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U.S. Competitiveness, Offshoring & Technology Policy

U.S. Competitiveness, Offshoring & Technology Policy. Ron Hira, Ph.D., P.E., Senior Member Vice President, Career Activities. March 12 th , 2005. Why Do Companies Utilize Overseas Technology Talent?. Cost – An “Imperative” Exceptional Talent? Politics & Access to the Local Market

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U.S. Competitiveness, Offshoring & Technology Policy

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  1. U.S. Competitiveness, Offshoring & Technology Policy Ron Hira, Ph.D., P.E., Senior Member Vice President, Career Activities March 12th, 2005

  2. Why Do Companies Utilize Overseas Technology Talent? • Cost – An “Imperative” • Exceptional Talent? • Politics & Access to the Local Market • Trade, e.g., China & Russia – Boeing engineers • Developing Countries’ Strategy • Tax Holidays & Incentives • 24/7 Capabilities • Collaborative Engineering Technology • Companies Aware Of Possibility & Believe It Helps Their Performance – Trigger • Fate Of US Workers No Longer Figures Into Corporate Decisions

  3. Overseas Engineers Can Afford To Be Paid Less

  4. Substituting Labor:Expansion Abroad & US Layoffs • Substitution not Additive or Complementary • India Most Mentioned Destination • Companies Are ‘Re-balancing’ Workforce in Favor of Offshore Share EDS – 20k US layoffs & 20k offshore hires IBM Hewlett Packard Intel CSC AOL Texas Instruments Unisys Siemens • ‘Knowledge Transfer’ – ‘Knowledge Extraction’ • Forcing US workers to train foreign replacements

  5. How Much Work Has Moved Offshore? • No One Knows • No one in government is collecting data • Commerce Department has pilot study of $335k complete • GAO survey concludes “current government data provide limited insight.” • $2million study underway by NAPA • Companies are reluctant to reveal their plans • Some High Skill/High Wage Work Is Moving • We Do Know It Is Accelerating • Driven by top level management

  6. Outsourcing SaturationJust the Beginning Saturation 2005 TIME

  7. Accounting Programming and Software News Reporting & Editing Legal Architecture VC Firms Pushing Engineering Design Insurance Claims Processing Radiology Call Centers Financial Analysis Wide Variety of Jobs Have Moved Offshore“Any Task That Can Be Sent Down A Wire”

  8. Developing Countries Target R&D • Singapore - $2billion ‘Biopolis’ - Biotech • Also targeting Optoelectronics – HP & Agilent • China – • Requires high-level tech transfer as part of investment • Attracting recent PhD grads of US universities • Companies locate R&D closer to production • India – • Wants to be the “Global R&D Hub” • Drug Discovery and IT R&D • Google, Microsoft, Texas Instruments, Intel, GM, etc. etc.

  9. Just Low Level Work? Sample Intel India Job Ad • RF Simulation Engineer  (Job# 274125) • In this position you will build various antenna, RF channel and PHY/MAC models for various RF technologies; and simulate platform noise impact. You will also interact closely with internal wireless product groups to develop solutions to enhance RF performance in notebooks.This position requires a M.S. or Ph.D. in Electrical Engineeringwith experience in mobile notebooks, WPAN, WLAN, WMAN, WWAN and platform noise. You must also possess: - Experience building various antenna, channel, PHY/MAC models, prototypes, test systems; and simulating the impact of multiple radios that are integrated into notebooks Go to: www.monsterindia.com

  10. Both Positive & Negative Impacts • US & Developing Countries • Both gain and lose from offshoring • Net effects are impossible to determine

  11. U.S. Impacts + • Lift U.S. Economic Development • Lower costs • Open New Markets • Lift Economic Development Abroad • Geopolitical and security advantages

  12. U.S. Impacts ? • U.S. Competitiveness/ Innovation System • U.S. Workforce – • Displace Workers • Downward Wage Pressure • Change in Mix of Occupations • Military Capacity – Access & Assimilation • Homeland Defense - Critical Data • Brain Circulation vs. Brain Drain • Intellectual Property

  13. Developing Country Impacts + • Best Path to Growth? • Comparative advantage is low cost skilled labor • Spillover Benefits • Movement up the ladder of innovation • Learning western business practices • Macroeconomic Advantages • Utilize Idle Labor Force

  14. Developing Country Impacts ? • Best and Brightest Supply External Markets Versus Domestic Problems • Loss of Sovereignty to MNC’s? • Proper Use of Scarce Resources • Work on male baldness rather than on malaria • Help Indian urban in lieu of rural • Race to the Bottom? • Potential for ‘Smokestack Chasing’ • Mexican Maquiladoras and China

