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Implications of Offshoring for the Engineering Workforce and Profession Ralph Wyndrum I am pleased to speak today on the implications of offshore factor at present. But offshoring is much more complex outsourcing for engineering. I speak not only as a representa- than that, and business decisions are also motivated by tive of the engineering profession, but also as an engineer other considerations, such as market access and mar- with high-level management experience at AT&T/Bell Labs, ket development, access to talent, the cost of capital, as an entrepreneur, and as a consultant. The views I express government economic incentives, special or lower cost today are my own, but they are based on my experience in infrastructures and capabilities (e.g., subsidized tele- the global engineering-services marketplace, my interactions communications or Internet), access to universities and with the engineering profession as 2006 president of IEEE- research centers, government regulations, and a host USA, and various studies and analyses of offshoring. of other factors. Therefore, even if labor-cost margins can be narrowed, there will still be strong incentives for offshoring. THE BIG PICTURE â¢ The engineering profession in the United States is not Let me start with some observations about the large pic- monolithic. Thus offshoring does not affect all engi- ture as I see it: neering disciplines in the same way, at the same pace, or to the same degree. New opportunities for engineers â¢ Offshore outsourcing of engineering services is an are constantly being created by challenges arising from almost inevitable outcome of the globalization trends circumstances, such as hurricanes Katrina and Rita, created by the basic economic forces of shareholder increases in oil prices, and military operations abroad. value, efficiency, productivity enhancement, and the Technologies mature and become obsolete, along with free flow of capital. These trends are enabled by the the academic disciplines that rose up around them. very technologies engineers created and are continu- Although some electrical and computer engineering ally improving, such as broadband communications disciplines are still maturing and in transition in many and the Internet. ways, new disciplines are emerging and other disci- â¢ Offshore outsourcing occurs for a number of reasons, plines, such as bioengineering and nanotechnology, are all of which are grounded in basic business logic. experiencing growth and creating new opportunities. Much emphasis has been put on wage differentials and â¢ If the United States maintains its leadership in emerg- labor arbitrage as the principal driving forces behind ing technology fields, the U.S. engineering profession offshoring, and labor costs are undoubtedly the major will continue to create new engineering opportunities and be somewhat insulated from offshoring. Even â Ralph Wyndrum is CEO, Executive Engineering Consultants, and the then, however, engineers in affected disciplines will 2006 president of IEEE-USA. continue to struggle as individuals to make career transitions. 202
IMPLICATIONS OF OFFSHORING FOR THE ENGINEERING WORKFORCE AND PROFESSION 203 Prior to the emergence of offshoring, the U.S. engineering ing the same period salaries varied. Some underwent profession was already wrestling with significant challenges, seesaw fluctuations, some remained flat, and some not the least of which were the dot.com and telecom busts, experienced modest growth. which led to major contractions (estimated at a half-million â¢ We are also facing a demographic issue. As the U.S. jobs or more) between 2001 and 2003 in the high-tech sec- engineering workforce ages, a high percentage of tor, particularly electrical engineering. These busts came baby-boom-generation engineers will reach retire- on the heels of the major downturn in the U.S. aerospace ment age in the next 10 to 15 years. The losses will industry after 1998, another engineering-intensive sector. be felt most strongly in mature engineering sectors, Other structural issues in the profession are contributing to such as aerospace and power. The National Science the problem: Foundationâs most recent Science and Engineering Indicators reports that 29 percent of all science and â¢ The post-WWII/Cold War technology boom that engineering (S&E) degree holders and 44 percent of all fueled Americaâs high standard of living was based S&E doctorate holders in the workforce are now 50 or on amazing improvements in productivity that drove older. Among S&E doctorate holders in the labor force, the nationâs economic growth, while at the same 44 percent are over 50. We see the same demographic time automating and streamlining many engineering- trend in IEEE, where the average age is now 47 for intensive tasks. Engineers joke, and with good reason, regular members (up from 44 in 1997). Employers that they are the only professionals who work hard taking the long-term view are looking to secure labor to put themselves out of a job. That translates into resources to meet future needs (hence their interest in professionals who are, by necessity, highly mobile, tapping the global services market), as well as to shed moving from assignment to assignment and employer pension and other overhead costs that make it difficult to employer. for them to compete. â¢ Engineering is a