| MANHASSET, N.Y. — In the electronics world, offshore outsourcing is nothing new. Many, if not most, of our fabs are located overseas. U.S. companies routinely set up manufacturing plants in Asia. India has made a multibillion-dollar industry out of software development for U.S. companies. |
But American design and development engineers and managers increasingly fret over the export of work — and higher-end technical jobs — overseas. The work, they told EE Times in 2004, no longer is restricted to low-level software and hardware projects. It's hitting home, shrinking U.S. design teams and exporting intellectual property and know-how. As one respondent put it, outsourcing "is very bad for the current generation of engineers, future generation of engineers and bad for America overall."
Even though the 1,453 U.S. design engineers and managers participating in this year's survey are reported record mean salaries of $96,400, some of the respondents believe outsourcing will ultimately hit them in the wallet.
"Outsourcing puts unfair salary pressure on local job markets," a Silicon Valley respondent wrote. "Jobs are going to areas where there is a poverty economy to support very low wages. They are not going overseas to increase productivity or efficiency. The jobs are going overseas to save companies money. This is bad global economics and bad national policy."
Others don't see it that way. "As long as equivalent labor costs are lower in one country over another, outsourcing will occur. Other economic and sociopolitical factors have tertiary or little importance as long as you can manufacture a product at a small fraction of domestic cost in another country," said one.
Outsourcing has indeed become a national issue. Democratic candidate John Kerry has made outsourcing an issue in the presidential race, and it's among the top five career issues of EEs (see "Career" chapter).
Just under half (49 percent) perceive a rise in the amount of work being sent overseas in the past year. That figure soars when we break down the percentage by industry: Sixty-seven percent of respondents in the computer and 66 percent in the components industries have seen a boost in outsourced work in just the past 12 months. But only 18 percent of defense engineers, mostly protected by government mandates, saw design or development work exported overseas.
What alarms some is the nature of the work that's heading to Asia and other low-cost wage areas.
To no one's surprise, 64 percent say their companies are sending more manufacturing overseas, along with low-end software development (46 percent). India is climbing out of its Third World status on the strength of its capable and savvy English-speaking software engineers, who earn a third of what Americans would pull down. In fact, they're getting so capable that 29 percent of our readers describe the work going over there as "high-end software." That treads on U.S. engineering territory.
And hardware is heading overseas, too. More than one-third of our U.S. readers saw low-end hardware projects exported, and 25 percent say their companies sent high-end hardware as well.
C'est la vie, say some of outsourcing.
"It is good if it makes good business sense," said one advocate. "It has happened for many years,and will continue to happen. People should quit bitching about it since it has zero effect on the decision to do it or not."
Another proponent said, "When done properly, additional jobs result at companies doing outsourcing, due to increased business."
"On a global scale, it's wonderful," wrote another respondent. "Empowering more regions of the world, and promoting education and wealth, will result in a better world. However, it comes at the expense of the less-educated American white-collar worker, a new victim in the long tradition of outsourcing. Only those with top-notch backgrounds are likely to feel secure."
The question is, Who is this "new victim in the long tradition of outsourcing?" Is he talking about design engineers with BSEEs? Software engineers with BSCSes?
Federal Reserve chairman Alan Greenspan has testified before Congress several times on the issue. In his view, outsourcing is nothing new. American technology projects will be developed in the United States and produced here in the initial stages. But once cost, rather than innovation, becomes the principal factor for the product, companies will ship the work to lower-wage countries. Then the cycle will come around again: innovation in the United States along with initial production and development, with eventual production overseas.
This Silicon Valley engineer agreed with Greenspan: "I think it's the natural progression of the maturation of high tech. In the long run, I think it will free resources for the next new thing."
At least half of our design engineers and managers don't buy that scenario anymore, however, saying it reduces staff — perhaps permanently.
What happens to furloughed engineers? asked one engineer in the San Jose area. "One of the big problems I have with outsourcing advocates is many say that engineers in the U.S. can be retrained for other jobs. This is absolutely ludicrous. Most engineers in this [Silicon] Valley come with a fair amount of experience in engineering, which allows them to command reasonable salaries for the Silicon Valley environment. Retraining these people for other jobs in Silicon Valley won't fly, because any new job would be entry-level, no? Who could possibly afford to make that life change?"
But another valley EE disputed that view, saying, "I've always had to compete on skill."
"It is not easy to find qualified, bright engineers here in the U.S. in the quantity that is needed," commented a manager.
"Outsourcing is a result of a traditional economic development life cycle. Everything gets commoditized, including engineering tasks," a philosophical engineer wrote. "Continuing education is the only individual defense against outsourcing."
