The new electronic interdependence recreates the world in the image of a global village," wrote Marshall McLuhan in 1962. In the late 1960s, this University of Toronto media professor predicted that electronic communications would radically change our lives by speeding up the transfer of information, turning the world into a global village. In 1976, the film Network said that the modern world no longer comprises individual countries. Instead, it's a network of interlocking corporations without geographical borders.
Today we live with the results of this "rewiring" and "remapping" of the planet. Global corporations have easy access to developing labor markets and demonstrate no allegiance to any one country's workers. Yet this new global village hasn't always been kind to North American engineers.
Indeed, the outsourcing and offshoring trends are here to stay, moving engineering jobs abroad to lower-paid workers. In the U.S., companies with short-and medium-term projects and limited budgets tend to hire contractors rather than salaried employees. Meanwhile, engineers live with vastly accelerated design cycles and learn to work in distributed design teams around the world .
Outsourcing versus offshoring
Outsourcing and offshoring aren't new concepts. According to Bhumika Ghimire, a Schiller University researcher in IT management and outsourcing, outsourcing has its roots in the late 17th century. For example, the making of cloth covers for covered wagons and sails for clipper ships was outsourced to workers in Scotland who imported raw material from India. Today, the trend is more obvious. Outsourcing is a $400 billion a year enterprise and growing stronger every year.
Outsourcing has a simple definition—like the one suggested by John Schluechtermann, project engineer, software design at Force America: using a source (service) external to the company to complete work on a project. About two-thirds of the respondents to the Electronic Design 2005 Reader Poll say their companies outsource jobs within the U.S. So offshoring uses a source located outside the country where the project takes place.
Offshore outsourcing uses low-cost workers in such countries as China, India, and the Philippines. Their tasks often involve customer service, software programming, bill processing, legal research, and X-ray reading. Electronic Design's Poll showed India, China, Europe, Canada, Mexico, and the Pacific Rim (in descending order) as the most popular offshoring areas.
Offshoring affects manufacturing and non-manufacturing sectors alike. According to David J. Wagner's Minnesota Future Work, "Future Work Trends 2004 Report," Northwest Airlines, American Express, Best Buy, and Target Corp. are among the local companies that have tapped TCS America. This company is the U.S. arm of India-based Tata Consultancy Services, one of the world's largest providers of offshore information-technology outsourcing.
Another offshoring firm, SSI, has helped Cargill, General Mills, American Express Financial Advisors Retirement Services, the Minnesota School Boards Association, and Wells Fargo Master Trust and Custody Services find services abroad. Cutting costs is the major reason for offshoring. Forrester Research reports that as many as 25% of the Fortune 1000 companies have offshored labor to cut costs.
McLuhan's prophecy of the global village and its effects on jobs has come to fruition. According to the Economic Report of the President (Jan. 30, 2004) from the Council of Economic Advisors (N. Gregory Mankiw, chairman), "Outsourcing of professional services is a prominent example of a new type of trade. The gains from trade that take place over the Internet or telephone lines are no different than the gains from trade in physical goods transported by ship or plane. When a good or service is produced at lower cost in another country, it makes sense to import it rather than produce it domestically."
What type of engineering work is being outsourced? According to the ED Reader Poll, out of 1274 readers responding (who were allowed to check more than one category), 60.8% was related to manufacturing and assembly, followed by design (52.3%), software development (50.1%), R&D (26.8%), and final test (20.9%).
Cutting costs is the only reason companies take this route, says Walter Shawlee, president of Sphere Research Corp. And the scene has become ugly. "U.S. industry at the moment is a living testament to corporate self-absorption and shortsightedness," Shawlee says. "Experienced employees are routinely laid off as they become costly. Rather than upgrade domestic manufacturing to be more cost-effective and sophisticated, production is scrapped and outsourced overseas."
While layoffs seem to make companies look good on the balance sheet and in the stock market, they irretrievably hollow out businesses in terms of real ability and product quality. "Tens of thousands of highly skilled employees have been shed by top names in the electronics industry in North America, so it is the worst kind of duplicity for them to then cry that they are short of skilled manpower," Shawlee adds.
