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Outsourcing of USA Jobs and Opportunities George F. Mc. Clure g. mcclure@ieee. org Outsourcing of USA Jobs and Opportunities George F. Mc. Clure g. [email protected] org

Technology Makes It Possible n n Moore’s Law – more computer capability, lower cost Technology Makes It Possible n n Moore’s Law – more computer capability, lower cost – and trivial shipping costs Telecommunications ever cheaper Developing nations’ labor cost lower Expanding education opportunities n n Half U. S. tech grad degrees to foreign students Increasing tech grads, India (150 K/yr. and China (250 K/yr. )

Free Trade Agreements n Impacted manufacturing first – GATT n n n AMD in Free Trade Agreements n Impacted manufacturing first – GATT n n n AMD in Dresden 23 chip foundries in Taiwan Now impacting services - GATS n n n Protections for Intellectual Property iffy Outsourcing offshore cuts costs States start limiting tax-paid outsourcing

Comparative Advantage n n David Ricardo: work should be done where most advantageous (1816) Comparative Advantage n n David Ricardo: work should be done where most advantageous (1816) High productivity an IT advantage n n n Over $1 trillion invested worldwide in IT Enterprise Resource Planning spreads Central databases, terminals anywhere CADCAM, CATIA Supply chain management efficiencies

Taxation Concerns n n n U. S. corporate tax rate 35% Offshore rates mostly Taxation Concerns n n n U. S. corporate tax rate 35% Offshore rates mostly lower (e. g. , Ireland 1215%) Multinationals can shift profits n n n IP moved offshore, fees earned there, too No U. S. tax unless foreign profits repatriated Motorola vs. IRS: $500 million dispute D. C. Johnston, Perfectly Legal: The covert campaign to rig our tax system to benefit the super rich – and cheat everybody else

Innovation n Key to competitiveness New ways to combine labor and capital Hard to Innovation n Key to competitiveness New ways to combine labor and capital Hard to forecast n n Transistor Fiber optics Internet “Networking the World” When? #2 usually profits (e. g. , i. Pod)

Productivity and Innovation n India average productivity 15% of U. S. – unit costs Productivity and Innovation n India average productivity 15% of U. S. – unit costs rise if paid >15% of U. S. manufacturing productivity +17%, manufacturing employment – 17% Innovation: new uses of labor and capital n n U. S. led historically Diffusion of innovation – others catch up

Boeing Dreamliner Example n n Innovation – 25% higher efficiency, lower cost per seat Boeing Dreamliner Example n n Innovation – 25% higher efficiency, lower cost per seat mile to operate Seattle assembly from subassemblies from n n n Canada Japan Australia More use of lightweight composites Engines from GE or Rolls Royce

Government Regulation n n n Environmental protection Pollution standards OHSA Employment practices Taxes Sarbanes-Oxley Government Regulation n n n Environmental protection Pollution standards OHSA Employment practices Taxes Sarbanes-Oxley corporate governance Benefits

The Trends in IT n n n First, a prima donna – paperless factory, The Trends in IT n n n First, a prima donna – paperless factory, etc. Now, a commodity “Buy it for less” – total $569 billion w. w. 2003 Overall outsourcing growth: 7. 8% CAGR between 2002 and 2007 –Gartner Lose 3. 4 million service jobs by 2015 –Forrester Research n n n Cumulative $136 billion in wages, 2000 -2015 Job loss includes 470 K Computer, 184 K A&E, 1. 7 M Office Job losses over 20%: CS/SA, programmers – 2000 to 2004

Factors in Near-term Increase n n n Word spreads about savings – est. $160 Factors in Near-term Increase n n n Word spreads about savings – est. $160 billion/year in IT work outsourced Wipro, Infosys broaden IT services offered Captive centers for BPO e. g. , Bo. A, Schwab, Lehman; GE does accounting, payroll, financial reports for all divisions in India - BPO market $682. 5 billion by 2008 n Onshore IT tech/service vendors placing work in India, China, Belarus for product development and services

Why Outsource IT? n n n n Continual shortage predictions Guest worker quotas reached Why Outsource IT? n n n n Continual shortage predictions Guest worker quotas reached Cheap telecom- $8/month, LA-Bangalore Cheap equipment – Pentium 4 < TRS-80 Centralized CADCAM – work anywhere Cheap labor - better bottom line Offshoring becomes conventional wisdom

Going Up the Food Chain n n n Simple tasks go first, e. g. Going Up the Food Chain n n n Simple tasks go first, e. g. , software modules S/w architecture, integration & test, last Cell phone design, but not propagation tests Radiology interpretation but not patient interface CPAs send tax preparation to India BPOs Architects detail floor layouts in Hungary