Even proponents admit the cost-driven nature of outsourcing could change the nature of the engineering field in the United States.
"It is inevitable in the face of competition," another Silicon Valley dweller said of outsourcing. But, he added, "the core competency of a company like ours is being eroded, and we are becoming more an integration/sales company of sorts."
Precisely, said another. "It creates a country that can no longer make anything. The world is at war, and if for some reason one of the large cheap-labor countries stopped making product, we would all shut down and could not do it ourselves."
There are recruitment consequences as well. "If handled poorly, it can induce fear in the U.S. work force and deter bright, hardworking students from entering the profession," observed another respondent. That's already happening, even at top universities. MIT has seen a drop in EE admissions in recent years.
Another respondent has a harsher view of the practice: "Outsourcing of core intellectual property will be disastrous for employers; outsourcing of high-tech jobs will result in fewer U.S. students studying in those fields, resulting in a reduced need for PhDs to teach them and ultimately an overall reduction in U.S. ability to compete in technology areas."
Offsetting that is the belief that outsourcing probably saves companies money — and therefore saves engineering jobs. About half of the respondents in our sample acknowledged the cost savings. "Outsourcing components or automating assembly are the only ways to be competitive," said one reader. "Outsourcing software in our business has only marginal gains now, but the benefit will increase in time."
Some see that as "shortsighted. The costs are more than they seem," said a respondent.
"Money saved in salaries is spent in project management, overseeing offshore projects," said another.
"The true costs have never been known," said one manager. "Outsourcing was seen as the way to cut costs quickly, but the outsourced parts always cost more to the customer due to the additional overhead. The customer screams and is unhappy, so prices, which were not truly accurate, are dropped, and overall income drops. We are fighting a constant battle to get good quality. The old saying, 'You get what you pay for,' is true."
The quality issue is huge, American EEs told us. A mere 4.5 percent think outsourcing "improves quality." This respondent's employer had a bad experience: "We tried outsourcing and found it took longer to 'fix' the code that was produced than to have done it ourselves in the Valley. Outsourcing seems to be economical to financial types . . . but once they realize the quality that is produced, they quickly return to onshore development."
Returning work to the United States isn't necessarily the solution, another reader observed. "Businesses should absolutely buy services from the cheapest vendor, without regard to location. However, some foreign sources are compatible and suitable, while others are just cheaper and ultimately more expensive to integrate."
For some tasks, outsourcing works. "A lot of the standards are common knowledge, and it wastes our engineering time to characterize . . . buses," said one reader. "It frees up our engineering time to do more innovative stuff if we can offload low-end work overseas."
But it's "hard to get management to understand that some of the savings from outsourcing of engineering work are illusory," says one skeptic. "Add the communication time; language difficulties; time for the work to be done two or three times over because the outsourcing engineers do totally weird, off-the-wall stuff; and time to check the final design docs."
Other management issues arise. "Outsourcing engineering tasks leaves a void once the design is finished," a respondent wrote. "The individuals who implemented the design are possibly no longer available for future product support. Some of the product expertise leaves when the job is done."
In fact, 79 percent said quality assurance steps are needed to check outsourced work.
"Without a very good statement of work and unambiguous requirements, a lot of hand-holding needs to be done," another engineer wrote. "There is certainly excellent talent available when outsourcing, both domestic and overseas. The real challenge is managing the outsourced work so it is really what you want, when you want it."
It's not so easy, said one manager: "It is harder to enforce contractual obligations with offshore companies."
Other, more political factors also come into play.
Outsourcing, says one aerospace engineer, "is required for our company [Boeing] to secure future business." In fact, the Defense Department just announced a contract with Brazilian aerospace company Embraer to buy planes for surveillance uses. Embraer, in turn, will build some of those planes in the United States. Likewise, American companies can't expect to do business overseas without setting up factories or units in the home countries of key customers.
Outsourcing hurts our economic base, maintained another engineer. "Visualize where your products are sold or where the items that use your products are sold. If the EU and North America use, say, 75 percent of the end product, outsourcing in the long run is bad. . . . Helping India's economy only makes sense if India's economy buys your products!" In other words, if you eliminate the $100,000/year U.S. engineer, you've lost a potential customer for your $5,000 plasma TV sets — without gaining one in Calcutta.
Skills and technology
The respondents' comments about outsourcing provide a clue as to where future jobs may lie for engineers: mixing high-end technical skills with business skills such as project management. Coordinating production in two, three or four countries with different time zones and different languages requires engineers with breadth as well as depth.
