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Workshop Findings and Discussion

The NAE workshop on the offshoring of engineering addressed the effects on several key industries but was not a comprehensive examination of offshoring in all industries or all aspects of engineering. The study committee took into account engineering employment, salaries, and education and recent debates about the policy implications of offshoring.

The committee also identified areas for future study. The committee understands “globalization” to be a widespread, long-standing process whereby national economies and business activities are becoming increasingly integrated and interdependent, mainly through expanded trade, capital flows, and foreign direct investment. “Offshoring” refers to a more recent phenomenon of work relocated and diffused across national borders, enabled by advances in communications technology and changes in management practices.

Although a wide range of services work is being offshored, this workshop and report focus only on engineering and the impact of business practices, such as the international diffusion of corporate R&D, and the movement of engineering work as a result of the relocation of manufacturing activity. The report also includes examples of “onshoring,” engineering work moved to the United States from abroad. A more detailed explanation of the committee’s working definition of offshoring is provided in Chapter 2.

The workshop discussions and commissioned papers on six specific industries show how the offshoring of engineering work affects the U.S. engineering enterprise. Clearly, less complex work that does not require interaction with customers is offshored first. However, evidence shows that the level of sophistication increases over time, except in industries where R&D is being diffused, such as pharmaceuticals, or when the relocation of product and manufacturing engineering is closely tied to the relocation of manufacturing facilities, as in the automotive industry. In the semiconductor and software industries, the increase in offshoring in the last five years has led to a complete transformation of the business models for those industries. In other industries, such as construction engineering and services, the impact of offshoring has been less obvious.

The findings and discussion that follow are not arranged in order of priority.

TRENDS AND IMPACTS

Effects by Industry Sector

FINDING 1. The offshoring of engineering, an inevitable aspect of globalization, has significantly impacted the U.S. engineering enterprise. However, the effects of globalization and offshoring have been uneven, and disparities among industry sectors and engineering sectors are likely to continue.


Offshoring has increased most rapidly in information technology (IT)-related industries such as software, semiconductors, and PC manufacturing. As Ralph Wyndrum, then president of IEEE-USA, points out in his paper on the implications of offshoring for the engineering workforce and profession, “virtually all bids for commercial work now include an offshore component …” (this volume). For both established U.S.-based IT firms and start-ups, the location of at least some engineering work in India or China is now taken for granted. In fact, in most IT-related sectors (e.g., semiconductors, software, and PC manufacturing), the offshoring of engineering work is an established part of the business model for U.S.-based companies.



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4 Workshop findings and Discussion The NAE workshop on the offshoring of engineering ad- facilities, as in the automotive industry. In the semiconduc- dressed the effects on several key industries but was not a tor and software industries, the increase in offshoring in the comprehensive examination of offshoring in all industries or last five years has led to a complete transformation of the all aspects of engineering. The study committee took into ac- business models for those industries. In other industries, count engineering employment, salaries, and education and such as construction engineering and services, the impact of recent debates about the policy implications of offshoring. offshoring has been less obvious. The committee also identified areas for future study. The findings and discussion that follow are not arranged The committee understands “globalization” to be a wide- in order of priority. spread, long-standing process whereby national economies and business activities are becoming increasingly integrated trenDs AnD imPACts and interdependent, mainly through expanded trade, capital flows, and foreign direct investment. “Offshoring” refers to effects by industry sector a more recent phenomenon of work relocated and diffused FINDING 1. The offshoring of engineering, an inevitable across national borders, enabled by advances in communica- tions technology and changes in management practices. aspect of globalization, has significantly impacted the U.S. Although a wide range of services work is being off- engineering enterprise. However, the effects of globaliza- shored, this workshop and report focus only on engineering tion and offshoring have been uneven, and disparities and the impact of business practices, such as the international among industry sectors and engineering sectors are likely diffusion of corporate R&D, and the movement of engi- to continue. neering work as a result of the relocation of manufacturing activity. The report also includes examples of “onshoring,” Offshoring has increased most rapidly in information engineering work moved to the United States from abroad. technology (IT)-related industries such as software, semi- A more detailed explanation of the committee’s working conductors, and PC manufacturing. As Ralph Wyndrum, definition of offshoring is provided in Chapter 2. then president of IEEE-USA, points out in his paper on the The workshop discussions and commissioned papers on implications of offshoring for the engineering workforce six specific industries show how the offshoring of engineer- and profession, “virtually all bids for commercial work now ing work affects the U.S. engineering enterprise. Clearly, include an offshore component . . .” (this volume). For both less complex work that does not require interaction with established U.S.-based IT firms and start-ups, the location of customers is offshored first. However, evidence shows that at least some engineering work in India or China is now taken the level of sophistication increases over time, except in for granted. In fact, in most IT-related sectors (e.g., semicon- industries where R&D is being diffused, such as pharmaceu- ductors, software, and PC manufacturing), the offshoring of ticals, or when the relocation of product and manufacturing engineering work is an established part of the business model engineering is closely tied to the relocation of manufacturing for U.S.-based companies. 33

