Electronic Design

Outsourcing: How Safe Is Your Job?

Offshoring has turned into an industry—and political—hot button that's getting pushed with greater frequency. But at what cost to EEs?

Decisions to ship high-tech jobs offshore have become more the norm in executive boardrooms across the U.S. The ensuing fallout is telling: The unemployment rate for American EEs reached an all-time high of 6.2% in 2003 versus 4.2% in 2002—a 47.6% spike. The trend is likely to continue according to data from Gartner Inc., a leading market-research firm on the global information technology industry. One out of every four high-technology jobs in developed nations today will be outsourced to emerging markets such as India by 2010. "Global sourcing has become a mainstream delivery model," says Ian Marriott, a Gartner vice president.

Though production of U.S. electronics equipment continues to migrate to Asia, particularly to China, most of the semiconductors for this equipment still comes from U.S.-based companies. Some of these U.S.-based semiconductor suppliers have outsourced chip production, assembly, and test to Asia. On the other hand, many others continue to maintain extensive manufacturing and design operations in the U.S., keeping thousands of Americans employed in high-paying, high-tech jobs.

But the past few months have seen those sands shift. Motorola's Semiconductor Products Sector says it's moving about 50 design engineering jobs to China and India to cut costs. Intel opened a wireless R&D center in Korea. And, Xerox turned the manufacturing of its printers over to Flextronics International of Singapore, the largest contract manufacturer, which reported late last year that its quarterly revenue passed $4 billion for the first time, along with a net profit versus a year-earlier loss.

The fallout from outsourcing has even had its ironic twists. Take d3 Engineering. Between its military contract for integrating imaging devices into mortar shells and its work with Texas Instruments' third-party DSP network, d3 Engineering continues to grow. Consequently, Scott W. Reardon, the young president of the Rochester, N.Y.-based company, needed to hire several new engineers. "We had to staff up, and we found lots of qualified people right down the road—at Kodak," which is now outsourcing more of its design, development, and manufacturing offshore.

A MORE COMPLEX PICTURE
Newly released semiconductor data from iSuppli Corp., another leading market-research firm, reveals a more complex picture of Americans employed in chip design and manufacturing jobs. The outsourcing trend presents both an upside and downside:

  • The Asia/Pacific region, which includes China, accounted for 39.9% of global semiconductor sales in 2003, up from 37.4% in 2002 and 29.9% in 2001. This makes Asia/Pacific the largest chip-consuming region in the world. In comparison, the share of semiconductor consumption in the Americas region shrank from near parity with Asia/Pacific in 2001, at 27.5%, to 20.1% in 2003.
  • Despite the shift in semiconductor consumption to Asia, Americas-based companies continue to dominate worldwide chip sales. Americas-based semiconductor suppliers accounted for 48.7% of worldwide chip revenue in 2002.
  • The domination of Americas-based companies is even more pronounced in the Asia-Pacific region. Companies headquartered in the Americas accounted for 51.2% of semiconductor sales in the Asia/Pacific region in 2003.

Small business also is becoming a significant driver for the U.S. economy and employment. In the semiconductor industry, new companies are usually fabless and outsource their production to chip manufacturers. An estimated 75.1% of revenue in the worldwide fabless industry in 2003 was generated by American-based companies. According to iSuppli, 56.8% of global fabless semiconductor demand originated from the Asia/Pacific region in 2003, supporting this key U.S. business. Dale Ford, vice president of market intelligence services for iSuppli, says strong chip sales to the Asia/Pacific region are keeping American workers employed in semiconductor manufacturing and design jobs.

WHERE ARE THE JOBS?
But what about new jobs? "My sense from speaking with EEs is that there is still a job problem, but hiring has just begun to pick up," says Ron Hira, an assistant professor of public policy at the Rochester Institute of Technology and chair of the IEEE-USA's Career & Workforce Policy Committee. In fact, an informal survey of online job postings of mostly large American electronics companies suggests a broad range of available engineering positions across the country.

Some of the findings: National Semiconductor recently posted about 25 U.S.-based engineering positions (including eight design-engineering slots). Intel recently listed 19 design-engineering positions on its Web site. AMD says it's looking for 18 design EEs to work in Sunnyvale and 25 in Austin. Analog Devices Inc. lists about 30 "new" engineering jobs on its Web site. "We're still looking aggressively for analog people, mostly right out of school," says Doug Grant, director of business development in the RF and Wireless Business Unit of ADI's DSP and Systems Products Group.

Dice.com, a high-tech industry Web site, recently listed 7289 openings across the U.S. for design engineers, CMOS RFIC engineers, IP design engineers, RFIC design engineers, design processing engineers, senior IC digital design engineers, embedded design engineers, analog circuit design engineers, and test equipment design engineers. It also posted more than 1000 openings for technical sales positions.