profession whose members are chal- lenged to keep up with the latest developments in tech- As engineering labor becomes more and more of a com- nology, and continuing education has become critical modity, the fundamental relationship between engineers and for engineers in mid/late career. At the same time, employers is changing. As a consequence, a significant per- employers are becoming less and less likely to invest centage of the U.S. engineering workforce is becoming in- in training or to support time off for professional ac- creasingly apprehensive about their careers and the future of tivities. Electrical and computer engineers increasingly the profession. Some feel they have been used and discarded. face early obsolescence (as early as their mid-30s or Many want or need to keep working in their later years but early 40s) unless they continually reinvent themselves. feel the environment is neither receptive nor enabling. A With most engineering Ph.D.s leaving school in their small percentage is challenging apparent discrimination in early 30s, the productive lifespan of a research or de- employment. sign engineer is shorter than ever before, making the Against this somewhat troubled backdrop, the offshore opportunity-cost calculation less than compelling for outsourcing trend gained high-profile attention after 2001, on bright students weighing their career options. a par with the related trends of guest workers and domestic â¢ The educational barriers to entry in the engineering outsourcing. Many companies have reduced their engineer- profession are constantly getting higher and more ing payrolls and moved engineering work to services firms, expensive as more and more content is squeezed into thus creating new jobs in those services firms, but often at traditional four-year degree programs, which typi- lower pay, with fewer benefits, and with less job security. cally take nearly five years to complete. Recently, the Some of those firms rely almost exclusively on in-sourced National Council of Examiners for Engineering and guest labor (with H1-B and L-1 visas) as their business Surveying voted to amend the model state engineer- model, using labor arbitrage to gain a competitive edge. ing licensing law to require â30 credits of acceptable In many instances, in-sourcing has been used to facilitate upper-level undergraduate or graduate level course- planned offshoring of business operations; in other cases, work from approved course providersâ in addition to a it had that consequence as in-sourced managers used their B.S. degree as a prerequisite for licensure. The change business contacts to offshore engineering services. Nine of would not take effect until 2010 at least. The additional the top 10 engineering-services firms that use L-1 visas to work, however, does not seem to be paying off in terms bring foreign high-tech workers to the United States are also of future compensation. According to the National As- engaged in offshore outsourcing. sociation of Colleges and Employers, beginning salary In the three years since offshoring in the information- offers for electrical and computer engineers at both the technology (IT) services sector began in earnest, the whole B.S. and M.S. levels were flat, or actually fell, between IT industry has been transformed. Virtually all bids for com- 2001 and 2005. In other engineering disciplines dur- mercial work now include an offshore component, and the
204 THE OFFSHORING OF ENGINEERING âglobal delivery modelâ has become THE business model in Machinery found that âglobalization of, and offshoring with- the IT sector. The potential for equally rapid and far-reaching in, the software industry are deeply connected and both will transformations exist in IT engineering as well. continue to grow.â The report goes on to note, âone example In this environment, engineering jobs tied to manufactur- of a higher-skill area now subject to global competition is ing (which was already moving overseas) and lower level ser- computing research. Historically, the bulk of this research vice work have become ripe for offshoring. Many displaced was carried out in only a few countries . . . this situation is engineers are considered too expensive or not qualified for changing rapidly and the trend looks inexorable.â the new, often more limited opportunities that are available. Innovation Offshoring: Asiaâs Emerging Role in Global Those who cannot find new jobs often turn to consulting or Innovation Networks, a July 2006 report by the East-West contract work or made transitions to non-engineering jobs. A Center, notes that âit is time to correct earlier claims that only few are chronically unemployed. As president of IEEE-USA, low-level service jobs will move offshore and that there is I hear from all of them with some frequency. little âevidenceâ of a major push by American companies to For a while there was almost irrational exuberance about set up research operations in the developing world. Innova- the anticipated benefits of offshoring. Now, companies have tion offshoring goes far beyond the migration of relatively learned a few hard lessons and are much more thoughtful in routine services like call centers, software programming, and implementing their global strategies and in communicating business process support . . . beyond adaptation, innovation their plans. Offshoring remains a business priority, especially offshoring in Asia now also encompasses the creation of new for smaller entrepreneurial start-ups for which investment products and processes.