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34 THE OFFSHORING OF ENGINEERING the need for Data The Indian software industry, which employed more than 500,000 people and exported $17 billion in 2005, FINDING 2. More and better data on offshoring and other has grown at an annual rate of 30 to 40 percent over the issues discussed in this report, such as the effects on the en- past decade (Dossani, this volume). At the same time, the gineering workforce and engineering education, are neces- proportion of software exports accounted for by foreign sary for discerning overall trends. As has been pointed out in (predominantly U.S.-based) companies has increased, as other recent reports, better U.S. and international statistics has the sophistication of the product mix. Thus the Indian on trade in services and employment would give us a much software industry is tightly integrated with U.S.-based better grasp of basic trends. software development. In the semiconductor industry, some steps (e.g., assembly, Although various surveys, projections, and analyses by packaging, and testing) in the manufacturing process have consulting companies, academics, and others can shed some long been globalized. In recent years, more sophisticated light on the situation, significant data gaps have kept policy steps, such as wafer fabrication, have followed suit. Off- makers and the public from getting an accurate read on what shoring of semiconductor design is also increasing rapidly. is actually occurring in the international trade in services and In fact, 18 of the top 20 U.S.-based companies have opened offshoring. Several recent reports (GAO, 2005a,b; NAPA, design centers in India, nine of them since 2004 (Brown and 2006; Sturgeon, 2006, etc.) have pointed out deficiencies Linden, this volume). in U.S. government statistics. For example, trade statistics The manufacture of PCs and many PC components was track many fewer categories of service products than manu- moved from the United States to Taiwan more than a decade factured goods, even though services now constitute a much ago. Since then, it has been moved again, almost exclusively larger share of the U.S. economy than manufacturing. In to China (Dedrick and Kraemer, this volume). In addition, addition, current employment statistics make it impossible much of the product design and engineering for PCs is now to track employment by occupation over time. done by original design manufacturers based mainly in Statistics on the science, technology, engineering, and Taiwan. mathematics workforce could also be improved (Ellis et al., Some engineering activities in the automotive industry 2007). One improvement would be for agencies that collect and construction engineering and services industry have and publish these data to adjust the classifications and cod- long been internationalized. U.S.-based auto companies ing so that occupations are easier to identify and track. An have traditionally followed an imperative of manufacturing example of the problem, cited by Ellis et al. (2007), is the dif- where they sell, and they often design and develop vehicles ficulty of tracking postsecondary teachers, who are usually for specific markets (Moavenzadeh, this volume). Thus the subsumed in the general category of educators. Thus tracking employment of significant numbers of engineers abroad by jobs in engineering is difficult because, in some fields, aca- U.S.-based companies in the auto industry is nothing new. demics make up a large percentage of the total workforce. In Similarly, construction engineering and services firms that addition, more information on citizenship and the migration operate globally have always required engineering help of engineers would make it easier to understand offshoring in the countries where projects are located (Messner, this and discern other trends in the engineering workforce. volume). A study of offshoring in specific industries is no doubt Nevertheless, the offshoring of less complex engineer- valuable, but we must remain cognizant of the lack of timely, ing work is increasing in both of these industry sectors. comprehensive data. We must also keep in mind that, even In the auto industry, some companies are trying to boost if we had all relevant information, it would represent only a the productivity of their global engineering workforces by snapshot in time. Thus all estimates or projections include con- organizing distributed teams around global tasks. For ex- siderable uncertainties, as offshoring continues to change! ample, global engineering leadership for a certain category Although many basic questions about offshoring, particu- of vehicle may be located in a specific country (e.g., full-size larly questions specific to engineering, cannot be answered trucks in the United States, compact cars in Korea). Engi- definitively, a review of the literature on offshoring, and neering teams in several countries contribute to the design trade in services generally, reveals several points of rough of specific models. consensus. The combination of technological advances, in- Finally, the trend toward globalization of R&D in a novations in management techniques, and the accessibility range of other industries, including pharmaceuticals, is of overseas talent has made a growing number of services almost certain to gain momentum in coming years. For jobs vulnerable to offshoring. Estimates of the number of example, well over half of the more than 200 U.S.- and vulnerable U.S. jobs vary considerably, from the most com- Europe-based companies that responded to a recent survey mon estimates of around 10 percent of the current workforce anticipate increasing technical employment in China, India, (NAPA, 2006)1 up to 40 million (Blinder, 2006). and other locations in Asia in the next three years (Thursby and Thursby, 2006). 1 In April2007, for example, U.S. employment stood at 145.8 million, 10 percent of which is 14.6 million.

