Date: Fri, 2 Apr 2004 17:14:18 -0800 From: Norm Matloff <matloff@laura.cs.ucdavis.edu> To: Norm Matloff <matloff@laura.cs.ucdavis.edu> Subject: EE Times series on offshoring To: H-1B/L-1/offshoring e-newsletter The current issue of the Electrical Engineering Times includes an extensive series on offshoring. This is something of a first, as most reports on offshoring has been in the software area. This EE Times gives quite a lot of information on offshoring of hardware design. The entire series is at http://eet.com/special/special_issues/2004/global_2004.html I will post just a few of the articles here. The first is the one enclosed below, in which they repeat Intel CEO Craig Barrett's recent quote: "Companies can still form in Silicon Valley and be competitive around the world," said Intel's Barrett in an interview in The San Jose Mercury News. "It's just that they are not going to create jobs in Silicon Valley." As I have mentioned before (even Harris Miller of the ITAA made the same point recently), one must make a very sharp distinction between software/hardware design and call center work. Even if it's a call center in the computer context, say the Dell help line, this is work normally not done by graduates of computer science and engineering programs. I mention that because the enclosed article reports the following: Intel said it expects the numbers of employees in Europe and the United States to stay flat while new jobs grow elsewhere. Intel now has 2,000 workers in China, mainly at a Pudong assembly and test site. It expects to add up to 1,500 more in another chip-packaging plant, a $350 million Chengdu site that breaks ground this year. The company employs 1,000 workers in a three-year-old Bangalore, India, facility where its server and communication groups now do some chip design. Intel also has a staff of 500 at a software design center in Russia working on compilers and tools. At first glance, one might dismiss those chip/circuit board factory jobs in China as being analogous to call centers, i.e. not something the electrical engineering graduates would be doing anyway. But actually that is not quite the case. Here's why: Though electrical engineering students are seldom (if ever) told this, most BSEE holders don't get jobs where they do any engineering. The little secret is that if they want to do chip design, for example, they'll need a Master's degree. Personally I don't think this policy on the employers' part is warranted, but that can be argued. What I think CAN'T be argued is that the students ought to be informed of this. In any case, though, the bottom line is that the type of job a BSEE is likely to get does not involve engineering, i.e. does not involve design. A typical example is the person is hired as, say, a Process Engineer, a job title meaning that the person works in a factory, trying to make sure the chip fab process doesn't produce too many defective chips. This means making sure that "clean rooms" are truly clean, etc. So, the offshoring of Intel's factory jobs does represent some job loss to American engineering grads after all. The above quote also says that Intel is offshoring some chip design work to India. The work in Russia is software. It is interesting that the article mentions PCAST (President's Council of Advisors on Science and Technology) having concerns about offshoring. PCAST has always taken a pro-industry position (e.g. on H-1B)--hardly surprising, since PCAST's membership mainly consists of CEOs, with the remainder mainly being university presidents, who as I've detailed before, are extremely anxious to toe the industry's party line. (The one exception is Ralph Gomory, head of the Sloan Foundation, who questioned the industry's claimed "need" to expand the H-1B program, and whose book on international trade I've recommended.) You can download the PCAST report at http://www.ostp.gov/PCAST/pcast2004rpt.html (Click on IT Manufacturing and Competitiveness.) The following NSF comment, included with the report and stated by PCAST as representing PCAST's point of view, seems to be the bottom line (emphasis in the original): Civilization is on the brink of a new industrial world order. The big winners in the increasingly fierce global scramble for supremacy will not be those who simply make commodities faster and cheaper than the competition. They will be those who develop talent, techniques and tools so advanced that THERE IS NO COMPETITION. That means securing unquestioned superiority in nanotechnology, biotechnology, and information science and engineering. And it means upgrading and protecting the investments that have given us our present national stature and unsurpassed standard of living. But Ron Hira counters, for example on the nanotechnology issue: However, China is already the second-largest producer of technical papers on nanotechnology, noted the IEEE's Hira in testimony last year before Congress. Meanwhile, an article in the Indian press reported that "Noted business consultant and former US Senator Larry Pressler has predicted that India would be the world leader in nano-technology in the next 10 years." See http://heather.cs.ucdavis.edu/Archive/Nanotech.txt In other words, it is completely unreasonable to assume that the U.S. or any other country could achieve a state in which "there is no competition" for a given field. Those PCAST people know this full well. Their real agenda is to get more money (directly and indirectly) for their companies. That will NOT lead to more tech jobs for Americans. Intel CEO Barrett's own remarks say this: "Companies can still form in Silicon Valley and be competitive around the world," said Intel's Barrett in an interview in The San Jose Mercury News. "It's just that they are not going to create jobs in Silicon Valley." And here is the part which everyone keeps missing: The few jobs which WILL be created in Silicon Valley (or elsewhere in the U.S.) will be filled by H-1Bs. So, again, no tech jobs for U.S. citizens