Design Con 2015

Are You a Commodity?

-May 19, 2004

Not a day passes that we don’t hear about the latest business trend: The shipping of technical jobs to China, India, and Eastern Europe. Mostly the popular press talks about call centers and software development moving overseas, but I’ve heard some buzz about hardware development hopping across the ocean, too.

To help clarify the potential effects of outsourcing, IEEE-USA’s Technology Policy Council sponsored a panel discussion called “Outsourcing, Global Markets, R&D, and New Technologies: Challenges & Opportunities for Industry and the Engineering Profession” held May 5 as part of the Nepcon East/Electro/Assembly East show in Boston (www.ieeeusa.org/policy/Events/Boston/index.html).

In addition, in his March-April 2004 President’s Column “Offshoring Presents Serious, Long-term challenges,” IEEE-USA president John W. Steadman called for a “coordinated national strategy” for the US to maintain technological leadership and create technical jobs (www.ieeeusa.org/newspubs/presidentscolumn/mar04.html). At the same time, the IEEE-USA Board of Directors has also published a position paper spelling out the details of Steadman’s column (www.ieeeusa.org/forum/POSITIONS/offshoring.html).

The bad news is that a national strategy not only won’t work, it won’t even happen, if history is a guide. No national policies emerged to prevent the textile industry from moving from Old England to New England, then to places like South Carolina, and eventually overseas. The good news is that individuals will adapt and develop new skills, products, and technologies that will, in the end, defy the predictions of the popular press. New England survived the loss of its textile jobs and the US will survive a loss of some technical jobs.

The May 5 panel included people from academia and government, a consultant who recently started a new company, and representatives of companies who provide technical services overseas.

Dale Worley of Ariadne Internet Services said, “Some engineering is becoming a commodity.” He argued that some technical jobs are moving into a mature phase where cost dominates how it’s produced. He also called the 30,000 software jobs moved overseas “relatively small." I don’t. Going further, Worley said that as software tools get better, less skill is required to develop programs, which will make it easier to lower costs.

In the short term, the shifting of technical jobs overseas prevents a real recovery from the most recent recession. I believe that an economy is healthy only if it’s good for society, meaning that people can get jobs. In the long term, bleak prospects for engineering jobs could force young people to seek other professions.

Jim Isaak, assistant professor in computer science at Southern New Hampshire University says that “we’re sending mixed messages to young people about their prospects of having a technical career. Scandals such as Enron and MCI have cast a dark cloud over technology as a career.” He added, “There’s a perception out there that engineers produce weapons but nothing else.”

If students feel they can’t have a prosperous career in engineering, they’ll do something else. But, universities in China and India are graduating engineers in large numbers so companies may have to go overseas because engineering talent could become unavailable domestically.

If this scenario plays out and many engineering jobs go overseas, who will be left? Jobs that are close to the customer—marketing, sales, field service, and high-level customer support—need to stay at home.

In the electronics industry, most marketers, sales engineers, and applications engineers have engineering degrees. Most learned the ropes by first working as engineers. If engineering jobs move overseas en masse, who will be left to market, sell, and service the customer once the current flock retires? Therefore, I say that US will still need engineers even if some design engineering moves overseas.

The free flow of bits across borders can lead to problems on both sides of the oceans, noted panelist James McKim. McKim is the founder of ISRG, a company that consults on the outsourcing decision process. He points out that moving jobs overseas leads to unemployment and an unhappy workforce over here. It can also lead to law-enforcement problems over there. Software (and hardware) designs created overseas aren’t subject to US laws and thus, an overseas developer may be more likely to sell code to another party without fear of the ramification that someone in the US has. Thus, McKim argues, companies that outsource development work run the risk of losing intellectual property.

Everyone in the panel claimed Americans must compete for jobs with talent and education. Some pointed to a need for better technical education, but one didn’t. Steve Fantone, founder and president of Optikos (www.optikos.com) says that to compete, we’ll need to learn Mandarin Chinese. He told attendees that educators and military generals do the same thing—they prepare for the previous battle. “Instead of teaching our kids European languages,” he argued, “we should teach Mandarin.” He added, “Our kids won’t be competing against other kids in their class, they’ll be competing against overseas students.”

Today we hear that people overseas will put us out of work. Fortunately most people will adapt and survive. Some will find jobs related to their original ones while others will start businesses.

“Starting a business is still easier to do in the US that it is overseas,” says Fred Molinari, president of Data Translation. (I spoke with him prior to attending the panel discussion.) “We don’t have a lock on brains,” he notes, “but we do have a financial system that’s open to new opportunities.” Molinari says that overseas financing is hard to get and that many firms must come to the US to get venture capital.

Over time, the economic growth in China and India will fuel a higher overall standard of living, which means higher salaries. Thus, the cost differential between the US and these countries will shrink, just as it did in with Japan.

Despite the doom and gloom perpetuated in the popular press, Americans deserve more credit. In the 1970s, we were led to believe that the Japanese would put us all out of work. That didn’t happen. Led by the auto industry, we adapted by improving quality, with engineers making a substantial contribution. This outsourcing trend is just another challenge we will overcome.

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