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35 WORKSHOP FINDINGS AND DISCUSSION Estimates of the number of jobs that will actually be off- engineers and workers in many other services professions, shored vary as well. These estimates are generally expressed became subject to international competition. Based on a as the number of jobs offshored over a period of time (NAPA, comprehensive, up-to-date understanding of trends in off- 2006). For example, Forrester estimates that 3.4 million jobs shoring, the United States can remain a premier location for will be offshored from 2005 to 2015 (340,000 per year); engineering activity, and the engineering enterprise can adapt Goldman Sachs estimates that 6 million will be offshored and renew itself. However, for the United States to develop from 2003 to 2013 (600,000 per year) (GAO, 2004). Thus, policies to preserve its economic vitality and avoid adopting despite a consensus that offshoring is significant and increas- policies that are counterproductive, policy makers must have ing, it is impossible to say what the net impacts on U.S. a clear understanding of what is happening and why. employment have been or will be. At the organizational level, the institutions and associa- Even if the number of jobs offshored is at the high end of tions that educate and rely on engineers also need to under- estimates, only a small percentage of overall jobs in the ser- stand trends in offshoring as a basis for developing new ap- vices sector would be lost (or gained) when trends in the proaches to defining necessary skills and training engineers domestic U.S. economy are factored in. After the collapse of for careers in a globalized world. On the personal level, the tech bubble and during the slow recovery that followed, individual engineers must have the information they need some U.S.-based companies announced large-scale layoffs to determine the most promising career paths and prepare in the United States, at the same time launching new opera- themselves accordingly. tions overseas, particularly in India. However, since 2005, the Realistically, it may be some time before even glaring U.S. tech economy has stabilized and recovered, and there data deficiencies are addressed. In addition, much of the have been fewer cases like these. Thus, overall, there may offshoring activity by companies is inherently difficult to still be net job creation in the United States in many occupa- track through trade statistics. As a result, although industry- tions that will be subject to widespread offshoring over the specific analyses of the type commissioned for this work- long-term. shop will continue to be important sources of information Even though engineering is on almost every list of about offshoring and globalization, they can provide only a occupations vulnerable to offshoring, the uncertainties in snapshot. Further studies will be necessary as engineering estimates of offshoring of engineering are even greater than offshoring evolves. for offshoring in general. For example, McKinsey Global Institute (2005), based on its global analysis, estimates that Winners and Losers more than half of engineering positions in the industries FINDING 3. Offshoring appears to have contributed to it examined could be performed anywhere in the world. NASSCOM (2006) projects that the Indian engineering ser- the competitive advantage of U.S.-based firms in a variety vices offshoring industry will grow from about $1.5 billion of industries, and the negative impacts of offshoring on U.S. today to $30 to $60 billion by 2020. engineering appear to have been relatively modest to date. Yet it would be unwarranted to conclude that half of However, the negative effects have been much more severe in the 1.5 to 2 million current U.S. engineers are in danger of some industry sectors and for some jobs than others. losing their jobs in the next few years. For one thing, the Bureau of Labor Statistics estimates that the U.S. engineer- Cost reduction is often an important factor in the initial ing workforce will grow by 13 percent between 2004 and offshoring decision, particularly for IT-related companies. 2014, roughly in keeping with the projected growth of the Another consideration is the need to compete in new or rap- total U.S. workforce (CPST, 2006). For another, offshoring idly growing markets. For individual businesses, decisions will be limited by the supply of talent available in destina- about where to locate engineering activities are made on the tion countries. Although emerging economies such as India basis of both value and the potential for market growth— and China are turning out large numbers of young engineers similar to the way decisions concerning access to capital and are taking steps to increase their numbers and improve and other resources are made. The second factor has been their quality, the speed at which these improvements can be very important to foreign-based firms locating engineering made is limited. McKinsey (2005) estimates that only 15 activities in the United States. This so-called “onshoring” is to 20 percent of young engineers in developing countries an important part of the overall picture of globalization. are currently qualified to work in international companies. Although some kinds of offshoring have appeared only Finally, developments in the United States will play an recently, disaggregated business models have a long history important role. For example, U.S. engineering education in several U.S. industries. For example, “fabless” semicon- may or may not evolve in ways that support engineering as ductor companies that contract out manufacturing first ap- a profession that can attract more of the best and brightest peared in the 1990s. U.S. firms developed this model, and U.S. students. fabless companies (e.g., Broadcom) are among the most The emergence of offshoring signaled the beginning of an successful and fastest growing semiconductor companies in era in which a broad swath of the U.S. workforce, including the past decade. The “foundry” industry, which fabricates

