OffShoring Engineering

Outsourcing causes jitters: Is my job next?

By Bob Bellinger
EE Times

Outsourcing to overseas locations is nothing new. Many software development teams and chip fabs are based in Asia, where engineers and high-tech workers earn salaries considerably below those of Americans. Half our respondents work with international teams, especially engineers in the computer and components arenas. And more than three-quarters of the people working with teams overseas like the experience.

However, readers also detect a more-ominous trend: They see design and development work being transferred out of the country. Some 69 percent say these international teams are involved in design work, vs. 58 percent in manufacturing and 51 percent in software. Thus, American EEs worry about the future of their jobs-and their profession-here in the United States.

"Most manufacturing has already moved out of the country (especially to China)," one reader says. "Now engineering is starting to move out of the country also. There is a trend at my company to increase the engineering work in China. The Chinese engineers so far have been far behind us in abilities but they are catching up. I am sure that as soon as they are good enough, our company will transfer the majority of engineering work to China and reduce the engineering staff here in the U.S."

"Too much is being outsourced to countries such as India where engineers will work for a cup of rice a week," declares another reader. "I truly believe that if something isn't done, engineering will no longer exist in the U.S. and will go the way of such industries as clothing, etc. This trend will only stop when someone decides to outsource upper-management and CEO jobs. Then legislation will be passed by the Republican party faster than George W. can bomb Third World nations."

"I think the biggest issue is the movement of technical manufacturing offshore," one reader writes. "There are entire industries where there is no U.S. manufacturer. It doesn't take a lot to figure out that when a manufacturing plant goes into an area, the economy of the area improves. This drives the education level to improve, and pretty soon there are local engineers to do the design work." "Industry sees hiring offshore engineers as a cheaper alternative to employing U.S. engineers," is one simple summation.

Gartner Inc. (Stamford, Conn.), a market analyst firm, projects that 10 percent of the information technology positions will be displaced in the next 18 months as jobs go overseas.

IEEE-USA president-elect John Steadman warns: "The emphasis on outsourcing to cut costs may help boost quarterly earnings, but it is also putting our nation's long-term economic competitiveness and national security at risk as we give up our technology edge for short-term profits."

Frankly, among all the open-ended comments from readers-running into the hundreds-we didn't find one promoting offshore outsourcing. But some high Washington officials take a philosophical view.

In testimony before a congressional committee in July, Federal Reserve chairman Alan Greenspan answered a question about the migration of high-tech jobs out of the country. His reply was that the movement of jobs overseas "has been going on for a very long time." American engineers innovate, their employers start up and produce for a few years, then outsource production and manufacturing when price, rather than innovation, becomes the rule. As for the future, Greenspan contends that we "cannot forecast technology effectively." But when another large-market innovation occurs, the Fed chief believes U.S. engineering "jobs will be created."

One of our respondents agrees with Greenspan on the need for innovation: "There needs to be a 'compelling event' which kick-starts this industry back into the working pace it was at in 1999. I'm not sure what will do that. I believe it will have to be consumer-driven, but don't really know what form it will take."

And this comment: "We still seem to innovate better than most-we should nurture new technologies to keep up our income differential with respect to the rest of the world. It is time to recognize that largely, electronics is no longer a leading set of technologies."

The Beltway is betting that U.S. engineers will come up with a "compelling event" to boost domestic jobs. The Labor Department's Bureau of Labor Statistics forecasts that over the next 10 years there will be an 11 percent increase in the number of EEs required. But survey respondents hold a less sanguine view of the future of the U.S. industry.

"Designs are becoming more complex and the development tools are not progressing at a pace sufficient to support the increased complexities," an engineer observes.

Another cites a frequent concern by readers: There's "no new technology to really push the industry back into a booming market."

We're "not finding that killer app," an engineer frets, to follow networking and communications, which fueled a six-year surge in prosperity through 2000 before the dot-com and telecom collapse.

Still another thinks "there is a lack of money being spent on R&D. There seems to be a lack of drive to develop new technologies for fear of no market being there for the product."

State of the industry
Pessimism-or, perhaps more accurately, malaise-prevails among readers. Since the early days of the EE Times "Salary & Opinion Survey," we've tracked reader perceptions about the state of the U.S electronics industry. In the early '90s, as little as 20 percent of the readers saw the U.S. technology industry "progressing" or rising. But starting in 1993, that started turning around, and optimism reached as high as 77 percent at the end of the boom in 2000. Since then, respondents who see the industry as "rising" or progressing have grown few and far between, sinking to a new recent low of 37 percent in 2003. A quarter see it as "about the same" as last year, with the remaining 47 percent declaring it to be in a decline.

Yes, this pessimism has something to do with individuals' own nervousness about their jobs. But the engineers in the trenches find other issues dogging the industry.