Texas Instruments and Qualcomm recently sponsored career fairs in San Diego to bolster their wireless engineering staffs in the area. TI said it received about 600 resumes and about 250 engineers actually attended the fair for 50 job openings. "We have plenty of candidates, but we're looking for top talent, so we are very selective in who we hire," a TI official said. "We are now reviewing all the resumes and are interested in a number of candidates."

Ben Hamson, Qualcomm's senior director of staffing, said that about 4500 people attended the Qualcomm fair. The company has about 500 current openings for hardware and software engineers ranging from recent graduates to industry veterans, most of which will be based in San Diego. (In March, Qualcomm said that it may set up a research facility in India that would employ about 100 people to develop chip sets and software.)

Rockwell, Md.-based InHand Electronics, which specializes in handheld-device technology, handed out flyers at the recent ElectronicaUSA show in San Francisco, looking for hardware and embedded software engineers to help develop its new Intel XScale and other ARM processor-based devices.

TOP SECRET
Defense/aerospace and homeland-security-related jobs are particularly hot. "There are plenty of jobs in the defense sector," says David A. Germond, CEO of the Defense Talent Network, a Web site specializing in high-tech defense/aerospace and homeland-security job listings. "This is the best I've seen it since 1967." The problem, says Germond, is that there aren't enough engineers around with security clearances to fill all of the available job slots.

NWclassifieds Job Expo, a regional job fair in Seattle, was expected to attract hundreds of engineers from the area. Newspaper ads promoting the show put out a specific call for engineers with security clearances who could move immediately into defense-related positions. They indicated that engineers with active security clearances could expect to find at least nine companies ready to hire them. Even those with retired clearance status were encouraged to attend.

Another job fair called TECHEXPO Top Secret, held this past March in Burlington, Mass., sought high-tech professionals with security clearances. Companies there included Boeing, Lockheed Martin, Mitre, Northrop Grumman Electronic Systems, Raytheon, SM&A, and Titan.

Other companies actively looking for EEs with proper security clearances include BAE Systems, SAIC, CACI, and Loral in Sunnyvale. "There may be as many as 20,000 engineering openings in the U.S. that are going unfilled because they lack clearances," says Germond. Part of the problem, he notes, is that "many of the engineers who once had clearances gave them up in recent years to go dot-com or wireless."

Mike Buryk, business development manager of the IEEE job site, agrees with Germond's assessment of industry requirements. "I anticipated more activity in the defense/aerospace sector several months ago, and company job postings are increasing. We're up \[in postings\] more than 100% from a year ago," he says.

But it can take up to two years to obtain a security clearance. "This has led companies to cherry-pick people who already have clearances," says Ron Hira, "creating the appearance of higher demand. And since we went through a decade of declining defense spending, many younger engineers aren't aware of the security-clearance process."

WHOSE SIDE ARE YOU ON?
Trade associations are working hard to lobby their members' positions in the rapidly evolving outsourcing issue, and this creates its own problems. The Electronic Industries Alliance (EIA), American Engineering Association (AeA), and Information Technology Association of America (ITAA), which represent industry companies, generally favor outsourcing. But the IEEE-USA, the Washington, D.C.-based lobbying arm of about 235,000 U.S-based IEEE working engineer members, takes a dim view of outsourcing. It has sent a number of proposals to Congress that would stem the rising tide of high-tech jobs going offshore.

The EIA made offshore outsourcing one if its legislative and policy priorities this year. "This is not about replacing American tech jobs with cheap labor in other nations," says EIA president Dave McCurdy. "It is about a host of economic and political factors."

A recent AeA study refers to reports of high-tech job losses in the U.S. as "hysteria," comparable to fears in the 1980s that Japan would eclipse the U.S. as an economic power. The AeA says data on job losses due to outsourcing exaggerates the situation, even while admitting that there's no reliable data on job losses due to outsourcing. (The Bureau of Labor Statistics is developing a new set of surveys called JOLTS, which is supposed to measure job openings and turnover, or churn. However, the BLS reportedly hasn't developed enough data at this point to publish it.)

An ITAA-sponsored study conducted by Global Insight also takes a positive view, predicting that the savings and other benefits realized through offshoring IT software and service jobs will result in the net creation of 317,387 new jobs in the U.S. by 2008.

The IEEE-USA isn't so sanguine. "Industry-sponsored reports such as this tend to confirm what we already know; that offshoring helps the corporate bottom line," says IEEE-USA president John Steadman. "But they invariably fail to address the implications of offshoring on the long-term technological competitiveness and security of the U.S."

"There is little doubt that U.S. companies are reaping short-term benefits from offshoring," adds the IEEE-USA's Ron Hira. "It's not clear, however, whether the U.S. economy—especially at a time of little or no job creation—benefits from it. Positive net benefits depend on re-employing displaced workers in equal or better jobs, which is not occurring right now, despite economists' predictions."