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36 THE OFFSHORING OF ENGINEERING semiconductors on a contract basis, emerged in Taiwan and engineering workforce is relatively small, there are still some is now expanding in China. winners and some losers. When certain routine engineer- Similarly, branded firms in the U.S. PC industry began ing tasks are moved to India or China, U.S. engineers who offshoring manufacturing long ago; over time, they have also previously performed those tasks might lose their jobs. At offshored significant engineering tasks. Careful coordination the same time, more jobs may be created for U.S. engineers and management of offshoring has enabled companies such performing higher level tasks. Hira and Hira (2005) describe as Dell and Hewlett-Packard to hold down costs and remain the difficulties faced by tech workers displaced by offshoring competitive in an industry with rapid product cycles. Apple or immigration. The negative individual and social impacts used a disaggregated business model to create a new category of mass layoffs in general, not necessarily in engineering, of products that straddle the line between IT and consumer are described by Uchitelle (2006). The issues for engineering electronics (e.g., the iPod), and, in the process, accelerate education and public policy raised by this displacement are its growth. discussed in more detail below. The key to long-term success for companies shifting toward globalization of engineering activities appears to imPLiCAtions for engineering eDUCAtion be protecting the interface with customers and the resulting FINDING 4. Engineering education at the undergraduate information flow. Knowledge from customers feeds into product definition, high-level design, and the most sophisti- and graduate levels has been a major source of strength cated engineering tasks. The effective use of offshoring has for the U.S. engineering enterprise. Even today, engineers helped many PC firms sustain their U.S. operations. educated in the United States remain among the best trained Like the initial movement of manufacturing activity to and most flexible in the world. At a time when other nations overseas locations, much of the upsurge in offshoring of are making significant efforts to upgrade their engineering design and engineering work has been motivated by at- education capabilities, the United States will be challenged tempts to keep costs under control, or even to reduce them. to sustain engineering education as a national asset. This is clearly the case in IT-related sectors that have off- shored engineering and other functions. However, decisions Based on workshop discussions, both industry and aca- about locating R&D facilities overseas, even in emerging demic participants believe that U.S. engineering education economies such as China, are often also influenced by other will continue to be a valuable asset as the U.S. engineer- factors, including the desire for companies to establish a full- ing enterprise adapts to new global realities. Charles Vest, spectrum presence in rapidly growing markets (Thursby and NAE president and President Emeritus of MIT, presents the Thursby, 2006). In addition, some companies are trying to overall case for U.S. engineering education (this volume), access specific expertise with their R&D investments. while Ted Rappaport, director of the Wireless Networking The “onshoring” of R&D and other engineering work— and Communications Group at the University of Texas at multinational companies based in Europe or Asia establish- Austin, details the importance of academic engineering ing or acquiring operations in the United States—is a signifi- research and education to the key field of network systems cant trend in the pharmaceutical and automotive industries. (this volume). Companies such as Toyota and Honda are expanding their Nevertheless, other countries and regions are working engineering employment in the United States. Even compa- hard to upgrade their engineering education capabilities and nies based in India and China are beginning to make R&D adapt them to new global realities. For example, European investments in this country. countries are working toward standardizing degree programs In general, the lack of comprehensive, accurate data so that engineers at a certain degree level in, say, Spain will makes it difficult to measure the net impact of offshoring have skills and attributes similar to those of engineers at that on engineering jobs and salaries in recent years. Remember level, or its equivalent, in, say, Sweden. that the upsurge in offshoring coincided with a downturn in Emerging countries, most prominently China and India, the U.S. economy that hit the tech sector particularly hard which are the prime destinations for offshoring, are taking (the dotcom bust). During the first half of the 2000s, unem- substantial steps to increase their capacities for delivering ployment in subsectors of the engineering workforce rose to high-quality engineers. China has adopted a top-down, record levels, while salaries remained flat or even declined. directive approach, while India has adopted a more market- By 2005, employment and salaries had begun to recover, and oriented, bottom-up approach (Wadhwa et al., 2007a,b). by early 2007, the unemployment rate for engineering and ar- China appears to be focusing on increasing the number of chitectural occupations had fallen considerably. At the same Ph.D. and master’s-level engineers and scientists to meet time, offshoring apparently continued to expand. Clearly, it is future R&D needs. India is producing more graduates with difficult to separate the impacts of broad economic changes, the skills and aptitudes appropriate for the jobs being created offshoring, and related trends in globalization, such as in- there today. The number of graduate engineering degrees in creased immigration. China has increased from about one-fourth as many as in the Even if the net impact of offshoring on employment in the United States in 1995 to a higher number than in the United