and permanent residents. Norm http://www.eet.com/showArticle.jhtml?articleID=18401676 Political winds hit offshoring By Rick Merritt EE Times March 24, 2004 The most recent twist in the 40-year saga of globalization in electronics-offshoring skilled technology jobs-has become a political hot potato in the upcoming presidential election and a gut-level worry for engineers in the trenches. The offshoring debate cuts to the heart of U.S. competitiveness, national security and job insecurity. It also asks, almost incidentally, whether Silicon Valley will lose its central role in the electronics industry. Indeed, it's a debate in which everyone seems to have an opinion, but no one has a clear view of all the details. In a Jan. 16 report to George W. Bush, the President's Council on Science and Technology (Pcast) recognized that offshoring has created "a deep sense of anxiety in the IT community that our nation is not just losing the manufacturing capacity of 'commoditized' products, as has occurred in the past, but also . . . high-value-added manufacturing and services that the U.S. has long dominated." The news isn't all bad, though. The debate has produced cries from all sides to boost spending on R&D and science and technology education in the United States. And it is calling upon rank-and-file engineers to hone their skills in anticipation the next big development that will give them and their companies an edge. Forrester Research (Cambridge, Mass.) estimates that 3.3 million jobs could be lost to offshoring by 2015, half a million of them (representing $28 billion in lost wages) in the technology field. The biggest impact lies in moving skilled computer-programming jobs offshore, the firm said. But "no one has hard numbers on this. We have to start counting what's actually going on. People on both sides have been using selective data," said Ronil Hira, chairman of the IEEE-USA's career and workplace committee and an associate professor of public policy at the Rochester Institute of Technology. The IEEE issued a position paper last week calling on the U.S. government to start tracking offshoring. "Anecdotally, in discussions with IEEE members, we know it's not just low-level jobs but good engineering and research positions that could go offshore," said Hira, who has twice testified before Congress on the issue. IBM and other top high-tech companies taken to task for going overseas argue that they are merely expanding into growing markets, not shuttering U.S. operations. Since 1979, most of IBM's employees have worked in countries other than the United States, the spokesman said. Moreover, since 1987, countries other than the United States have accounted for most of IBM's revenues, the spokesman said. "Offshoring is a misnomer when you are doing business in 164 countries. We've been in India for 50 years," the spokesman added. For its part, Intel Corp. claims 70 percent of its revenue comes from outside the United States, though 60 percent of its employees still work in the States. But those percentages are shifting. IEEE's Ronil Hira is looking for some hard numbers. Intel said it expects the numbers of employees in Europe and the United States to stay flat while new jobs grow elsewhere. Intel now has 2,000 workers in China, mainly at a Pudong assembly and test site. It expects to add up to 1,500 more in another chip-packaging plant, a $350 million Chengdu site that breaks ground this year. The company employs 1,000 workers in a three-year-old Bangalore, India, facility where its server and communication groups now do some chip design. Intel also has a staff of 500 at a software design center in Russia working on compilers and tools. "With 70 percent of revenues coming from overseas, you have to invest in those markets, but you don't walk away from the investments you made [in the United States]. It's not a zero-sum game," an Intel spokesman said. Not a new development Globalization is not new to the electronics industry. Texas Instruments Inc. set up its first offshore chip-packaging plant in Tokyo in 1964, about the same time companies such as Fairchild and Motorola Inc. were setting up similar plants in Hong Kong and in Kuala Lumpur, Malaysia, said Mentor Graphics chairman Wally Rhines, a former TI executive. Intel followed suit in 1971 with a plant in Penang, Malaysia, and a year later, one in Manila, Philippines. Those sites now handle much of Intel's packaging R&D. In 1984 Rhines helped establish TI's first engineering center in India, a 30-person shop doing analog and mixed-signal design. That center and ones like it for TI, Analog Devices, ST-Microelectronics and others have grown to employ thousands, procuring their own EDA tools and demanding local support for them, according to Rhines. The globalization of design is "still in the relatively early stages, I guess," Rhines said. "But you still need [U.S.] project managers-people to coordinate the work, drive the strategies, develop the architectures. Every time you create a job offshore, you create one onshore." More recently, systems companies have jumped on the bandwagon. Thomson struck a partnership last year with China's TCL to make all of both companies' TV sets in China. 