Hira says the ITAA/Global Insight study's conclusions are based on two assumptions that bear close scrutiny. One is that the U.S. economy will benefit through reinvestment of the savings realized by U.S. corporations offshoring IT and software services. He says this assumption ignores the likelihood of many companies investing those savings into their own overseas operations, or diverting any savings into windfalls that benefit only corporate executives and stockholders. The study also assumes the new jobs are essentially equal to those being lost and that replacing offshore positions with other support and service jobs won't affect U.S. ability to maintain a technological edge in an increasingly competitive global economy.

THE WINDS OF CHANGE
As several analysts and economists have pointed out, offshoring is no longer a trend. Rather, it's part of a vast change in industry productivity and how the industry competes globally.

The motivations behind shifting design and manufacturing offshore are clear. First, reduce project cost. Then, focus in-house resources on the core business. But at least 20% of 104 global corporate chief information officers (CIOs) surveyed in early March by DataArt, a New York-based software developer, said the lack of in-house talent able to handle innovative development projects was the reason they moved projects offshore.

None of this helps working engineers. A study conducted last year by the McKinsey Global Institute, which took a "hard look at the facts," revealed the wealth created by offhshoring doesn't completely offset the hardships it creates. Over the period of the study (1979 to 1999), the Bureau of Labor Statistics found that 31% of those whose jobs were displaced by international trade were not fully re-employed. While some of the workers found higher paying jobs, most did not. The statistics further reveal that 36% of displaced workers soon found jobs that matched or increased their wages, but 55% were at best working for 85% of their former wages. As many as 25% experienced pay cuts of 30% or more.

POLITICS AS USUAL
Not surprisingly, the offshoring debate has become a political hot button and a growing part of the national debate. N. Gregory Mankiw, chairman of the President's Council of Economic Advisers, caught a lot of political flak when he suggested that outsourcing jobs to foreign countries was simply another form of free trade that would, over time, be a "plus" for the U.S. But Congress, including Republicans, who may be nervous about how the Bush Administration will weather the unemployment controversy in an election year, may be planning its own assault on outsourcing.

Clearly, the pressure is on. Dale Ford of iSuppli warns that proposed legislation designed to protect American jobs could have the unintended side effect of harming the U.S. semiconductor industry. But the Washington Alliance of Technology Workers, an affiliate of the large and powerful Communications Workers of America, is developing an online fundraising campaign aimed at urging Congress into action. The group's not-so-subtle message: "Congress—if our jobs are at risk, so are yours."

They may be on to something. A Gallup Poll shows that 83% of Americans believe outsourcing is an important issue in this year's election. Nearly half (47%) are concerned that they or someone they know could lose their jobs to a foreign company.

The IEEE-USA is asking Congress for new U.S. workforce assistance programs to help displaced high-tech workers. One immediate step, it suggests, should be to expand the Federal Trade Adjustment Assistance (TAA) program's eligibility guidelines to cover all workers whose jobs move offshore. TAA extends unemployment compensation for up to two years and offers job training, job search, and health insurance assistance to eligible U.S. workers who lose their jobs because of foreign competition.

While all of this sounds like politics as usual, the outcome may be different.

Need More Information?
Advanced Micro Devices
Inc. (AMD)

www.amd.org

American Electronics
Association

www.aea.com

Analog Devices Inc.
www.analog.com

BAE Systems
www.baesystems.com

Boeing
www.boeing.com

Bureau of Labor Statistics
www.bls.com

CACI International Inc.
www.caci.com

DataArt
www.dataart.com

Defense Talent Network
www.defensetalent.com

d3 Engineering
www.d3engineering.com

Dice.com
www.dice.com

Electronic Industries Alliance
www.eia.org

Flextronics International
www.flextronics.com

Gallup
www.gallup.com

Gartner Inc.
www.gartner.com

IEEE-USA
www.ieeeusa.org

InHand Electronics Inc.
www.inhandelectronics.com

Intel Corp.
www.intel.com

iSuppli Corp.
www.isuppli.com

International Technology
Association of America

www.itaa.org

Lockheed Martin
www.lockheedmartin.com

Loral Space &
Communications Ltd.

www.loral.com

McKinsey Global Institute
www.mckinsey.com/knowledge/mgi

Motorola Inc.
www.motorola.com

National Semiconductor Corp.
www.national.com

Northrop Grumman Corp.
www.northgrum.com

NWclassifieds.com
www.NWclassifieds.com

Qualcomm Inc.
www.qualcomm.com

Raytheon Co.
www.raytheon.com

Science Applications
International Corp. (SAIC)

www.saic.com

Texas Instruments Inc.
www.ti.com

Washington Alliance of
Technology Workers

www.washtech.com

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