â capitalists and Wall Street require that business plans in- The National Academies 2005 report, Globalization of clude an offshore component. Although the public rhetoric Materials Research and Development, cautions that global- has softened, the pace of offshore outsourcing appears to be ization in the materials area could threaten U.S. access to steady or growing. advances in materials science and engineering (MSE). The report notes that the effects of globalization on U.S. leader- ship in MSE R&D vary by field and subfield and warns that IMPACTS ON ENGINEERS, THE ENGINEERING the emergence of new centers of high-value research around PROFESSION, AND OUR NATION the globe is challenging the ability of the United States to An article of faith for many proponents of offshoring attract top research talent. in the public dialogue is that only low-level service-sector In another recent report on offshoring implications for jobs, such as call centers and business-process support, will the U.S. semiconductor and software industries, the Gov- be offshored. IEEE-USA disagrees and notes that there is ernment Accountability Office concluded that ârecently already considerable evidence that high-level research and U.S. firms have offshored more complex research and de- design work are also moving overseas. sign activities; they have also sought to take advantage of The Commerce Departmentâs 2004 report on work- Asian engineering talent and to target the rapidly growing force globalization concluded that âlong-term trends in Asian market.â The report adds that âas firms experienced the structure of the (semiconductor) industry suggest that cost savings and observed high-quality work in these employment in manufacturing by U.S. semiconductor offshore locations, they expanded offshore operations to companies will decline, both in the United States and include more advanced operations, such as software design abroad, and employment in research and development and systems integration.â (R&D) and design work will increase at a faster rate out- The Insight 2005 study of U.S. technology innovators side the United States.â conducted by McClenahanBruer Communications, CMP, Innovation, R&D and Offshoring, a report by Ashok Deo and Electronic Engineering Times, reported that 64 percent Bardhan and Dwight Jaffee (for the Fisher Center at the Uni- of respondents âworry about the future of the engineering versity of California, Berkeley) published in fall 2005, based profession in the U.S. because of the impact of outsourc- on a survey of industry R&D offshoring practices, concludes ing.â Of the survey respondents, 46 percent indicated that that âthe emerging situation with offshoring of R&D related their companies have sent electronics design work overseas; activity is going to pose a series of challenges to white collar 70 percent was at the low end of software development, workers, engineers, designers and scientists, to U.S. firms, hardware design, or manufacturing; and 30 percent was as well as to policy makers. It is possible that the future of characterized as high-end software or hardware design. R&D offshoring will include continued innovation and R&D Last May, Booz Allen Hamilton and Insead surveyed 186 in the U.S . . . leading to a win-win situation where the U.S. companies operating in 19 countries and 17 industry sectors develops/markets the ânewâ good, and the now âroutinizedâ to assess trends in the dispersion of innovation in R&D. They goods and services are offshored. On the other hand, there found that companies are increasingly siting R&D opera- exists the distinct possibility of major innovations originating tions outside their headquarters market (45 percent in 1975 abroad.â and 66 percent in 2004). Foreign R&D sitings have shifted In a February 2006 report, the Association for Computing toward China and India and away from the United States
IMPLICATIONS OF OFFSHORING FOR THE ENGINEERING WORKFORCE AND PROFESSION 205 and Western Europe. The survey respondents suggested that POLICY IMPLICATIONS the pace of offshoring will increase, with 77 percent of new In a talk in October 2003 reported by Forbes, Andy Grove, R&D sites planned through 2007 slated for either China or then chairman of Intel, described the cost benefits driving India. By the end of 2007, China and Indiaâs share of global offshore outsourcing and acknowledged that he was torn R&D staff is projected to jump from 19 percent to 31 percent, between his responsibility to shareholders to cut costs and replacing Europe as the most important location for foreign increase profits and his responsibility to U.S. workers. He R&D for U.S. companies. concluded that the government must help establish a proper A more recent study by Booz Allen Hamilton conducted balance between the two. Otherwise, he cautioned, compa- for the National Association of Software and Service Com- nies will revert to their obligation to increase shareholder panies in India highlights growing demand for engineering value. So far, government has not risen to that challenge, and, services. The study estimates that $10 to 15 billion of engi- in effect, Groveâs cautionary note is increasingly becoming neering services is currently being offshored, with projected the reality. growth to $150 