The issue at hand may go a little further than just assuming companies callously want to displace jobs. Often it translates to supply and demand. A lack of qualified personnel in an area or high regional salaries can lead companies to look elsewhere. While companies may complain that U.S. engineers are too expensive, there are other factors to consider. These include a lack of engineering graduates, a lack of skilled engineers in a geographical area, and a lack of R&D funding.
"It's all about cost," says Frank Van Hooft, director of engineering at QImaging. "If H1B visas are rare, if talented local engineers are rare, then they'll be expensive and potentially unobtainable. This forces companies to look further afield for developers."
Van Hooft adds that if enough companies can't get the engineers they need locally, they'll move their development to areas where they can get the manpower. It's a simple fact that U.S. universities aren't turning out enough engineers. So either the additional engineers come to the jobs (H1B visas), or the jobs move to the engineers (outsourcing to India, for example). Either way, Van Hooft concludes that an equilibrium of jobs versus developers will be reached. The question is where that equilibrium will occur. The trend is that such an equilibrium will occur overseas because of insufficient visas to allow foreign-born engineers to move to the U.S.
Oscar McKee, president of O-MC Signal Research Inc., blames some of the outsourcing situation on the lack of R&D spending—both public and private. He doesn't view outsourcing necessarily as a "bad thing," if used appropriately. But he's concerned about the lack of R&D in this country, both by the government and industry.
McKee believes that if we were to get to the R&D levels we've seen in the past, the development of new technologies would offset the jobs lost to outsourcing. He advocates reversing the trend of fewer Americans going to engineering school and would like to see more money invested in research on alternate energy, such as solar and fuel cells. (For more, see "Engineering Specialties," Drill Deeper 11221)
How concerned are Electronic Design readers about losing their jobs to outsourcing? Only 8.1% were very concerned about losing a job to outsourcing. Twenty percent were somewhat concerned, 34.5% weren't very concerned, and 37.4% weren't concerned at all.
Here to stay
According to Martin Stoehr, member of the technical staff at Maxim Integrated Products, engineers who feel their jobs should stay within the borders of the U.S. have to realize that intellect, know-how, and innovation can't be contained by a line drawn on a map. He suggests that the free market will apply as much to ideas as it does to cell phones.
"Any company that does not want to participate in global commerce is going to lose market share, and anyone who is set against a particular industry entering a world market is fooling himself," says Stoehr. He adds that if engineers want to contribute rather than sit on the sidelines, they should embrace the distributed work environment and the worldwide expansion that comes with it.
Dwight Kitchin, principal with Cottonwood Creek Technologies Inc., sees benefits in using outsourcing for startup companies. "In larger organizations, decisions tend to be driven by perceived financial benefits without actually understanding the total experience, interaction, internal cost, and customer effects," he says. "Outsourcing can provide many significant benefits to a company, the outside organization, and the economy in general."
Outsourcing also can free up valuable creative design time by letting someone else worry about the engineering that goes along with the manufacturing process. George Erb, staff product engineer at Vishay's Siliconix Division, says that his projects involve small groups in the design and development phase. Then the projects are farmed out to offshore facilities when they get into the production mode. The reasons for this are primarily financial, but they're also related to lack of local capacity.
"I like this method because it allows engineers to concentrate their efforts on advancing the state of the art and not getting bogged down solving day-to-day manufacturing problems," says Erb .
Practical offshoring issues
According to Dan, a VP of R&D at a data-acquisition company, offshoring to places like China enables 24-hour production capability. While engineers in the U.S. are asleep, engineers in China are awake and on the job. Potential communication problems can be solved easily by staggering operating hours so that there's a set time for both groups to communicate.
A more challenging problem is the language barrier. While Chinese is difficult, so is English with its many nuances. Consider the different terms for everyday things in the U.K. and the U.S.
According to senior engineer Jeff Odell of Technology Center LLC, an industrial systems integrator, successful offshoring (unlike outsourcing) depends on overcoming cultural differences, work ethics, legal issues, intellectual-property (IP) issues, and the end user's attitudes about the use of offshoring in the products or services it purchases. So while offshoring is appropriate in some cases, Odell says companies shouldn't always use it to resolve manpower issues.
Indeed, Douglass George, president of Diffraction Ltd., thinks the market will decide just how well offshoring can work. In theory, offshoring might result in quality goods at lower cost, which will spur economic growth and help everyone. But in practice, George contends that this isn't so simple. North American workers often can produce higher-quality products faster.
