evaluate proposals for commissioned papers 2007)âthat have been published concurrently with the off- on engineering offshoring in specific industry sectors to be shoring debate have argued that long-term U.S. leadership presented at the workshop. Approximately 100 participants in science and engineering is at risk. Almost all of them were invited to attend the two-day event in October 2006 express a central concern that if U.S. companies increasingly at the facilities of the National Academies in Washington, move R&D offshore to China, India, and other locations D.C. Following the meeting, the committee developed its that provide high value in terms of science and engineering summaryÂ report.
vi PREFACE This volume includes the committeeâs summary and find- I also extend the committeeâs thanks to the authors of the ings, the commissioned papers, and several edited presenta- commissioned papers, workshop attendees, and others who tions from the workshop. Taken together, these documents contributed to the project. Finally, I would like to express provide a snapshot of the current state of knowledge about my appreciation to the National Science Foundation and the engineering offshoring in six major industrial sectors, iden- United Engineering Foundation for their generous support. tify 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. Charles M. Vest Spencer, and the committee members for their considerable President efforts on this project. I also want to thank Thomas Arrison, National Academy of Engineering the study director, who managed the project; Proctor P. Reid, director of the NAE Program Office, who provided oversight REFERENCES and was actively involved in the workshop and the comple- tion of the report; Penelope Gibbs and Nathan Kahl from the NAS/NAE/IOM. 2007. Rising Above the Gathering Storm. Washington, D.C.: The National Academies Press. Available online at http://www. NAE Program Office who provided critical administrative nap.edu/catalog.php?record_id=11463. and logistical support; Carol Arenberg, NAE senior editor, Shirouzu, N. 2008. Engineering Jobs Become Car Makersâ New Export. who was instrumental in preparing the report for publication; Wall Street Journal, February 7, p. A13. and Robert P. Morgan, former NAE Fellow, who prepared an Valcourt, J. 2008. Chrysler Begins Overhaul in Engineering. Wall Street extensive background paper for the committee and assisted Journal, February 19, p. A13. the NAE Council and NAE Program Office in the develop- ment of the project.
Acknowledgments This report was reviewed in draft form by individuals cho- Paul S. Peercy, University of Wisconsin-Madison sen for their diverse perspectives and technical expertise, in Hal Salzman, Urban Institute accordance with procedures approved by NAE. The purpose Anna Lee Saxenian, University of California, Berkeley of the independent review is to provide candid and critical Adrian Zaccaria, Bechtel Group Inc. comments that will assist NAE in making its published re- port as sound as possible and to ensure that the report meets Although the reviewers listed above have provided institutional standards for objectivity, evidence, and respon- many constructive comments and suggestions, they were siveness to the study charge. The review comments and not asked to endorse the conclusions or recommendations, draft manuscript remain confidential to protect the integrity nor did they see the final draft of the report before its of the deliberative process. We wish to thank the following r Â elease. The review of this report was overseen by George individuals for their review of this report: H Â ornberger, University of Virginia. Appointed by NAE, he was responsible for making certain that an independent Cristina H. Amon, University of Toronto examÂinaÂtion of this report was carried out in accordance Erich Bloch, Washington Advisory Group with Âinstitutional procedures and that all review comments David Cheney, SRI International were carefully considered. Responsibility for the final Ron Hira, Rochester Institute of Technology content of this report rests entirely with the authoring com- Louis Martin-Vega, North Carolina State University mittee and NAE. vii
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 ix
CONTENTS PART II: COMMISSIONED PAPERS AND WORKSHOP PRESENTATIONS Commissioned Papers Implications of Globalization for Software Engineering 49 Rafiq Dossani and Martin Kenney The Changing Nature of Engineering in the Automotive Industry 69 John Moavenzadeh Offshoring in the Pharmaceutical Industry 103 Mridula Pore, Yu Pu, Lakshman Pernenkil, and Charles L. Cooney Impact of Globalization and Offshoring on Engineering Employment in the Personal Computing Industry 125 Jason Dedrick and Kenneth L. Kraemer Offshoring of Engineering Services in the Construction Industry 137 John I. Messner Semiconductor Engineers in a Global Economy 149 Clair Brown and Greg Linden Workshop Presentations Implications of Offshoring for Engineering Management and Engineering Education 181 Anne Stevens An Academic Perspective on the Globalization of Engineering 184 Charles M. Vest Keynote Talk on the Globalization of Engineering 191 Robert Galvin Software-Related Offshoring 195 Alfred Z. Spector Implications of Offshoring for the Engineering Workforce and Profession 202 Ralph Wyndrum Industry Trends in Engineering Offshoring 209 Vivek Wadhwa Offshoring in the U.S. Telecommunications Industry 213 Theodore S. Rappaport Appendixes A Workshop Agenda 221 B Workshop Participants 223 C Biographical Information 229