to 225 billion by 2020. IEEE-USA believes that offshoring is inextricably tied This summer, Electronic Engineering Times conducted to the broader issue of preserving our national competitive- a survey of its electrical-engineering readers to gauge their ness and technological leadership in an increasingly global thoughts on offshoring. What they found was described as economy. IEEE-USA also believes we need a coordinated a âgrim acknowledgementâ of the trend and a sense that the national strategy to sustain U.S. technological leadership United States has been complacent. The authors concluded and promote job creation in response to the concerted ef- that âAmerican EEs [electrical engineers] fear that U.S. com- forts of other countries to capture U.S. industries, jobs, and panies are looking for equally smart, but cheaper, engineers markets. in developing markets who can be future stars once they gain Rising Above the Gathering Storm, a recent National experience. Moreover, they wonder if America is trading Academies report, draws attention to the competitiveness away its future industrial leadership for short-term gains in challenges facing the nation, challenges that are inextricably the bottom line.â linked to engineering and the engineering profession and If both low-level and high-level engineering work is be- to offshoring and other trends. In response to the report, ing offshored, what are the prospects for U.S. engineers in a number of advocacy coalitions have been formed, more theÂ future? than a dozen bills have been introduced in Congress, and the president has announced the American Competitiveness â¢ Engineering jobs tied to creating and maintain- Initiative focused on reprioritizing federal R&D appropria- ing geographical infrastructures will clearly still be tions. For all this talk, however, relatively little has actually inÂ demand. been accomplished so far in the policy sphere. â¢ Large companies will retain some level of R&D and Some common points of consensus are being advanced, design work close to their U.S. markets and manufac- however, most of them supported by IEEE-USA and other turing enterprises even as they shift their investment professional engineering societies, as well as by industry and priorities to opportunities abroad. other groups. We collectively endorse the following points: â¢ Engineers with entrepreneurial sensibilities and bright ideas will create their own opportunities. â¢ a renewed federal commitment to support front-end â¢ Higher level research jobs will remain around federal research and development to encourage innovation laboratories and academic research centers as long as â¢ permanent extension of the federal R&D tax credit federal R&D dollars continue to flow. â¢ programs or tax incentives to assist in the development â¢ For the foreseeable future, it seems likely that job op- of human capital and worker training portunities that involve sensitive or classified work will â¢ improvements in Kâ12 science, technology, engi- remain in the defense and homeland security sectors. neering, and math education in the United States to â¢ As new and emerging technologies are commer- ensure the availability of a technologically literate cialized, they could also drive job creation in the workforce UnitedÂ States. â¢ According to most macroeconomic projections, the I believe these are necessary policy responses, but not overall size of the U.S. engineering workforce will nearly sufficient to the challenges of the situation. It may be increase in the short term, keeping pace with the that how effectively expenditures are made, rather than how growth of the U.S. economy. It is not clear, however, much we spend on R&D, makes the real difference. R&D how the U.S. engineering workforce will fare if the geared toward product/process improvement helps drive United States is unable to retain its leadership position incremental innovations that fuel commercialization and in technology innovation over the longer term. promote prosperity in the short term. But to remain competi- tive over the long term, the United States (both in the public
206 THE OFFSHORING OF ENGINEERING and private sectors) must invest more of its resources in both manufacturing, R&D, and service jobs that are being exploratory and applied research in the physical sciences, moved offshore. IEEE-USA was pleased to work with particularly in high-risk areas of new and emerging technol- Congressman Frank Wolf in supporting the appropria- ogy that can lead to new technology-based industries. tion for the National Academy of Public Administra- We must also find ways to capture the benefits of that tionâs series of studies on offshoring. We also worked research, protect the intellectual property, and commercial- to secure the release of the Commerce Departmentâs ize it so that we create high-value jobs here in the United offshoring study to the House Science Committee. States that will drive our economic prosperity and sustain our Although these reports are useful, they are essentially national standard of living. As for Kâ12 math/science educa- snapshots of trends taken at particular points in time. tion, we must advance technological literacy and expand the Only a thoughtful, continuous examination of offshor- pool of prospective scientists and engineers who can fill the ing and its implications for the engineering profession gaps when the engineers