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The Offshoring of Engineering: Facts, Unknowns, and Potential Implications (2008)

Chapter:Part I: Consensus Report, 1 Introduction

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Suggested Citation:"Part I: Consensus Report, 1 Introduction." National Academy of Engineering. 2008. The Offshoring of Engineering: Facts, Unknowns, and Potential Implications. Washington, DC: The National Academies Press. doi: 10.17226/12067.
Suggested Citation:"Part I: Consensus Report, 1 Introduction." National Academy of Engineering. 2008. The Offshoring of Engineering: Facts, Unknowns, and Potential Implications. Washington, DC: The National Academies Press. doi: 10.17226/12067.
Suggested Citation:"Part I: Consensus Report, 1 Introduction." National Academy of Engineering. 2008. The Offshoring of Engineering: Facts, Unknowns, and Potential Implications. Washington, DC: The National Academies Press. doi: 10.17226/12067.
Suggested Citation:"Part I: Consensus Report, 1 Introduction." National Academy of Engineering. 2008. The Offshoring of Engineering: Facts, Unknowns, and Potential Implications. Washington, DC: The National Academies Press. doi: 10.17226/12067.
Suggested Citation:"Part I: Consensus Report, 1 Introduction." 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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Part I Consensus Report

1 Introduction The phenomenon of “offshoring”—the transfer of work numbers of appropriately skilled overseas workers who are previously performed in the United States to affiliated and willing to work for salaries significantly lower than prevail- unaffiliated entities abroad—suddenly emerged as a major ing U.S. salaries provides an incentive for companies to issue in the U.S. political debate a few years ago. At the achieve cost savings by offshoring. Even if wages for the time, employment and wages were recovering slowly from most accessible and skilled of these workers are bid up to a recession precipitated by the “dot-com bust” and the 9/11 levels near those of wages in developed countries, we can attacks. Particularly during 2003–2004, news reports of expect the supply of workers to increase over time as other companies simultaneously cutting staff in the United States individuals, firms, and countries seek out, or begin to pro- and launching extensive new operations in lower wage vide, the training and connectivity they need to participate economies abroad attracted attention, and criticism, from in a global service economy. many quarters. A number of individual scholars and organizations are Particular concerns were raised about the transfer of work investigating the offshoring phenomenon, and several useful in engineering and information technology (IT). These jobs studies and analyses have recently been published. Never- not only had high skill requirements; they also commanded theless, significant gaps in knowledge remain. In fact, there higher than average wages. In addition, the emergence of are formidable barriers to compiling a reasonably complete offshoring coincided with high levels of unemployment in picture of current and likely future conditions. For example, some engineering specialties, such as electrical and computer existing categories in official statistics of production, trade, engineering. The widely held assumption that U.S. engineer- and the labor force reflect past, rather than present (or future), ing and high-technology jobs were invulnerable to interna- business structures and economic activities. tional competition was suddenly called into question. In addition, much of the information about the microeco- With the subsequent economic recovery and lower nomic trends in individual companies and whole industries, unemployment rates among engineers and other affected which is necessary to construct a complete picture of offshor- groups, fewer headlines referred to offshoring. However, ing, is considered proprietary. This is largely the result of this important aspect of the global economy is not well un- controversies that arose in 2003–2004, when companies that derstood, especially how it fits into the broader context of engaged in offshoring were heavily criticized in the media. globalization. Since that time, these companies have been careful about Clearly, business infrastructure, particularly in IT-related releasing information that might open them to heightened businesses, has developed to the point that many service jobs scrutiny or criticism (see Dobbs, 2004). are now “tradable.” These include customer-service func- tions, such as call centers, tax preparation, and accounting, THE GOALS AND PROCESSES OF THIS STUDY and a variety of IT-related jobs (e.g., database administra- tion). Over time, we might expect the kinds of tasks that Offshoring raises basic questions for the engineering can be offshored to increase. The availability of significant profession and enterprise in the United States that must be 