3Com Corp. inked a similar deal with China's HuaWei for networking gear. The processor design group at Sun Microsystems Inc. has a few engineers in India working on validation and CAD tool design, said Michael Splain, the team's chief technologist, but most chip design remains in Sunnyvale, Calif. "We are using offshoring judiciously. As we grow, that's a place where we look for new people. But we are not closing design teams in the U.S. and moving design jobs into other countries," Splain noted. At least 45 state and 13 federal bills on offshoring are pending in various legislatures, according to the National Foundation for American Policy, which tracks the issue. The bills include one (S.1873) from Democratic presidential candidate John Kerry that would require call centers to identify their location and a House bill (H.R. 2410) banning foreign-made flags. "The bills coming out are really knee-jerk reactions against offshoring. Isolationism and trade barriers are the wrong way to go," the IBM spokesman said. In March alone, both top presidential candidates and Federal Reserve Chairman Alan Greenspan fired volleys about offshoring. And both the IEEE and American Electronics Association have drawn up fresh policy statements on the issue. High-tech vendors also have formed a new coalition to speak out on offshoring. "We need an open, honest debate about what's going on and what to do. We're getting mired in an emotional dialog that's not helpful in moving things forward," said Hira of the IEEE. The good news is all sides seem to be converging on an agenda to boost U.S. spending on R&D, improve education in science and technology and bolster tax incentives. In addition to those recommendations, the January Pcast report called for an analysis of and response to foreign tax incentives and faster mechanisms to address intellectual-property and market-access issues in the World Trade Organization. Pcast also called for a new national R&D center to drive innovation in fresh areas such as nanotechnolgy, countering the scaling back of corporate research seen at groups like Bell Labs. Some engineers think that's exactly the right approach. "Anything we would do in protectionism would backfire," said Michael Krause, a senior I/O engineer at Hewlett-Packard Co. "We have to grow our exports and find the next set of things to start doing right, especially in fields like bioengineering and nanotechnology." However, China is already the second-largest producer of technical papers on nanotechnology, noted the IEEE's Hira in testimony last year before Congress. The Computer Systems Policy Project, an ad hoc lobbying group of computer companies, recently called for doubling the federal spending on university-level R&D in physical sciences and engineering as well as a national broadband policy. The group, which includes the chief executive officers of Dell, HP, IBM and Intel, noted that in 1999, the U.S. granted only about 61,000 bachelor-level engineering degrees, compared with more than 103,000 in Japan, more than 134,000 in the European Union and more than 195,000 in China. John Steadman, president of the IEEE-USA, noted that as many as 80 percent of students enrolling in U.S. graduate-level programs in engineering are from outside the United States. The IEEE-USA wants to see stipends for graduate positions boosted and restrictions enacted that would prevent non-U.S. citizens from receiving government grants for university research projects. In its March position paper, the IEEE-USA also called for restricting offshoring of any government work unless that work clearly poses no threat to U.S. competitiveness and security. It further proposed expanding training programs for displaced workers, and it called for the government to close loopholes in H1-B and L-1 foreign worker visas and develop a national strategy to bolster R&D and education in the United States. "I think Congress will hold hearings on offshoring, but given it's an election year I give it about a 50-50 chance of happening this year," Steadman said. In the trenches While the policy debates continue in Washington, engineers in the trenches-especially those in Silicon Valley-worry about what offshoring means for them. The unemployment rate for electronics and electrical engineers averaged a record 6.2 percent last year, according to the Department of Labor's Bureau of Labor Statistics. What's more, the group said, total EE employment in the United States fell by 37,000 jobs to 349,000 at the end of 2003, stats the IEEE blamed in part on offshoring. In a worst-case scenario, some engineers see the United States taking on the role of specifying software and chip design that's done elsewhere, which suggests that only a top tier of engineering could remain stateside. In that scenario, Silicon Valley would become just another node on the global design network. "The Internet is like a Star Trek transporter where you have meetings that can go on anywhere. You don't need to have the factory right next to R&D," said Chuck McManis, a technical director with Network Appliance Inc. (Sunnyvale, Calif.), which is transferring design for one of its products to a new Bangalore center (see story, page 66). "It's clear to me [offshoring has] shifted the balance of how things are being done," said an R&D manager at a large computer company who asked not to be identified, noting many startup design companies in China and India are knocking on his door. "There are a lot of people who have left the Bay Area and taken their Silicon Valley skills back to their home countries with them," he added. "Companies can still form in Silicon Valley and be competitive around the world," said Intel's Barrett in an interview in The San Jose Mercury News. "It's just that they are not going to create jobs in Silicon Valley." Surprisingly, many working engineers in Silicon Valley take a pragmatic view of the situation. "I wouldn't say there's fear, but there's an awareness," said McManis of NetApp. "Some people are asking themselves whether this is the field they really want to be in. But I have seen people more motivated by this new [job] mobility. "You need to ask yourself what you as an engineer are going to offer that these guys in India don't." For McManis, it's expertise designing serial backplanes based on Infiniband, a technology defined by an ad hoc consortium and used in NetApp's latest products. "All of that's being driven in the U.S.," McManis said. Indeed, Silicon Valley still represents a unique concentration of big companies, such as Cisco and Intel; startups and their venture capital backers; and several top universities. The entrepreneurial spirit and sheer drive to win here still hold promise to keep pushing electronics to new levels.