in the baby-boom generation retire. and for the national interest will provide a basis for a At the same time, we must be wary of shortsighted reactions strategic approach to national policy making. that encourage individuals to enter the engineering âpipe- â¢ New U.S. workforce assistance programs should be lineâ in numbers disproportionate to realistic projections of created to help displaced high-tech workers find pro- workforce demand. Our policies must align the employment ductive employment and ensure that employed work- opportunities and career prospects for those individuals when ers can acquire the knowledge and skills they need to they reach the end of the pipeline. remain competitive. This is an extremely challenging Some have suggested that we should aggressively pro- and potentially costly problem, compounded by the mote engineering training as a pathway to nontechnical fact that employers can no longer be counted on to careers. Their argument is based on data suggesting that invest in their technical workforce. 24 to 40 percent of recent engineering graduates end up â¢ New, or more effective, incentives are necessary to help in nontechnical fields, such as investment banking, law, engineers and other professionals tackle the challenges medicine, and management consulting. I endorse the view of mid-career education. that a degree in engineering can lead to a variety of careers, â¢ It is appropriate for government procurement rules but Iâm not convinced that engineering is likely to become to favor engineering work done in the United States, a popular degree choice for entry into nontechnical pro- absent compelling reasons to do it elsewhere. Gov- fessions because of the high threshold requirements and ernment often purchases products and services that comparative difficulty of obtaining an engineering degree âstretch the envelopeâ of the market, and firms that win combined with the current career outlook for professionals those contracts accumulate knowledge and capabilities in our field. I worry that engineering graduates are opting that give them competitive advantages. out of technical careers because of the financial incentives to â¢ Policy makers should take a systematic look at U.S. go elsewhere or the perceived lack of opportunities in their immigration policy and its implications for the global preferred fields. trade in services. To meet the competitiveness chal- We must be wary of the potential for âhollowing outâ lenges of the future, the United States will benefit the profession if the flow of jobs overseas translates into more from an open, competitive labor market that fewer entry-level jobs here that will enable new engineer- encourages the permanent immigration of the best and ing graduates to gain the experience necessary for them to brightest individuals than from increasing reliance on move to higher level jobs. With the probable exception of the in-sourcing of guest workers through a regulatory new Ph.D.s, who have research backgrounds, most newly system that suppresses wages, limits opportunities, graduated engineers are not equipped to apply their aca- and then sends those same guest workers home to use demic backgrounds to innovative solutions to engineering what they have learned here to benefit our competitors problems. We are already starting to read about U.S.-born overseas. This problem must be resolved before large electrical and computer engineering graduates going to India numbers of baby-boomer-generation engineers retire to build up their resumes. to avoid creating another incentive for offshoring en- gineering services. IEEE-USAâS POSITION ON OFFSHORING Additional Considerations IEEE-USAâs position on offshoring rests on several spe- cific proposals for action: I want to emphasize this last point because it has become increasingly apparent to me that Congress is so caught up in â¢ Prudent steps should be taken to determine the implica- the politics of immigration policy that it is not thinking care- tions of offshoring for the nation and the engineering fully about the consequences of its proposals, particularly profession. The federal government must collect and for skilled workers. As a case in point, IEEE-USA commis- publish reliable statistics on the kinds and numbers of sioned a study by Dr. Lindsay Lowell of the Georgetown
IMPLICATIONS OF OFFSHORING FOR THE ENGINEERING WORKFORCE AND PROFESSION 207 University Center for International Migration. Dr. Lowell engineering design and R&D will inevitably follow. concluded that current legislative proposals would, conser- â¢ The American Society of Civil Engineers frames vatively, allow the entry of 1.88 million high-tech workers offshoring as a homeland-security issue because to fill the 1.25 million new computer and engineering jobs non-U.S. architects and engineers are increasingly (as projected by the Bureau of Labor Statistics) that will be gaining access to information about U.S. facilities and created in the next 10 years. Therefore, I would add three infrastructure. points to the IEEE-USA list: â¢ The National Society of Professional Engineers notes the difficulties offshore engineering raises for adminis- â¢ Although I endorse immigration as a positive means tering the engineering licensing system used by states of building our talent pool, I believe that as a nation to protect the public safety. we need to do more than âpoachâ the