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37 WORKSHOP FINDINGS AND DISCUSSION States today. At the same time, large numbers of students providing more varied and realistic career paths for students from China and India continue to come to the United States with engineering degrees will be crucial for the future. for graduate engineering education. FINDING 5. Although individual engineers must ultimately As offshoring and the general globalization of engineer- ing continue, more and more engineering work will be take responsibility for their own careers, industry, govern- performed by multi-country teams and in other international ment, universities, professional societies, and other groups contexts. Speakers at the workshop and the authors of the with a stake in the U.S. engineering enterprise should con- commissioned papers identified several areas in which U.S. sider supporting programs and other approaches to helping engineering educators might consider new approaches, par- engineers manage their careers, renew and update their ticularly in communication and management skills, to meet skills, and sustain their capacity to innovate, create, and the demands of a globalized engineering environment. These compete. areas of change were compatible with the findings and rec- ommendations in several recent reports by NAE and others A continuing subject of discussion both during the work- and statements by professional societies. shop and the steering committee meetings was the effects For example, a 2004 report by the American Society of of offshoring on individual engineers. As companies and Civil Engineers on the “body of knowledge” necessary for other organizations grow and shrink and as jobs are gained civil engineers concludes that management and communica- and lost, the environment for engineering work is changing tion skills should be part of the engineering curriculum. In significantly. Engineers who are proactive in keeping their two reports issued by the NAE Engineer of 2020 Project, in skills up to date and are able to take advantage of the trend 2004 and 2005, just as attention was turning to offshoring, toward more frequent job and career shifts have adapted well a key observation was that “good engineering will require to these changes and are much less vulnerable to the negative good communication.” In fact, all recent studies on this effects of offshoring. subject recognize that the nature of engineering is changing Those who are not as skilled or proactive are faced with in ways that will require engineers to work across sectoral job insecurity and slow wage growth. During the workshop and disciplinary boundaries as well as national borders. In- discussions and in his paper, Ralph Wyndrum, then president teracting effectively with and being accountable to diverse, of IEEE-USA, the largest U.S. professional engineering soci- global customers means that engineers will have to “listen ety, called for renewed efforts on the part of all stakeholders effectively as well as communicate through oral, visual, and in U.S. engineering—educators, professional societies, em- written mechanisms” (NAE, 2004, 2005). ployers, government, and engineers themselves—to address Opportunities for leadership will increase but will require the needs of mid-career engineers faced with the prospect of new levels of sophistication (NAE, 2004). Past experience developing new skills and abilities for a constantly changing has shown that engineers who have mastered business and job market (in this volume). This support could be an impor- management principles are often rewarded with leadership tant factor in determining whether U.S. engineering retains roles. The study committee of the present report urges U.S. its global leadership position. engineering educators to prepare students to tackle these Both of the NAE 2020 reports highlighted the need for global challenges. lifelong learning and that the engineering education system At the same time, many engineers, and the profession as must do more to help students become self-learners. In a whole, have sometimes been ambivalent about engineers addition to the challenge of global competition, the body moving into management, policy making, and other fields, of knowledge in engineering is expanding exponentially rather than remaining in technical roles. In addition, the and pressuring engineers to keep up by becoming ongoing financial compensation for engineers in non-technical roles learners. One challenge that may arise for employers will tends to be higher than for those who remain in technical be balancing the benefits of “up-skilling” their workers with positions. As a result, professional societies and other en- the risks of making their employees highly desirable to other gineering leaders have urged employers to ensure that there companies. As one workshop participant noted, “poaching” are attractive career tracks for mainstream engineers. by competitors can be a problem for companies that main- Maintaining technical career tracks and technical cur- tain a highly trained staff. Everyone agreed, however, that rency through continuing education (discussed below) will choosing not to up-skill workers is not the solution to this be challenging in an environment where offshoring and problem. globalization are changing the nature of engineering work. Most professional societies and many engineering schools Engineering educators and the engineering profession will already offer continuing education programs for mid-career have to monitor the global marketplace for engineers and professionals. To determine what else might be done, it consider how well current educational approaches are pre- would be helpful to have an in-depth assessment of current paring students to meet the demands of that marketplace. efforts to determine if mid-career engineers are taking advan- Understanding deficits in skill sets and addressing them, tage of these programs and, perhaps, to suggest incentives increasing the participation of women and minorities, and that might encourage further participation. An inventory of