"We must enforce IP [intellectual-property] protection to the max for corporations to maintain the profit motive and, in turn, sustain innovation," an engineer writes. "Corporate debt is hampering capital expenditures, especially in the telecom field."

"It seems that the electronics industry has reached a point where the newest, most powerful and innovative products are not always needed in the marketplace," says a thoughtful respondent. "Without a strong demand for innovation, startup companies with new ideas find themselves in a precarious position of having an excellent product and no buyers. From an IC perspective, which is the field I work in, semiconductor physics is making design tasks problematic at the 90-nanometer level. The expense of developing new technologies is rapidly increasing, which may convince some companies to be less aggressive when pursuing such technological advancements."

Visa issues at center stage
We asked whether visa approvals for temporary foreign high-tech workers/engineers should be restricted. A resounding 75 percent think some limits are necessary. Managers were less enthusiastic than staffers, with 60 percent of the bosses favoring curbs and over 76 percent of staffers endorsing tighter rules.

We didn't specify how much the visa approvals should be cut back, but IEEE-USA has some ideas. The professional organization is asking U.S. members to lobby Congress to roll back the quota for H-1B visas for temporary foreign workers to 65,000 from the current limit of 195,000 a year. IEEE-USA argues that since 2000, when the quota was boosted at industry's urging, unemployment among all types of engineers and scientists has soared from 65,000 to 166,000 in 2002.

Among EE Times readers, both offshore outsourcing (61 percent concerned or very concerned) and H-1B employment levels (45 percent concerned or very concerned) rate among the Top Ten career issues.

"Too many H-1B visas have been granted," says one reader.

"Americans [are] unemployed while foreign nationals [are] still obtaining visas," an EE states.

Not everyone agrees. In fact, of the Top Ten Career Issues, restrictions on H-1B visas garners the highest percentage (12 percent) of respondents who say it's of "no concern" at all. Some 36 percent of engineers under 35 years of age, and 39 percent of managers, don't want tighter restrictions on visas for high-tech workers.

For one thing, not everyone is suffering from a recession.

"Our company has implemented retention programs," reports one engineer who says his employer is swamped with work. So the prospect of bringing in engineers from overseas, even temporarily, may appeal to some, like this respondent: "These workers are extremely critical to ensure the competitiveness of U.S. technology firms."

The stiffer resistance to outsourcing and H-1B visas hasn't gone unnoticed in India, a prime recipient of outsourced work from the United States and a supplier of engineers under the H-1B visa plan. India's National Association of Software and Service Companies (Nasscom) argues that outsourcing has helped U.S. banks and financial institutions save up to $6 billion in the past four years (see July 14, page 33). That may have helped avert layoffs, Nasscom said. It also pointed out that the number of H-1B visas used by Indian engineers dropped by half between 2001 and 2002. Nasscom estimates the total number of Indians granted H-1B visas will fall to 30,000 in 2003, a fraction of the 77,000 in 2001 and a small proportion of the 195,000 visas granted altogether. This indicates that H-1B visas do fluctuate with the state of the U.S. economy.

In the end, the pro-outsourcing and pro-visa forces maintain that U.S. companies need to constantly seek savings to stay competitive in a global economy. With U.S. EEs approaching a mean salary of $90,000, employers are eyeing alternatives.

Of course, our engineers offer a rebuttal to any argument that they're too expensive: "I am very concerned about the ridiculous compensation gap between top-level executives and other employees," one writes. In other words, if salaries are too high, start at the top.

Interestingly, in examining the seven respondents to our survey who are earning more than $160,000, three list themselves as "staffers," not part of management.

Another argument: Displacing U.S. workers "will eventually lead to market shrink since fewer people will be able to afford luxury items." In other words, a $20,000/year Chinese engineer is probably not going to buy a $5,000 wide-screen plasma TV display. Nor will an unemployed $90,000/year U.S. EE. And there's the matter of nationalism, argues another engineer: "Long term, [American employers] are setting up strong, determined competitors" by shipping domestic know-how overseas.

Adds a respondent: "We're losing our technical knowledge base to visa-based personnel who have little commitment to stay or to our national interests."

What shortage?
The biggest argument that U.S. engineers have against high visa quotas is a simple one: Why do we need more engineers? By one of the widest margins that the EE Times "Salary & Opinion Survey" has ever seen over the years, 90 percent of designers and design managers say there is no shortage of engineers this year.

Sentiment has swung wildly from survey to survey. For most of the '80s and early '90s, American engineers firmly denied any shortage. That changed in the late '90s when, for the first time since EE Times began these surveys in the 1980s, most of our respondents agreed there weren't enough people to go around.

More than half the communications engineers in our 1999 survey blamed delays in their projects on a lack of engineers. Not anymore. Since the telecommunications bust of 2001, we've seen the pendulum swing firmly back to the "no shortage" side, with 91 percent rejecting the idea. Among our European respondents the pendulum hasn't reached quite that far: 53 percent deny the existence of shortages.