  15. Economists Debate Trade Theory • Nobel Laureate Paul Samuelson, MIT • Bhagwati and Irwin are promoting “polemical untruths” • Plausible scenarios when China’s development makes US standard of living go down • Gomory & Baumol show this mathematically • Jagdish Bhagwati, Columbia • Samuelson is misunderstanding outsourcing

  16. Before Offshoring US Workers do A,B,C Offshore Workers are Idle After Offshoring US Workers do B,C,D Offshore Workers do A and some of B Jobs Moving OverseasIdeal Scenario

  17. Jobs Moving OverseasPredicted Impacts • Job Dislocation • Hopefor quick re-employment • Change in Mix of Domestic Occupations • US workers will shift to non-tradable jobs • Can’t compete on price • Will the new mix be better than the old one?

  18. Jobs Moving OverseasPredicted Impacts • Downward Pressure on US Wages for Tradable Occupations • ‘Silver lining’ according to some industry reps • US IEEE members experienced decline in wages from 2002 to 2003 for the first time since surveys began in 1973 • No One Can Predict Future • Creating future competitors?

  19. Domestic IT Labor Market RecordUnemployment(source: IEEE-USA from BLS)

  20. 1983-2003 Tech Unemployment Rates

  21. Job Dislocation During Low Job Creation

  22. IT Job Dislocations Immediate Impacts • US IT jobs are going to Bangalore • No job creation means no reabsorption • No practical advice on what they should do • Downward Wage Pressure Already Apparent • Future Generation Receiving a Signal • CRA’s survey showed a 23% drop in BS enrollments in 2003 in Computer Science • MIS dept enrollments down substantially

  23. Unpredictable Longer-term Impacts on Innovation & Security • What Will Be New Occupational Mix For US? • Will the best & brightest pursue these technology professions? • Where will future technology leaders be developed? • Who captures the wealth & jobs created by the ‘next big thing?’ • Impacts on Military Superiority & Homeland Security? • Can economic studies predict this?

  24. Emerging Global IT Services Business Model • Indian-Based IT Companies Trying To Capture US Customers – Not US Workers • Infosys has 3,700 H-1B & L-1 foreign workers in US • US Visa Policies Give Comparative Advantage To Indian Companies • Cheap offshore labor PLUS Cheap on-site labor: foreign workers on H-1B & L-1 visas

  25. Emerging Global IT Services Business Model Retrieved from Reuters.com on August 13, 2004 – Analysis by Ron Hira, RIT Dollar figures in millions

  26. Retrieved from Reuters.com on August 13, 2004 – Analysis by Ron Hira, RIT

  27. Offshore Outsourcing Firms Hiring Briskly • Hughes Software Systems (HSS) • Double staff over next 6 quarters by adding 2,500 • Tata Consultancy Services • Revenues up 44% & Profits up 51% • Added a net 3,974 employees in the quarter and has now expanded staff by 7,000 this year • Infosys • Profits up 49% • “To meet vigorous demand for outsourcing, Infosys hired 5,010 people during the quarter, slightly less than 5,100 hired in the whole of the last fiscal year. Plans to hire up to 4,500 more in the next six months.”

  28. Who Wins? Who Loses? • Winners • Shareholders • Company executives • Consumers • Some existing employees? • Countries getting those jobs

  29. Who Wins? Who Loses? • Losers • Displaced workers • Existing employees subject to the threat of being offshored • US overall? • Depends on re-employment of displaced workers • Future technological innovation • National security

  30. Spate of Industry Sponsored Studies • Economic Studies Capture Economic Efficiency Argument But Miss Other Important Elements • Technological Innovation • Security • Even ‘Independent’ Studies Are Funded by Industry • McKinsey & Dr. Catherine Mann (IIE)

  31. What You Can Do • Meet with your Congressperson in his/her district office • Go to IEEE-USA Legislative Action Center website and write to your legislators • Respond to an ‘Action Alert’ • Russ Harrison, IEEE-USA staffer, can help • Write to state legislators

  32. What You Can Do • Enlist members of Regions/Sections/Chapters/PACE • To be effective, we need large numbers • Spread the word amongst colleagues, family and friends • Provide IEEE-USA with individual stories • We want to better understand the situation of members • Back up the statistics with individualized stories to get an effective message out

  33. Look for my book available in April ’05 Published by the American Management Association

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