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Suggested Citation:"Executive Summary." National Academy of Engineering. 2008. The Offshoring of Engineering: Facts, Unknowns, and Potential Implications. Washington, DC: The National Academies Press. doi: 10.17226/12067.
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Suggested Citation:"Executive Summary." National Academy of Engineering. 2008. The Offshoring of Engineering: Facts, Unknowns, and Potential Implications. Washington, DC: The National Academies Press. doi: 10.17226/12067.
Page 2
Suggested Citation:"Executive Summary." National Academy of Engineering. 2008. The Offshoring of Engineering: Facts, Unknowns, and Potential Implications. Washington, DC: The National Academies Press. doi: 10.17226/12067.
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Suggested Citation:"Executive Summary." National Academy of Engineering. 2008. The Offshoring of Engineering: Facts, Unknowns, and Potential Implications. Washington, DC: The National Academies Press. doi: 10.17226/12067.
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Executive Summary Spurred in part by a decades-long decline in manufactur- computer (PC) manufacturing, automobiles, construction en- ing employment, the implications of globalization for the gineering and services, and pharmaceuticals—and presenta- United States are a source of considerable debate. The emer- tions by experts on engineering education and management, gence of “offshoring”—the transfer of work from the United the engineering workforce, and the engineering profession. States to affiliated and unaffiliated entities abroad—has The study committee is aware that not all industries or as- raised additional concerns about the impacts of globaliza- pects of engineering were included. tion. Among the occupations subject to offshoring are highly paid professions, including engineering, that are essential to OFFSHORING OF ENGINEERING: U.S. technological progress, economic growth, and national TRENDS AND IMPACTS security. The National Academy of Engineering (NAE) recog- FINDING 1.  The offshoring of engineering, an inevitable nizes that offshoring raises significant challenges not only aspect of globalization, has significantly impacted the U.S. for engineers themselves, but also for industry, educational engineering enterprise. However, the effects of globaliza- institutions, government, and professional societies. Many tion and offshoring have been uneven, and disparities engineering tasks can now be performed anywhere in the among industry sectors and engineering sectors are likely world by qualified professionals with access to appropriate to continue. connectivity. To sustain and strengthen U.S. engineering capabilities in this new environment, the United States may One area of rapid increase in offshoring has been in need to consider new approaches to education, career devel- information-technology (IT)-related industries, such as soft- opment, management, and policy, and make changes where ware development, semiconductors, and PC manufacturing. appropriate. Today both established U.S.-based firms and start-ups are NAE launched this project in 2006 with support from the locating at least some engineering work in India or China. In National Science Foundation, United Engineering Founda- fact, this offshoring is now taken for granted, and reportedly tion, and internal NAE funds. In the preliminary discussions, is even required, by some venture capitalists (Hira, 2005). it became clear that developing policy recommendations Employment and exports in the Indian software-services would not be possible based on available data and informa- industry have grown at annual rates of 30 to 40 percent over tion in the literature. Therefore, a major goal of this study is the past decade. In the semiconductor industry, 18 of the to assess the knowledge base and identify gaps, data needs, top 20 U.S.-based companies have opened design centers in and areas for future study. The focus of the project was a India, nine of them since 2004. In the PC industry, much of public workshop featuring the discussion of commissioned the product design and engineering work is done by original papers on the offshoring of engineering in six industry design manufacturers based mainly in Taiwan; manufactur- sectors—software development, semiconductors, personal ing is increasingly being done in China. 