While large companies can afford to send several engineers and managers abroad to scout out potential vendors, small companies must be careful when they choose offshoring or outsourcing partners.
Mike Jaynes, manufacturing engineer for New Star Lasers, tried to get optics made in China—with disappointing results. While he feels his company is too small to take advantage of Chinese suppliers, it's still identifying the processes that make sense to outsource. Optical assembly and alignment, electrical testing, and final testing and quality control are still in-house because he hasn't found qualified vendors to handle these tasks and make them cost-efficient.
Chandler Systems manufactures custom controls for wastewater pumping systems. Its customers expect short lead times on customized products, so most offshoring is automatically ruled out. For a standard part, though, it can make sense to offshore. Aaron Wolfe, an EE with the company, says offshoring circuit-board assemblies can allow for a competitive price. But when a change is needed in the design, it's impossible to run to the assembly area to try a component change. Instead, it takes several e-mails, phone calls, and changes to documentation to modify the product design.
Not only does this require additional time for making changes, but offshore operations require more time overall to set up than in-house operations. And in terms of quantity, it's not worth offshoring the production of a hundred or even a thousand boards. Wolfe suggests shopping around, because many offshore operations don't want small-volume business.
Partner Aaron Grenlund at Mu Research, which provides R&D services to manufacturers, believes it's important to provide detailed specifications to offshore firms, rather than let them take on the design tasks. An Indian company recently provided one of his clients with a schematic using 741 op amps and other components that haven't been seen for at least a couple of decades in the U.S. Meanwhile, the project involved a 24-processor system that needed a multi-threaded operating system (OS). The offshore company lacked current design capabilities, so it developed a single-threaded OS. This resulted in only one processor out of 24 doing any tasks at a single time.
David Darley's company learned the hard way that cheaper labor isn't always better because the cost of labor versus the cost of doing business may represent a huge price difference. He notes that items manufactured in India, if poorly made, can't be returned for repair without incurring enormous fees paid to the government. In addition, when one in five of his company's surgery tables made in Mexico was of such poor quality that customers had to return them for repair and refurbishment, all profits from outsourcing quickly disappeared.
Andrew Perkins, an engineer with American Microsystems Ltd., views outsourcing as a delegation of labor that requires a certain amount of oversight. Offshoring is a direct extension of your company, but at presumably cheaper labor rates and materials costs. He cautions, however, that the god-of-cheap is not a good god.
"You don't cut off your head just because it is more portable, leaving that large, cumbersome body behind," he says. "This is where the world economy is headed, I fear. A severed head with no body, no hand to feed it. "
Handling contract workers
According to Carl Catalano, MIS engineer at Minnesota-based Studio-K Productions, new research data trends in technology employment show that employers are exercising caution by hiring contract professionals instead of permanent staff. In an economic recovery, contractors are the first applicants to be hired for full-time positions. But when the economy spirals downward and as interest and resource costs increase, per-diem contract workers are usually the first group to be let go.
Per-diem contract positions represent a major advantage to employers because they only pay for the hours worked. The employer may need a contractor 30 hours this week and 10 hours the next week, so the arrangement buys the needed flexibility. In addition, most employers don't want to hire someone full-time for a project that might last only 60 days.
Another overlooked advantage in using contractors is long-term cost management. Robin B., program manager of a company that makes invehicle CAN-based solutions, says the "try before you buy" plan lets companies check skills and personality before hiring, ensuring a good fit.
Contract workers are a good bet when you're short on help. "We hire contract workers when we do not have the expertise in house, and it will take too long to bring someone up to speed on a particular technology," New Star Lasers' Jaynes says. His company recently hired someone to help with a smart-card project. The contractor wrote the programming code and the code for the device that reads the smart cards in the product. This saved time, and the company didn't have to reinvent the wheel.
In spite of these advantages, Perkins feels it's too hard to train contract workers to perform highly technical tasks, aside from, say, soldering and assembly. He thinks money becomes the chief motivating-factor for contract labor, and there isn't the loyalty that you would get from a full-time employee. Also, the lack of documentation from some contractors and the often unsupportable "spaghetti code" make it all but impossible to troubleshoot when there's a problem.
