by Alan S. Brown
While the numbers are hard to pin down, there is no doubt that more and more engineering is moving abroad from the United States.
Engineering jobs have followed the factories that began moving to countries like China and Mexico in the 1990s. Major corporations have built gleaming new engineering and R&D centers in India and Eastern Europe. These facilities are aggressively seeking the best students and the most accomplished local engineers.
The growth of offshore engineering has been coming together for many years. Looking back, it all seems inevitable.
The Triggers
A series of new technologies developed in the 1990s began to converge at the end of the decade to create the infrastructure that supports today’s global technology economy. Yet it took two specific events to trigger the surge in offshoring. The first occurred in the late 1990s, when software firms realized their products might be vulnerable when the new century began. The problem was simple. Most clocks in old software used two digits to count the year. When '99 turned to '00, the software would think events that happened in '00 happened before those in '99.
The Y2K panic began long before the century turned. Software developers realized they needed programmers to test and debug their products. Unfortunately, this insight coincided with the crest of the dot.com boom, and most programmers had more ambitious things to do (including accumulating stock options). Besides, some of the old software, especially industrial programs, was written in nearly extinct programming languages.
Indian IT companies such as Wipro, Infosys, and Tata secured a foothold in the United States by offering to train their employees in any programming language their customers needed so they could debug and fix software. Moreover, because they were paying employees a few hundred dollars per month, they could do it for far less than anyone else.
Indian software firms were going global before the late 1990s, but the Y2K scare introduced them to a much broader range of companies. They quickly built upon their success, enabling companies to shift low-level IT work abroad. Over the past decade, the major Indian IT firms used newly developed management skills to advance to project management and systems architecture. Several now rank among the world’s largest IT services firms.
The second trigger involved a perceived shortage of engineering talent in the United States, which encouraged American companies to look offshore. Following the dot.com bust, many firms grew concerned with the declining number of students in the pipeline, according to Christine Bullen, a senior lecturer at Stevens Institute of Technology, whose work focuses on outsourcing. "Enrollment in computer science and IT programs had been falling for years, with some programs dropping 80 percent," she said.
Other researchers, such as Vivek Wadhwa, an executive in residence at Duke University, argue that the United States has always had plenty of IT professionals, for instance. Nearly half the companies he surveyed said that 60 percent or more of job applicants accepted employment. Such high acceptance rates indicate little competition for available engineers. Moreover, 80 percent of companies filled vacancies within four months, and 88 percent said they did not pay signing bonuses, which are common when talent is scarce.
This indicates a well-balanced market. Yet as Bullen observed, companies believe there is a shortage of U.S. graduates. Moreover, the market is not balanced, and there are shortages in certain skills. "Because they were already experimenting with outsourcing some functions, when they couldn't necessarily hire the skills they wanted, they were comfortable getting them from offshore," she said.
Familiarity with IT offshoring made it easier to send engineering offshore. This was especially true for companies that had already set up manufacturing plants overseas. These plants needed engineers to run the manufacturing operations, adapt global platforms to local conditions, specify parts, and certify local manufacturers. Once companies established an offshore presence and the procedures to move work back and forth, it became far easier to do more product support, additional upgrades, complex reengineering, and even next-generation design where they made their products.
In surveys, engineering managers usually rank the need for an international presence and the importance of attracting top talent as the most important reasons for offshoring engineering.
Still, the price differentials are hard to ignore. While most observers believe U.S. engineers are more knowledgeable, more productive, and better team players, companies can hire more workers in India, China, and other developing nations for less money. For such engineering-intensive firms as automakers, which spend $100 million or more to engineer a new car, a 30 to 50 percent engineering cost savings is too attractive to ignore.
Kenneth Kraemer, the former director of the Center for Research on Information Technology and Organizations at the University of California, Irvine, recalls interviewing a company manager whose bosses wanted him to cut costs. "He told me he had to move jobs overseas,” Kraemer said. “For every job here, he could buy two or three jobs over there."
The interview was part of Kraemer's study of 400 manufacturing companies. He found that the more a company outsourced manufacturing, the more it outsourced the design and development of its products. In other words, manufacturing pulled engineering to the plant.
Extensive interviews and factory visits to those firms convinced him that most offshore engineers work in development. Yet others see increased emphasis on research as well, especially in India. In this way, engineering firms have mimicked the rush of IT vendors and software developers overseas.
Martin Kenney, a professor of Human and Community Development at the University of California, Davis, monitors job postings. When he looked last, General Motors' Indian research operation was advertising for Ph.D.-level materials scientists. "They're not going to be doing work for the Indian market. What they do will be done for the global market and the United States," he said.