 THE OFFSHORING OF ENGINEERING In the automotive and construction engineering and and offshoring (GAO, 2005a,b; NAPA, 2006; Sturgeon, services industries, engineering activity has long been in- 2006; etc.), and it may be some time before the most glaring ternationalized. However, in the automotive industry today, deficiencies are addressed. One difficulty is that offshoring engineering workforces are increasingly being configured within companies is difficult to track through trade statistics. to develop global platforms, rather than to work on prod- Another difficulty is that companies are reluctant to make ucts targeting local markets. Construction engineering and information about their offshoring practices public. Thus services firms that operate globally have always required industry-specific analyses will continue to be important engineering help in the countries where projects are located. sources of information but can only provide a snapshot of a Today, overseas engineers are increasingly performing tasks rapidly changing phenomenon. related to U.S. projects. In general, offshoring of less com- plex engineering work is increasing in both the automotive FINDING 3.  Offshoring appears to have contributed to and construction industries. the competitive advantage of U.S.-based firms in a variety Finally, offshoring of research and development (R&D) of industries, and the negative impacts of offshoring on U.S. to developing and emerging economies such as China and engineering appear to have been relatively modest to date. India is increasing rapidly in pharmaceuticals and some However, the negative effects have been much more severe in other industries. More than half of more than 200 U.S.- and some industry sectors and for some jobs than others. Europe-based companies that responded to a recent survey anticipate that their technical workforces in China, India, Global disaggregation, a long-standing aspect of business and other parts of Asia will increase in the next three years models in several U.S. industries, has enabled U.S.-based (Thursby and Thursby, 2006). companies in the semiconductor and PC industries to es- tablish and retain global leadership. The key to long-term FINDING 2.  More and better data on offshoring and other success for companies that offshore engineering activities issues discussed in this report, such as the effects on the en- is protecting the interface with customers and the resulting gineering workforce and engineering education, are neces- information flow, which feeds into product definition, high- sary for discerning overall trends. As has been pointed out in level design, and sophisticated engineering tasks. other recent reports, better U.S. and international statistics Cutting costs was the initial motivation for offshoring on trade in services and employment would give us a much of services, including engineering, especially in IT-related better grasp of basic trends. industries. However, a major factor in the offshoring of R&D facilities to emerging economies, such as China, is the desire With the emergence of offshoring, a growing portion of to establish a full-spectrum presence in a rapidly growing the U.S. workforce, including engineers and many other market. On the flip side, there has been significant “onshor- services professionals, have become subject to international ing” of R&D and other engineering work in some industries competition. For the United States to adopt policies that as multinational companies based in Europe and Asia estab- support continued economic vitality and ensure that the lish or acquire operations in the United States. Even some United States remains a premier location for engineering companies based in India and China are investing in R&D in work, policy makers must have a good understanding of the United States, mainly through acquisitions (see Cooney, changes in comparative salaries, education levels, language this volume). skills, productivity and other trends, and the causes of Although the inadequacy of available data makes it those trends. difficult to measure the negative impacts of offshoring on Unfortunately, current published estimates and projec- engineering jobs and salaries, we can say that the negative tions on offshoring of engineering include significant un- impacts have not been evenly distributed. It is logical to in- certainties. McKinsey Global Institute (2005), for example, fer that, when certain types of routine engineering tasks are estimates that more than half of engineering jobs in the sourced in India or China, the U.S. engineers who performed industries it analyzed could be performed anywhere in that work lose their jobs. Even though new jobs may be cre- the world. However, it would be wrong to conclude that half ated for U.S. engineers who perform higher level tasks and of the 1.5 to 2 million U.S. engineers are in danger of losing those who can move to other sectors, those new jobs do not their jobs in the next few years. Indeed, the U.S. engineering replace the jobs that were lost. The negative individual and workforce is expected to grow by 13 percent between 2004 social impacts of mass layoffs in general, not necessarily in and 2014 (CPST, 2006), a substantial increase although engineering, are described by Uchitelle (2006). smaller than the expected increase in the workforce as a whole. In addition, there are limits to how quickly India and IMPLICATIONS FOR ENGINEERING EDUCATION China can improve the quality and increase the quantity of their engineering graduates. FINDING 4.  Engineering education at the undergraduate Significant data gaps have prevented policy makers and and graduate levels has been a major source of strength the public from getting an accurate read on trade in services for the U.S. engineering enterprise. Even today, engineers