On the other hand, locating and using a good contractor can be rewarding. "We've used a few individual contractors, typically on a time and materials basis, as well as several somewhat larger firms on a fixed-price bid basis," Cottonwood Creek's Kitchin says. "Perhaps it's not intuitive. But without exception, the individual contractor, on a straight time and materials basis, has been a far better arrangement."
He notes that working relationships might seem "loose" when contractors work from their homes or meet with the company only when the project requires face time. Yet most contractors actually required very little "management" at all. Typically, the delivered product worked very well. In one case, a first-time design on a new-to-all DSP, the entire delivery and handover of a fully functional system ready for production took no more than a half hour.
"By contrast, managing an outside group (the company with the winning bid) has, without exception, been difficult," Kitchin adds. "First, in addition to having to generate a huge work document, we had to have a liaison engineer simply to handle questions from outside engineers who did not understand the field. They understood DSPs, algorithms, and real-time systems and project management but understood nothing about telephony."
As a result, the "work product" almost always was literally designed to the specification. The liaison engineer would have to delve into the work product to see if it could be integrated as is or reworked in-house to function in a real-world system. While extra work had been done, it didn't always meet the product's needs. For example, an entire project was designed to work with a TI DSP real-time operating system (RTOS) when all parties knew that the product used a proprietary RTOS that needed no module overhead.
According to Sphere Research's Shawlee, the most difficult aspect of contract work is the pivotal issue of trust. People within the company have a bad habit of regarding outside work with suspicion and are quick to reject good advice if it conflicts with their established opinions. Outside contractors also have a bad habit of treating company issues as low priority and don't always have the same focus as those engineers within the company.
This relationship works very well, but only when all involved see themselves as part of the same group and share a mutual desire to produce the best result. According to Chuck, an applications and test engineer for a controls company, contractors can be so well integrated into a company when it works that the only way to know that they're contractors is where they put their time cards.
Ed Johnson, senior systems engineer at Voss Scientific, suggests that the key to a good outcome is a detailed specification and a clear understanding by both parties of what's expected. He once supplied a detailed block diagram and a list of components for a fast-paced and understaffed project and asked for a detailed schematic in a CAD package, which Voss provided. The job went well because it was well-defined and everyone understood the requirements and expectations. Johnson adds that bad contractor experiences were due to poorly specified jobs.
According to Terry Burrows, a contract worker for 10 years and now a principal embedded systems engineer at TRW Automotive, a "seasoned" and experienced contractor requires little time to get on track—maybe one or two weeks. He says companies should work with contractors "like you do any other employee."
Scott Morrison, design engineer at Lepton Design, feels that contractors need to be brought into and accepted by the team as soon as possible to avoid any potential "office politics." For sure, teamwork is what it's all about.
Reuse what you can
Why reinvent the wheel? Says Dwight Kitchin,"We have somewhat simplified ongoing product design cycles in the old-fashioned way— design reuse. By intentionally designing each functional area into a specific physical area, that functional area, e.g. CPU/MAC/PHY/Configuration Flash, can be simply copied from a prior design into a new design in a few minutes."
"You know it works," he continues. "No time expended. Just remember to think about totally new capabilities of newer parts that may justify replacing a functional area. But you still win because you can just replace a single functional area in the new design knowing that everything else will work."
Bogdan Morariu, director of Bitmetrix Technology DSP, suggests designing every software routine with reuse in mind. As often as possible, developers should use the suggested hardware designs described by component suppliers in their application notes. This almost always produces faster results and lower risks than starting from scratch. While engineers may feel a need to do a more complex design, if a client doesn't request the complexity, why bother?
"Certainly our software and hardware products grow in complexity every year," says Ed Johnson. "For software, the primary tool is code reuse and testing to help cope."
His company builds more complex systems out of reasonably simple, well-tested modules. Benefits to this method include fewer memory considerations, a lack of nagging performance issues, processor speedups, and decreasing costs. For hardware, his group increasingly buys whole subsystems that might previously have been built inhouse. Examples include power supplies and computing, though he still occasionally custombuilds both. Heavy use of both flash and RAM FPGAs allows for rapid changes.
Making teamwork less complex may seem too obvious unless you've ever attended public meetings—too many opinions and too many "wannabe" doers. Nothing gets done, and when it does, it's always by the same handful of dedicated people.