worldâs best and brightest engineers. We need to look more closely at CLOSING THOUGHTS providing incentives for qualified American students to pursue technical careers. The offshoring trend is now a In closing, I would observe that there are limits to what disincentive for many of those students that is prompt- policy can or should do when it comes to the free market. ing an undetermined number of engineers/parents to Much of what needs to be done is the responsibility of engi- actively discourage their children from following in neers and the engineering profession. We must attend to our their footsteps. Consider this quote from James Fin- own needs and our own best interests. kel, an engineering manager for B.E. Wallace Prod- Professional engineering societies, including IEEE, will ucts, from âEngineering Becomes a Perilous Career quickly become irrelevant unless we enable our members to Choice,â an editorial in the Wall Street Journal on April thrive in their profession and provide them with the neces- 29, 2006. When asked about recommending engineer- sary tools and direction to deal with the challenges posed by ing as a career option, Finkel responded, âGiven the globalization. We must be ready to respond to members who time and effort of becoming an engineer, who wants to ask how they can be more âinnovative,â what it means to be be unemployed every few years? . . . why choose your âentrepreneurial,â and which technologies they must master lifetime salary the day you graduate from college?â to remain competitive for the next five years. We must also â¢ The global labor market in engineering services ought break down our disciplinary barriers and expose our mem- to work both ways. As a nation, we need a better under- bers to the intersections of technology, where innovation is standing of the barriers facing U.S. engineers seeking most likely to occur. work abroad so we can prepare them to work in the This is why during my tenure this year as IEEE-USA global engineering-services market. president I have pressed our Board of Directors to shift the â¢ One final critical point. Engineers, as individuals and focus to increasing our value to members, emphasizing mid- as a profession, must be more effective and more career education and the importance of lifelong continuing proactive participants in the public policy process and education, providing innovative leadership, and enlisting in public discourse about technology-related issues. engineers to support Kâ12 education for future technologists. A little bit of active citizenship will go a long way We are developing new programs, such as a proposed innova- toward ensuring that public policy is better informed tion institute, where we can tap the expertise of our members and more responsive to the competitiveness challenges to help promote the profession. Carrying out these policies we face. will require a modicum of âtough loveâ at times to change the thinking of established engineers about their careers. And it will take time to effect changes and to see the results. But POSITIONS TAKEN BY OTHER I am convinced weâre moving in the correct direction. ENGINEERING SOCIETIES The offshoring challenge is real, as is the challenge Other engineering societies have emphasized different to continued U.S. technological leadership in the face of points in their offshoring position statements: growing global competition. We must move beyond sim- plistic âwin-winâ rhetoric to a thoughtful and deliberative â¢ The American Society of Mechanical Engineers rightly understanding of the effects of the phenomenon and respond points to the need to secure Americaâs job-intensive accordingly. We have many advantages as a nation and as manufacturing base. According to one estimate, nearly an engineering profession, but we do not have a monopoly 48 percent of American engineers work in the manu- on bright people, technical know-how, or investment capital. facturing sector, which also currently accounts for 62 We will lose our competitive edge if we are not focused and percent of the total U.S. R&D investment. Because the persistent. prevailing management practice is to locate R&D as The U.S. engineering profession is in the early stages of close to manufacturing production as possible, and be- a painful transition as it adapts to the hard realities of glo- cause manufacturing is increasingly moving overseas, balization. There will be some who are unable to make the
208 THE OFFSHORING OF ENGINEERING transition and some who will need help. As a profession, we will help us reach an actionable consensus on sustaining a must be prepared to help all of them rise to the challenge. As strong U.S. engineering profession for the future. a nation, we must find a way to preserve and support a vital domestic engineering capability that can sustain the techno- ACKNOWLEDGMENTS logical leadership and innovation that underpins Americaâs economic and national security. Iâd like to thank Dr. Ron Hira, Rochester Institute My thanks to the National Academy of Engineering for of Technology and IEEE-USA vice president of career sponsoring this discussion and my appreciation to the United a Â ctivities, and other members of the IEEE-USA Board of Engineering Foundation for funding it. I hope this is the start D Â irectors and staff who reviewed my comments and pro- of an ongoing dialogue in the engineering community that vided valuable input.