80% Offshored to India – Why? n n n English-speaking, well-educated Relative political stability 80% Offshored to India – Why? n n n English-speaking, well-educated Relative political stability Low living costs = low wages n n Pay $12 K, bill at $45 K in India Pay $75 K, bill at $125 K in U. S. Savings of 50% after 6 months in IT services 2004 growth rate: 30% - 40% -NASSCOM/KPMG

Megadeals Still Hot n Outsourcing megadeals worth >$1 billion n n 9 in 2001, Megadeals Still Hot n Outsourcing megadeals worth >$1 billion n n 9 in 2001, worth $15. 1 billion 14 in 2002, worth $28. 4 billion 16 in 2003 12 in 2004, avg. $25. 3 B/yr. (’ 03 -’ 05) 11 in 2005 - Gartner Dataquest

But Slowing… n n More smaller deals, shorter time Worldwide, expect $400+B in 2008 But Slowing… n n More smaller deals, shorter time Worldwide, expect $400+B in 2008 Malaysia: 27%/yr. growth rate – 5 yrs. Canceled: n n JPMorgan/IBM $5 B (2004) Sears/CSC $1. 6 B (2005)

Senior Work Stays n n n Sales and marketing Customer site: 30% of WF Senior Work Stays n n n Sales and marketing Customer site: 30% of WF for requirements definition, liaison, install, debug, and reporting Export restrictions keep some at home Security class. & privacy concerns holds some Overall project management, usually stays, BUT….

R&D Goes Global n R&D Centers in India, e. g. , n n n R&D Goes Global n R&D Centers in India, e. g. , n n n Microsoft H-P Sun Microsystems Motorola Oracle IBM has 3 of 8 R&D Centers in U. S. others in Zurich, Haifa, Beijing, Tokyo, Delhi

Offsets for Foreign Markets n Foreign buyers keep some value-added n n n Aircraft: Offsets for Foreign Markets n Foreign buyers keep some value-added n n n Aircraft: China builds subassemblies Automobiles: GM builds Buicks in China Chip production: China discounts VAT for own Boeing has ~600 engineers in design center in Moscow Intel has 15 mfg. sites, 8 outside U. S.

CS Graduations in U. S. n n Graduation rate ~ 62, 000 per year CS Graduations in U. S. n n Graduation rate ~ 62, 000 per year 2004 n n BS- 45, 000, 8% on temporary visas MS- 16, 000, 50% on visas Ph. D- 1, 000, 50% on visas Engineering MS, 40% on visas

EE Graduations in U. S. n 2002 -2003: n n n BS – 13, EE Graduations in U. S. n 2002 -2003: n n n BS – 13, 627 MS – 7, 621 Ph. D – 1, 256 Total: 22, 504 Total for EE, Ch. E, and ME: 59, 385 Source: U. S. Dept. of Education

Foreign Grad Students Down n Security concerns prompt SEVIS n n Student and Exchange Foreign Grad Students Down n Security concerns prompt SEVIS n n Student and Exchange Visitor Information System Reengineered nonimmigrant student and exchange visitor (F, M, & J visa categories) process 9500 campuses, 770 K students, visitors First year, GRE testing down >50% n n India: -56%; China: -52% Europe, Canada choice for more foreign students

Three Answers to Shortage n L-1 visa: intracompany transfer – 5 years n n Three Answers to Shortage n L-1 visa: intracompany transfer – 5 years n n H-1 B visa: 65, 000 per year – 6 year limit n n 3 years initially, 2 yr. ext. (tech), 4 yr. (mgr. ) No limit to number “Job shop” abuse Extended if green card petition filed 3 -year extensions, not limited Added quota of 20, 000 in 2005 for MS/Ph. D Outsource the work

Outsourcing Restrictions n n n New Jersey et al. – no offshoring of state Outsourcing Restrictions n n n New Jersey et al. – no offshoring of state work National Defense, Homeland Security require citizenship/clearances Security clearance granted through employer – earns a salary premium

Career Trends n Retrain, hire, or outsource? n n Benchmark for training budget: 2% Career Trends n Retrain, hire, or outsource? n n Benchmark for training budget: 2% of sales Just-in-time leads to shamrock organization Hire skills temporarily as needed n Only the core or stem stays Charles Handy, The Age of Unreason, 1989 n

The Echo Boomers n n n Born between 1982 and 1995 Most ‘wired/wireless’ generation The Echo Boomers n n n Born between 1982 and 1995 Most ‘wired/wireless’ generation Nearly 80 million, 1/3 of U. S. population Spend $17 billion/year Overachieving, over-managed, very pressured – very tolerant Builders, not destroyers