EXECUTIVE SUMMARY  educated in the United States remain among the best trained FINDING 6.  Over the past several decades, engineering and most flexible in the world. At a time when other nations has become less attractive to U.S. students as a field of are making significant efforts to upgrade their engineering study and as a career compared to some other professions. education capabilities, the United States will be challenged Although it is widely assumed that globalization and offshor- to sustain engineering education as a national asset. ing are contributing to this relative decline in popularity, it is impossible to know how important globalization is compared It was clear from the workshop discussions that partici- to other factors. A great deal more needs to be understood pants from both industry and academia consider U.S. engi- about the relationship between offshoring and the attractive- neering education a valuable asset. It is also clear that other ness of engineering as a career. countries and regions, most prominently China and India, are working hard to upgrade their engineering education capa- Concerns were raised repeatedly about whether offshor- bilities. In addition, large numbers of students from China ing is negatively affecting the public perception of engineer- and India continue to come to the United States for graduate ing and whether this perception has led (and will lead) to engineering education. fewer talented U.S. students choosing to pursue careers in Workshop participants repeatedly stressed that U.S. engineering. We do not have enough data at this point either engineers will need better management and communica- to support or allay these concerns. We do know, however, tions skills and that engineers who master the principles of that over the past several decades, the relative popularity business and management will be rewarded with leadership of engineering as a major has declined in comparison with positions. The same needs have been stressed in reports and other fields that have experienced strong long-term growth. statements by professional societies and reports from the The committee believes that this issue should be thoroughly NAE Engineer of 2020 Project (NAE, 2004, 2005). investigated. FINDING 5.  Although individual engineers must ultimately IMPLICATIONS FOR POLICY take responsibility for their own careers, industry, govern- ment, universities, professional societies, and other groups FINDING 7.  For the United States, attracting and retain- with a stake in the U.S. engineering enterprise should ing world-class engineering activities in an increasingly consider supporting programs and other approaches to competitive global environment will require that core U.S. helping engineers manage their careers, renew and update strengths be sustained. Perhaps the most critical task in do- their skills, and sustain their capacity to innovate, create, ing so will be to avoid complacency. and compete. Workshop participants pointed out the strengths of the A continuing theme in the workshop discussions was the United States and argued that the biggest risk to future suc- effect of offshoring on engineers whose jobs are vulnerable, cess is complacency. Public and private efforts to tackle even though their wages may be increasing. For example, in large-scale problems, for example in energy and transporta- the semiconductor industry, wages are increasing, but very tion, could lead to the creation of entirely new industries and slowly (see Brown and Linden, this volume). The environ- would go a long way toward creating new opportunities for ment for engineering work has changed significantly as engineers. organizations grow and shrink and jobs are gained and lost. Some engineers who are proactive in keeping their skills up FINDING 8.  Plausible scenarios have been developed to date and are able to take advantage of the trend toward showing that offshoring either helps, is neutral, or hurts more frequent job and career shifts are adapting well. But engineering in the United States. Only continued discussions many workshop participants called for renewed efforts on and further studies will lead to a thorough understanding of the part of all stakeholders in U.S. engineering—educators, the potential benefits and costs of offshoring. government, professional societies, and employers—to address the needs of mid-career engineers who need help Offshoring in general, and offshoring of engineering in developing new skills and abilities for a constantly changing particular, has both costs and benefits, although we cannot job market. paint a clear picture of these based on available data. Never- In addition to educational approaches to ameliorating theless, the workshop did provide a basis for making general the effects of offshoring, many have called for direct as- statements about the costs and benefits so far. sistance to engineers and other service workers whose jobs On the benefit side, offshoring appears to be adding are displaced. Approaches that have been discussed include to the competitiveness and profitability of the U.S.-based (1) expanding eligibility for Trade Adjustment Assistance companies that manage it effectively. In addition, it has to include engineers and other service-industry workers and long been assumed that globalization and trade in services (2) providing some form of wage insurance to help displaced will ultimately yield net benefits for the U.S. economy. If workers who are forced to take lower paying jobs. offshoring is like other forms of trade in this respect, it too