He still thinks multinationals will keep their basic research at home. "Everything else," he says, "is on the table."
Education
Education was also an important factor in the growth of engineering offshoring. Many developing nations understand the link between engineering and wealth. In a world where knowledge is easily transferred, engineers are the critical link between raw information and practical application.
India and China, in particular, quickly ramped up the number of engineering, computer science, and information technology degrees they awarded. Wadhwa and Duke sociologist Gary Gereffi studied the claims of China and India between 2000 and 2005. During that period, both nations more than doubled the number of engineering degrees they granted, China to 517,000 and India to 170,000. Over the same period, the annual number of four-year engineering degrees granted in the U.S. rose about 18 percent to 134,000.
Yet the quality of engineers varied greatly. U.S. engineers and computer professionals had to complete a four-year course to qualify as graduates. China and India lumped in graduates of two-year colleges and technical training courses, which are not quite the same thing. Moreover, both countries have many diploma mills that do not produce well-trained students even after four years.
Still, both India and China do have world-class universities. They also have good second-tier schools. Western firms seek to skim the cream of the crop. "If it takes nine months to bring a new hire up to speed and salaries are $700 per month, a company will more than make that money back if he or she stays there four or five years. After two or three years, that engineer will be equally productive with American workers," Wadhwa said.
Indian firms have become masters of training workers to multinational standards. "The education you get out of Infosys and Wipro is better than our universities because it's applied," Wadhwa said. “They're also training better executives, using the old IBM model of moving promising trainees into new positions every nine months so they understand the operation. Today, when you join an American firm, you're lucky to get two days of training."
Meanwhile, Western universities have attempted to fill the breach by setting up satellite schools all over the world, said Phil Altbach, a professor of higher education at Boston College. "It's become a huge international business," he said. Some schools—mostly outside the United States—"franchise" their curricula, giving offshore universities the right to offer their classes. Others move whole campuses overseas, either by themselves or through collaborations with foreign institutions.
The education is not exactly the same, Altbach said. Many of the best professors are not interested in moving away from friends and colleagues to nations with radically different lifestyles. Junior faculty—who must publish or perish—worry about access to modern laboratories. Besides, even schools with strong faculty and good curricula lack what Altbach calls "the invisible college," the atmosphere and connections that top institutions provide their students in the developed world.
Despite some shortcomings, Western universities are helping to transfer knowledge and skills overseas. They supplement an improving educational system in the developing world. And in many countries, those improvements are showing up first in the engineering schools. Not all graduates are ready for prime time, but enough of them are. They only needed an opportunity.
Thanks to the growth in offshoring, those opportunities are there for a growing number of engineers around the globe.
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Infrastructure of Offshoring
Offshoring of manufacturing and engineering was made possible by the advances in communication we have enjoyed in the past 20 years. The motivation was business.
In a book so popular that it has given us a new cliché, The World Is Flat, Thomas Friedman spells out how many advances in technology converged in the late 1990s to change the world as we know it.
Perhaps the most important was the transformation of the Internet into the World Wide Web. In the 1990s, companies crisscrossed the ocean with underwater fiber optic cables that linked the world's continents together. This connection not only made high- bandwidth Internet possible, but made it affordable even in the developing world. Suddenly, engineers and students everywhere could peek at leading-edge developments, read top journals, or take a front-row seat at some of the world's best universities.
Engineers had been trading information by e-mail for years, usually in spreadsheets and documents. In the 1990s, they began exchanging CAD files as well as project updates.
More importantly, says Friedman, they began doing it through new workflow software, which made it possible for machines with speak to machines. When design and engineering teams scattered around the globe worked on a project, their software automatically managed the transfers and updated the data and models.
Equally important, machine-to-machine software made it easier to create extended supply chains that linked together multiple levels of vendors. A company in New York could place an order in China, schedule assembly in Dallas, and track the flow of materials and components into Dallas and out to customers around the globe.
Those extended supply chains were an outgrowth of a fundamental change in business thinking that had its roots in the 1980s. Wall Street analysts argued that companies that devoted their resources to a few key sectors succeeded most consistently. Jumping to the snap of Wall Street’s whip, companies began spinning off "non-core" operations.
Instead of buying components from their own factories, companies as diverse as General Motors, Boeing, and Dow Chemical spun off upstream operations into new, independent companies that now had to compete for their business. They also spun off functions. They outsourced maintenance, legal services, and information technology. They traded proprietary software for commercial systems that vendors upgraded and maintained.
By giving costly operations and low-return services the heave-ho, companies slashed cost. That forced their competitors to reevaluate their own operations. Slimming down became the order of the day for companies that wanted to survive.
After sending manufacturing offshore, it was a short step to sending engineering services abroad.
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