Echo Boomer Biases n n n Believe everyone is above average Rewarded for participation, Echo Boomer Biases n n n Believe everyone is above average Rewarded for participation, not achievement Expect immediate accolades Look for daily feedback Expect grade inflation Expect to rise to the top quickly

Career Strategies n Know your company & industry n n n Business prospects Book-to-bill Career Strategies n Know your company & industry n n n Business prospects Book-to-bill ratios Keep current with technology Keep your boss posted on your work Think of your employer as your customer

Career Strategies 2 n Work that won’t be outsourced n n Site specific work Career Strategies 2 n Work that won’t be outsourced n n Site specific work (e. g. , power plant operation) Customer interface Classified defense, homeland security Right-brained activities n n n Creative, broad thinking, artistic People skills – team leading, motivating Six senses – design, story, symphony, empathy, play, meaning

Career Strategies 3 n Jobs to avoid: n n n Left-brain work – CAD, Career Strategies 3 n Jobs to avoid: n n n Left-brain work – CAD, coding, help-desk Routine, scripted, spreadsheet-based Questions to answer: n n Can someone overseas do it cheaper? Can a computer do it faster?

Career Strategies 4 n n Beyond Information Age (knowledge workers – 20 th century) Career Strategies 4 n n Beyond Information Age (knowledge workers – 20 th century) Conceptual Age (creators and empathizers – 21 st century) n n Abundance – Western affluence Asia – migration of knowledge work Automation – higher productivity, less drudgery Important: pattern recognizers and meaning makers – e. g. , e-Bay #2 to Wal-Mart now

Working Alone - Free Agent? n n n You are own boss – can’t Working Alone - Free Agent? n n n You are own boss – can’t be outsourced IEEE-USA has Consultants’ Network Ideal for mothers and other part-timers Need business plan – first step File income tax Schedule C – costs and benefits deductible Possible aid – SCORE www. score. org, SBA www. sba. gov/starting_business

Free Agent 2 n n n Digital technology makes entry easy 13 million microbusinesses Free Agent 2 n n n Digital technology makes entry easy 13 million microbusinesses in U. S. today Grow at own rate – no “glass ceiling” Set rates to include all costs – space, benefits, equipment, taxes, travel, marketing, pension – see Pink’s book “Soloist”, “portfolio worker”

Career & Workforce Policy Cmte n n Tracks issues affecting WF supply/demand Prepares position Career & Workforce Policy Cmte n n Tracks issues affecting WF supply/demand Prepares position statements for advocacy n n n H-1 B Visas, L-1 Visas, Offshore Outsourcing Career Equality in Engineering Cash Balance Pension Plan Conversions Engineering Licensure www. ieeeusa. org/ public policy

Resources n n n EIA Playbook, “The Technology Industry at an Innovation Crossroads. ” Resources n n n EIA Playbook, “The Technology Industry at an Innovation Crossroads. ” http: //www. eia. org/new_policy/innovation. pht ml The Race to the Bottom: Why a Worldwide Worker Surplus and Uncontrolled Free Trade are Sinking American Living Standards (Westview Press). www. americaneconomicalert. org Adequacy of U. S. S&E Workforce, John Sargent, www. cra. org/govaffairs/sargent_adequacy_of _S-EW. ppt

More Resources n n n Daniel H. Pink, A Whole New Mind: Moving from More Resources n n n Daniel H. Pink, A Whole New Mind: Moving from the Information Age to the Conceptual Age, New York: Riverhead Books, 2005 Daniel H. Pink, Free Agent Nation: The Future of Working for Yourself, New York: Warner Books, 2002 “Engineers as Commodities, ” IEEE-USA, Today’s Engineer, Oct. 2005 www. todaysengineer. org

Resource: Seminar n n Heritage Foundation, “Challenges Facing the 21 st Century Workforce” - Resource: Seminar n n Heritage Foundation, “Challenges Facing the 21 st Century Workforce” - a seminar held August 4, 2005, featuring Dan Pink and others. Video and Power. Point slides available At www. heritage. org/Press/Events/ev 080405 a. cfm

Other Resources n n Start-up secrets: The Silicon Valley Way, Elton B. Sherwin, Jr. Other Resources n n Start-up secrets: The Silicon Valley Way, Elton B. Sherwin, Jr. (45 checkpoints) Offshoring reforms needed - news. com/Offshoring+U. S. +needs+reform s, +not+rhetoric/2009 -1070_3 -5198156. html n http: //www. technologyreview. com/articles/05 /09/issue/rd_scorecard. pdf