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38 THE OFFSHORING OF ENGINEERING lifelong-learning programs and participation would also be a the growth of offshoring coincided with the dot-com bust and valuable tool for policy makers and private organizations. a downturn in the overall economy. During the workshop discussions, one participant sug- Questions about the negative perceptions of engineering gested that an engineering degree should come with a persist, as do questions about whether, and what, the engi- warranty, or a coupon, for “free upgrades.” Another model neering profession should do about them. Other professions, would be “executive” technical degrees similar to execu- such as medicine, business (at the graduate level), and law tive MBAs. Others have suggested the creation of an 8- to continue to attract ambitious, bright students at least partly 12-year learning model that would be the shared responsi- because of real or perceived high payback, and the lack of bility of universities and employers. A useful model might early high payback may discourage students from going into be military academies and services, which have adopted a some engineering fields. However, payback is not always systematic approach to continuing education. In the final predictable. For example, graduates in civil engineering who analysis, government may have to help provide incentives chose to go into the field of information technology in the late and wherewithal for individual mid-career engineers to take 1990s because of higher starting pay might have regretted advantage of opportunities for learning. that decision a few years later. This study and workshop highlighted the need for more Engineering managers trying to “connect” with the discussion of these issues, not only in connection with engi- “millennial generation” and communicate the excitement neering education, but also for the future of U.S. leadership of engineering careers must address not only salaries and in a global economy. Many have called for assistance to engi- job security, but must also convey the excitement of op- neers and other service workers whose jobs are displaced by portunities for engineers to make a difference and improve offshoring, including, perhaps, public subsidies for continu- people’s quality of lives (Stevens, this volume). Changing ing education. Approaches that have been discussed include public perception of engineering may require a systematic, (1) expanding eligibility for Trade Adjustment Assistance well thought out campaign of public education. This was to engineers and other service-industry workers who lose the conclusion of a study committee of a 2002 NAE report their jobs and (2) providing some form of wage insurance (Davis and Gibbin, 2002). to help displaced workers who are forced to take lower pay- ing jobs. imPLiCAtions for PUBLiC PoLiCY FINDING 6. Over the past several decades, engineering FINDING 7. For the United States, attracting and retain- has become less attractive to U.S. students as a field of ing world-class engineering activities in an increasingly study and as a career compared to some other professions. competitive global environment will require that core U.S. Although it is widely assumed that globalization and offshor- strengths be sustained. Perhaps the most critical task in do- ing are contributing to this relative decline in popularity, it is ing so will be to avoid complacency. impossible to know how important globalization is compared Several speakers at the workshop addressed the issues to other factors. A great deal more needs to be understood raised by globalization for U.S. engineering. In the opinion about the relationship between offshoring and the attractive- of Charles Vest, even in a “flatter” world, the United States ness of engineering as a career. and U.S. engineers enjoy significant advantages. The biggest Concerns about whether offshoring has a negative effect threat to our future success, he believes, is complacency on the public perception of engineering and whether this (Vest, this volume). Robert Galvin, Chairman Emeritus of perception causes fewer of the “best and brightest” to pursue Motorola Inc., described how addressing global challenges engineering careers were raised numerous times at the work- in energy and transportation would create engineering jobs shop and in several of the commissioned papers (e.g., Stevens in the United States (this volume). Ted Rappaport, stressed and Rappaport in this volume). Certainly, engineering is a the importance of public investment in network systems less popular undergraduate major than it was. Between 1983 and other critical areas (this volume). Overall, the speakers and 2002, the number of bachelor’s degrees in engineering agreed that public and private efforts to tackle large, even declined by about 16 percent (NSB, 2006). During that same global, problems could help create entire new industries period, the overall number of bachelor’s degrees increased and would go a long way toward creating new opportuni- by about 33 percent. Thus engineering degrees as a percent- ties for U.S. engineers. A number of recent reports have age of the total declined from 7.4 percent to 4.6 percent.2 We also explored what the United States can, indeed must, do have anecdotal evidence, but very limited data at this point, to maintain its lead in science and engineering (COSEPUP, to determine if offshoring and globalization are contributing 2005; Council on Competitiveness, 2005). to the decline and, if so, to what extent. As noted in Chapter 2, FINDING 8. Plausible scenarios have been developed showing that offshoring either helps, is neutral, or hurts 2When engineering and computer science degrees are combined, the engineering in the United States. Only continued discussions decline in popularity decreases, from about 10 percent to 8.4 percent.