 THE OFFSHORING OF ENGINEERING should deliver net economic benefits. However, some ques- FINDING 10.  Security concerns related to the offshoring of tions have been raised about whether this will be the case. engineering have been raised, specifically for the informa- Offshoring is proving to be a boon to several emerging tion technology and construction industries. economies, particularly India and China, and long-term U.S. interests will be served by these countries and other develop- Finally, national security concerns have been raised that ing economies becoming integrated into the global economy offshoring in the construction engineering and services and raising their standards of living. Inevitably, this will also industry might lead to detailed plans and other information lead to improved engineering capabilities in these countries about U.S. buildings and infrastructure, as well as geospatial relative to the United States. If America maintains its engi- data, falling into the wrong hands. Relevant professional so- neering capability, and if the emerging global networks are cieties are already working to ensure that sensitive informa- open to participation by Americans and American organiza- tion can be protected within the existing legal framework. tions, this might then be a “win-win” situation, because U.S. Concerns have also been raised about whether the glo- companies would also benefit directly through expanded balization of software development could pose a serious markets for their products. threat to national security. For example, accidental defects But what of the possible downsides? It has been argued or maliciously placed code might compromise the security that offshoring and other forms of trade can be harmful to of Department of Defense networks. The Defense Science the U.S. economy and U.S. national interests. For example, Board is examining those concerns. even if offshoring brings short-term economic benefits to the United States in the form of gains to companies and REFERENCES consumers, it could eventually undermine America’s ability to innovate. CPST (Commission on Professionals in Science and Technology). 2006. In addition, some prominent economists are concerned STEM Employment Forecasts and Distributions among Employment Sector: STEM Workforce Data Project: Report No. 7. Washington, D.C.: that the distributional impacts of offshoring on engineers and CPST. Available online at other service-sector workers in the United States will pose GAO (Government Accountability Office). 2005a. International Trade: U.S. serious challenges to freer trade. They argue that offshoring and India Data on Offshoring Show Significant Differences. GAO-06- could lead to the degradation of overall engineering capabil- 116. Washington, D.C.: GAO. ity in the United States. Thus, even if the U.S. engineering GAO. 2005b. Offshoring of Services: An Overview of the Issues. GAO- 06-5. Washington, D.C.: GAO. Available online at enterprise and economy as a whole are better off with off- items/d065.pdf. shoring, those who are most vulnerable to competition might Hira, R. 2005. Impacts and trends of offshoring engineering tasks and jobs. suffer severe hardships. The question is how we should ad- The Bridge 35(3): 22–27. dress these distributional issues. McKinsey Global Institute. 2005. The Emerging Global Labor Market. New York: McKinsey & Company. Available online at com/mgi/publications/emerginggloballabormarket/index.asp. FINDING 9.  As the debate about offshoring continues, it NAE (National Academy of Engineering). 2004. The Engineer of 2020: will be important to determine whether current U.S. policies, Visions of Engineering in the New Century. Washington, D.C.: The including immigration policies, provide artificial advantages National Academies Press. Available online at or incentives for offshoring. catalog/10999.html. NAE. 2005. Educating the Engineer of 2020: Adapting Engineering Educa- tion to the New Century. Washington, D.C.: The National Academies Although a detailed examination of immigration policies Press. Available online at is beyond the scope of this study, immigration issues are NAPA (National Academy of Public Administration). 2006. Off-shoring: closely related to offshoring. The immigration of scientists An Elusive Phenomenon. Washington, D.C.: NAPA. and engineers, the training of foreign students, and the Sturgeon, T.J. 2006. Services Offshoring Working Group Final Report. overall openness of the United States to foreign talent have Cambridge, Mass.: MIT Industrial Performance Center. Available online at clearly been a boon to U.S. engineering activities and the Thursby, J., and M. Thursby. 2006. Here or There? A Survey on the Factors U.S. economy. But some argue that the current H-1B and L-1 in Multinational R&D Location. Washington, D.C.: The National Acad- visa programs facilitate offshoring. Policies that, in effect, emies Press. Available online at subsidize or provide artificial incentives for the offshor- html. Uchitelle, L. 2006. The Disposable American. New York: Alfred A. ing of engineering, they say, are just as counterproductive Knopf. and market-distorting as artificial barriers or penalties for offshoring would be. Future studies should investigate the interactions between immigration policies and offshoring, particularly in engineering.

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The engineering enterprise is a pillar of U.S. national and homeland security, economic vitality, and innovation. But many engineering tasks can now be performed anywhere in the world. The emergence of "offshoring"- the transfer of work from the United States to affiliated and unaffiliated entities abroad - has raised concerns about the impacts of globalization.

The Offshoring of Engineering helps to answer many questions about the scope, composition, and motivation for offshoring and considers the implications for the future of U.S. engineering practice, labor markets, education, and research. This book examines trends and impacts from a broad perspective and in six specific industries - software, semiconductors, personal computer manufacturing, construction engineering and services, automobiles, and pharmaceuticals.

The Offshoring of Engineering will be of great interest to engineers, engineering professors and deans, and policy makers, as well as people outside the engineering community who are concerned with sustaining and strengthening U.S. engineering capabilities in support of homeland security, economic vitality, and innovation.

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