"My only solution is to keep the number of workers down by using more experienced, more capable engineers," says Kenneth A. Falcone, president of Bedford Signals Corp. "This allows fewer engineers to do the job, with less time in meetings and fewer communication problems."
"Provide teamwork across engineering groups," says John Balogh, senior systems engineer at Penn State University. "Specialized personnel talents allow a lead systems engineer to break the project up into parts that can be completed and assembled quickly."
"The best way to simplify complex projects is to have smaller design teams," says Justin Kozlowitz, test engineer at Aspen Test Engineering. He notes that many companies assign separate design engineers to each aspect of a project, like power supply, interface, program, and layout. But this can create problems when it's time to integrate all of these individual designs and debug the prototype.
On the other hand, a small team that works closely together can minimize the issues of coordinating different aspects of a project. The challenge is finding good multidisciplined engineers to handle more than one aspect of a design.
Distributed design teams
CEO George Forrester of EkaTetra, a small company that designs and builds new devices, says the Internet is key to developing a product when participants are scattered (distributed) around the world. Voice over Internet Protocol, e-mail, and file transfers make it possible for him to confer with designers and engineers across the U.S. and New Zealand.
Where time was once spent in travel, engineers can now invest more in product design. Jamie Benner, VP of Benner Data Services, says that using the Internet for e-mails, spreadsheets, and digital photos replaces the fax machine and provides a level of communication to move designs around the world instantaneously.
Distributed design teams have worked very well for David Cocco, product manager and advanced manufacturing engineer at Tyco Fire & Security/RFID. Having a qualified engineering staff where necessary is crucial. Also, video conferencing makes it practical for his group to collaborate remotely. With networking, it's possible to move schematic captures and designs all over the world.
Not anticipated at first, time zone differences will affect every company that practices worldwide distributed design. Yet Cocco has found an easy way around this challenge. He gives some of the engineers time off during the day so they can come in some time in the afternoon or evening and be in sync with engineers working on the other side of the world.
When working with Chinese contract design engineers, Cocco recommends stationing the engineers in your Chinese office to minimize IP issues. Also, Chinese contract manufacturers—even for the Chinese market—should work under a nondisclosure agreement. Then, hold them to it.
Sphere Research's Shawlee, who routinely works with people all over the planet, finds that distributed design teams make sense for obvious and not-so-obvious reasons. With phone, email, and overnight delivery, anything can be accomplished. But physical separation allows for a sense of privacy, experimentation, and contemplation that isn't possible when all of the designers are compressed into one office, constantly peering over each other's shoulders. If this working arrangement suits the personalities of all involved, things work out well—but not if hourly micromanagement is necessary.
According to Burrows, distributed design teams can be effective if there are no political agendas and if all team members work for one goal—making the best product with the least amount of effort. His experience, though, has been mixed. Teams working within the same country tend to work well. But when several countries are represented, politics can overwhelm common sense and team spirit.
According to Joe W., a senior engineer with a large computing company, distributed teams can work well, especially if there's a freeze on travel. But everything is a little bit more challenging.
"You can hold a Web meeting, understand each other, and reach decisions," he says. "But the meeting will take more preparation and time than if you were all in the same room and knew each other better because you saw each other every day. In this case, creating a distributed team is a way to balance workload using existing, regular employees in different locations. I view this as a good thing."
Stoehr says that working successfully in a distributed design team requires clear and frequent communication. He works in one of many design centers and feels distributed design sites will be the heart of the future work force. With adequate communications and tools, projects can be accomplished with team members anywhere in the world. Based in Colorado and with designers in Oregon, California, Massachusetts, and Japan, Stoehr says he would forget they were so spread out if it weren't for the time zone differences.
While Diffraction's Douglass George would rather work with everybody at one location, he realizes it's no longer essential. But one thing can make a project go more smoothly—getting everybody together at the beginning so they can get to know each other and put a face and personality to a name. This makes working remotely with people much easier and friendlier.
Engineering designs have taken on short lifecycles, just as products have. Today's tools make it possible to collaborate on projects with design, engineering, manufacturing, sales, and marketing teams all over the world, turning the global village into reality. But while corporations try to maximize profits across vanishing borders, competition will remain keen for engineering jobs, and complacency will put you on the sidelines rather than in the game.