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39 WORKSHOP FINDINGS AND DISCUSSION can undermine U.S. economic strength and national inter- and further studies will lead to a thorough understanding of ests (e.g., Gomory and Baumol, 2001). Some prominent the potential benefits and costs of offshoring. economists have raised concerns that the distributional impacts of offshoring on engineers and other service-sector For the American public and the U.S. economy as a whole, workers in the United States will pose a serious challenge the offshoring phenomenon, and offshoring of engineering to free trade (Blinder, 2006). Others argue that offshoring in particular, could have a number of costs and benefits. The might lead to a degradation of U.S. engineering capabil- workshop discussions and presentations shed some light on ity and that, even if the U.S. engineering enterprise and the magnitude and likelihood of these costs and benefits. Of economy as a whole are better off as a result of offshoring, course, a clearer picture will emerge over time. those who are most vulnerable to competition might suffer severe hardships. Potential Benefits One scenario in which U.S. engineering capability might be damaged through offshoring is if U.S.-based companies U.S.-based companies that manage offshoring effectively attempting to take advantage of lower costs and perceived appear to be benefiting in terms of competitiveness and better value move a large percentage of engineering, R&D, profitability. Having access to skilled engineers at lower cost and other activities from the United States to the developing may create a climate for faster, more cost-effective innova- world over a short period of time, giving engineers and oth- tion and might even ultimately lead to higher employment ers who would lose jobs little time to anticipate or adjust to levels in the United States. significant change. Although this is within the realm of pos- Offshoring has become an accepted component of the sibility, there are reasons to believe that a wholesale shift of business model in some industries, particularly IT-related engineering work from the United States to China and India industries and electronics (Wyndrum, this volume). Start-up is unlikely. First, as described in Chapter 3, the gaps and de- companies that combine U.S. project management and mar- ficiencies in the science and engineering enterprises of large ket savvy, Indian engineering implementation, and, perhaps, emerging economies will take time to address. Second, as the Chinese manufacturing capabilities, can stretch the dollars engineering capabilities in emerging economies improve, the of venture capitalists and improve the odds of their survival productivity and pay of their engineers are also likely to rise, and ultimate success. At the same time, these companies thus reducing the cost advantage of offshoring. increase the potential for innovation and the development In another scenario, U.S. engineering capabilities might of new products that might not have appeared as quickly, or atrophy gradually as the result of a combination of de- even at all, without offshoring. pressed wages and job insecurity, which would discourage It has long been assumed that globalization and trade will significant numbers of young Americans from entering the ultimately deliver net benefits to the U.S. economy. Accord- engineering profession. Many studies and debates have at- ing to one analysis, globalization since World War II has tempted to determine the number of engineers and scientists increased the U.S. GDP anywhere from $800 billion to $1.4 necessary to the U.S. economy, whether or not there is or will trillion per year ($7,000 to $13,000 per household) (Bradford be a shortage, the number of engineering graduates produced et al., 2006). As a continuation of globalization, offshoring by the United States compared with China and India, and might also deliver net economic benefits. However, many whether offshoring of engineering and other forms of trade questions are being raised about whether this will happen. could erode America’s ability to innovate, which could leave Offshoring is delivering economic benefits to several the country as a whole worse off (e.g., COSEPUP, 2005; emerging economies, particularly India and China. The Wadhwa et al., 2007a). argument has been made that long-term U.S. interests will These and other questions raised at the workshop will be served as these countries and other developing econo- continue to be discussed, and the answers will surely affect mies become integrated into the global economy and living the evolution of offshoring. standards rise, even though this will inevitably lead to better engineering capabilities in these countries. If U.S. engi- neering capability can be sustained, the emerging global incentives and Disincentives networks will be open to participation by Americans and FINDING 9. As the debate about offshoring continues, it American organizations. In that case, globalization would present a “win-win” situation, because U.S. engineers will be important to determine whether current U.S. policies, would also benefit directly through expanded markets for including immigration policies, provide artificial advantages their skills. or incentives for offshoring. There have been many calls for changes in policy to Potential Costs provide assistance to engineers and other service workers whose jobs are displaced by offshoring. One mechanism There are many possible downsides to this scenario. would be to expand the number of people eligible for Some have argued that offshoring and other forms of trade