Only 11 percent of the 1,453 engineers and designers perform no software work at all; about 14 percent do little else but software. For most, it's a mix, with about 43 percent estimating they spend up to 25 percent of their time on software tasks. The top design and development skills that our readers check off include:
- Hardware/software co-design, 56 percent;
- C/C++, 57 percent;
- Systems integration, 55 percent;
- Embedded systems design, 45 percent; and
- Analog design, 43 percent.
Those were followed by programmable logic design, 37 percent; verification, 30 percent; ASIC design, 27 percent; DSP, 24 percent; RF/wireless, 21 percent; deep-submicron design, 13 percent; and MEMs design, 4 percent.
Past surveys show that most EEs share the two business capabilities — project management (67 percent) and team leadership (75 percent) — that are needed to ensure offshore outsourcing meets project requirements.
Every year, we ask engineers to rate the top technologies in three categories. The top three in each area follow.
"Will see broad usage:"
- Embedded processors (84 percent);
- System-on-chip (70 percent); and
- Streaming media (64 percent;
"Will be niche technology:"
- Reconfigurable comm switches (64 percent);
- Reconfigurable processors (55 percent); and
- MEMS: (56 percent).
- Web-based design tools (19 percent);
- Bluetooth (17.5 percent); and
- Reconfigurable processors (8.5 percent).
And by the way, not everyone buys into the idea that there will be a third generation of wireless technology. Some 5 percent think 3G wireless will flop; perhaps they're among the communications engineers burned in the foldup of 2000.
What skills are lacking?
We asked our engineers and managers a new question this year: "What technical skills do you think are lacking in the newly hired engineers that you encounter?" This may include new grads fresh out of engineering school or veterans hired from elsewhere. As it turns out, readers not only focused on technical skills but on nontechnical capabilities as well.
Here's what some think is lacking:
"Debugging, architectural 'big-picture' thinking."
"Real-world behavior of electronics. An example is how to ground a circuit for proper operation in a high-speed application."
"The ability to effectively analyze their design to ensure that the designs meet specifications. In school they learn that there is a single correct answer, and once found, it is the correct solution. This is not true in the real world."
"Ohm's Law, basic circuit analysis, ability to calculate what component values are needed to achieve results rather than trial and error with Spice simulation, memory-efficient programming. I could go on for hours."
"Practical experience: Everybody needs to make a crystal radio as well as design a superheterodyne radio. All engineers have to understand the physical world. Too many students are showing up with only simulation experience."
"Most logic designers are woefully ignorant of analog, specifically at high speeds. Most software weenies have only the slightest understanding of queuing theory. Most analog slugs are afraid of programming."
"Software graduates live in a world of make-believe. They need some engineering background."
"Basic programming skills in C and C++. Undergraduate computer algorithm and data structure knowledge (such as link lists, hash tables and sorting algorithms). Lack of exposure to industry-standard tools."
Business skills were also cited:
"They can't write, they can't give a presentation, and they can't do quickie calculations to find an appropriate answer."
"Although technically adept, most of our undergrad new hires are very poorly prepared to work in a team engineering environment."
"How to handle customer interface effectively and the desire to be self-sufficient (that is, getting the work done without someone holding their hands)."
And finally, this veteran listed his beefs: "No soldering iron burns. No oily grime under their nails. Not enough down-and-dirty practical experience of making/repairing things. [They] need to learn to grab a notebook and pencil to sketch out a design first before involving a computer."
There's good news on the product development front. More than one-third of our respondents reported an increase in product development programs at their workplaces in 2004. That's up from 25 percent last year and a paltry 16 percent in 2002, the bottom of this last cycle.
The 34 percent hike in 2004 isn't quite as robust as the one that took place in 2000, when it was 38.5 percent, but this year's stat is yet another indicator of an improving design and development environment.
On average, 2004 projects are taking about nine months from specification to production, with the military/aerospace community, as usual, lagging at 10 months. About one-third said their projects are late, but nearly half (48 percent) claimed they're on time. Some 18 percent even maintained they're under budget, while 14 percent fessed up and admit ted they'd blown the budget. That leaves the remainder on track in terms of costs.
The hiring environment might also improve soon. Just over 45 percent described their projects as "understaffed," with management in agreement. That suggests that companies will need to staff up soon. It hasn't happened yet — just 23 percent of respondents saw a boost in hiring in the past year, and 31 percent actually noticed fewer new hires than ever.
The question is: Will companies outsource those jobs, recruit foreign workers or turn to the American engineering community for solutions? The answer probably lies in doing what this reader does: "I try always to ask myself, 'What is my value to this company? Am I replaceable? Am I needed?' "
Related charts: Outsourcing: Work heads overseas-both low, high level
Technology: What's hot and which skills do readers have? Readers rate technologies