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40 THE OFFSHORING OF ENGINEERING security issues benefits through Trade Adjustment Assistance. Currently only people whose jobs are lost due to imports of goods FINDING 10. Security concerns related to the offshoring of are eligible, but many believe people whose jobs are lost engineering have been raised, specifically for the informa- because of imports of services should also be eligible tion technology and construction industries. (e.g., Kletzer and Rosen, 2005). Assistance might also be provided through some form of wage insurance to help Concerns about national and homeland security related displaced workers adjust if they are forced to take lower to offshoring have been raised in connection with several of paying jobs (Andrews, 2007). Of course, these kinds of the industries studied at the workshop. For example, offshore policies would have widespread repercussions and must be construction engineering and services might result in detailed explored thoroughly before they are adopted. plans and other information about U.S. buildings and critical infrastructure falling into the wrong hands (ASCE, 2005). immigration Policy Similar concerns have been raised about offshoring of engi- neering work that involves geospatial data (MAPPS, 2006). Although a detailed examination of immigration policies Legislation was proposed in the last Congress to address the for engineers was beyond the scope of this study, immigra- latter issue, and relevant professional societies are working tion issues are closely related to offshoring. Wyndrum argues to ensure that sensitive information is protected within the that several major participants in offshoring use H-1B and existing legal framework. L-1 visa programs to bring in employees, train them in the Concerns have also been raised about whether the glo- United States, and then send them back to their countries to balization of software development poses a serious threat expand the company’s offshoring operations (this volume). to national and homeland security, particularly if accidental Abuses of these visa programs by recruiting firms have also defects or maliciously placed code could compromise the been reported. Some workshop participants reported that security of U.S. Department of Defense (DOD) networks their companies participate in the H-1B program to reduce (Hamm and Kopecki, 2006). The Defense Science Board costs but have found that cost and uncertainties involved in (DSB) is currently completing a study on how DOD should hiring visa holders can offset some of the anticipated sav- address these concerns. DSB previously issued a report ings. Other companies hire visa holders because they are raising concerns about the migration of semiconductor tech- unable to find qualified, highly trained engineers who are nologies offshore and how U.S. military access to critical mi- U.S. citizens. croelectronics manufacturing capability could be maintained There is a good deal of debate and uncertainty about the (DSB, 2005). current and future role of foreign engineering students. Does the United States rely too heavily on foreign engineering tal- referenCes ent? Might fewer foreign students study at U.S. engineering schools in the future, and might fewer of those who graduate Andrews, E. 2007. Why Wage Insurance is Dividing Democrats. New York from U.S. institutions remain in this country? Some analysts Times, March 18. have asserted that a growing number of U.S.-educated for- ASCE (American Society of Civil Engineers). 2005. Offshoring of Engi- neering Services. Policy Statement. Available online at http://www.asce. eign science and engineering students are returning to their org/pressroom/news/policy_details.cfm?hdlid=507. home countries (Newman, 2006). However, an annual sur- Blinder, A.S. 2006. Offshoring: The Next Industrial Revolution? Foreign vey of foreign engineering students who receive doctorates Affairs (March/April.) Available online at http://www.foreignaffairs. from U.S. institutions shows that “stay rates” have remained org/0060301faessay8509/alan-s-blinder/offshoring-the-next- about the same in recent years (NSB, 2006). industrial-revolution.html. Bradford, S.C., P.L.E. Grieco, and G.C. Hufbauer. 2006. The payoff to Some argue that, as immigration policies become more America from globalization. The World Economy 29(7): 893–916. stringent, the United States will be cutting itself off from a COSEPUP (Committee on Science, Engineering, and Public Policy). 2005. vital source of engineering talent. Clearly, the immigration Policy Implications of International Graduate Students and Postdoctoral of scientists and engineers, the training of foreign students, Students in the United States. Washington, D.C.: The National Acad- and the overall openness of the United States to foreign talent emies Press. Available online at http://newton.nap.edu/catalog/1189. html. has been a boon to U.S. engineering and to the larger U.S. Council on Competitiveness. 2005. Innovate America: Thriving in a World economy. Others argue that stricter policies could, in ef- of Challenge and Change. Washington, D.C.: Council on Competi- fect, subsidize or provide artificial incentives for offshoring tiveness. engineering, which would be just as counterproductive and CPST (Commission on Professionals in Science and Technology). 2006. market-distorting as erecting artificial barriers or penalties STEM Employment Forecasts and Distributions among Employment Sector: STEM Workforce Data Project: Report No. 7. Available online for offshoring. at www.cpst.org. All of these questions should be investigated thoroughly Davis, L.A., and R.D. Gibbin, eds. 2002. Raising Public Awareness of En- as part of the policy making process. gineering. Washington, D.C.: The National Academies Press.

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