 THE OFFSHORING OF ENGINEERING answered before rational decisions can be made about poli- jobs performed abroad and those performed at home? Has cies (e.g., the debate over H-1B visas) or strategies to address offshoring impacted our security? Many, many more ques- the consequences. For example, we need to determine which tions could be added to this list. fields of engineering and what types of engineering work The National Academy of Engineering (NAE) launched (e.g., research and development [R&D], R&D management, this study to help fill in some of the information gaps. Be- design, manufacturing, marketing, customer support, and so cause the engineering enterprise is a pillar of U.S. national forth) are being offshored and why. We need to know if the and homeland security, economic vitality, and innovation, rationale for offshoring in engineering differs from industry this study will be of great interest to many people outside the to industry, and if so, how. We need to know if the rationale engineering community. The primary goal of the study is to varies over time. What makes some industries more suscep- improve our understanding of the scope, composition, and tible to offshoring than others (e.g., government regulation, motivation for offshoring and to consider the implications intellectual property laws, and other factors)? How do the ef- for the future of U.S. engineering practice, labor markets, fects of offshoring compare/interact with the effects of other education, and research. The specific statement of task for factors, such as increased automation, improved technology, the committee is provided in Box 1-1. or reorganization? What impact do these factors have on the For several reasons, distinctions are made in the papers number and composition of engineering jobs in different and analysis between U.S.-based companies and companies sectors? How do patterns of engineering offshoring compare based elsewhere. First, the industry-focused papers show that with patterns of “onshoring” (bringing in engineering jobs U.S.-based companies have tended to undertake offshoring from other countries through direct foreign investment)? earlier and more extensively than firms based elsewhere. Sec- What is the relationship between offshoring and the immigra- ond, although firms based outside the United States employ a tion of skilled workers, both temporary and permanent? How significant and growing share of the overall U.S. workforce, much do foreign companies rely on engineering services including U.S. engineers, the majority of U.S. engineers are performed in the United States? Can we characterize differ- still employed by U.S.-based companies, and the actions of ences in performance between engineering service-sector U.S.-based companies still have a disproportionate impact on BOX 1-1 Project Statement of Task National Academy of Engineering Committee on the Offshoring of Engineering Statement of Task The National Academy of Engineering will form an ad hoc committee to organize and conduct a public workshop on the issue of offshoring of U.S.-based jobs having significant engineering content. Workshop presentations and commissioned papers will present what is known about offshoring from a broad perspective and in specific industries, such as information technology, construction and civil engineering, automobiles, and pharmaceuticals. The work- shop will bring together analysts from government statistical agencies (e.g., National Science Foundation, Bureau of the Census, and others); experts from engineering professional societies, industry, foundations, and academia; and leaders in engineering education who have collected data and can offer insights and observations. Based on the workshop, the committee will prepare a report aimed at improving understanding of the scope, composition, motivation, and outlook for offshoring, and on considering the implications for the future of U.S. engineering practice, labor markets, education, and research. The questions to be addressed include:   (1) What do we definitively know about the current status and trends regarding offshoring of work with significant engineering content, including the extent, motivation, types of work subject to offshoring, industry-specific characteristics, and future prospects?   (2) What are the key areas where data is lacking, and how might information gaps be filled?   (3) Given what we currently know, are there actions or options that engineering educators, professional societies, industry lead- ers, policy makers, and the engineering community at large should consider to strengthen the U.S. engineering enterprise in the face of offshoring and the continuing globalization of the engineering enterprise?

INTRODUCTION  U.S. engineering. Although the interests of U.S. engineers state of knowledge based on available contextual materials and the engineering enterprise are not exactly the same as (Chapter 2) and summaries of the insights from the workshop those of U.S.-based companies, the location of corporate (Chapters 3 and 4). Chapter 4 also includes the committee’s headquarters still matters in important ways. findings and conclusions, restatements of outstanding ques- Clearly, NAE’s underlying interest is in the long-term tions and issues, and suggestions for next steps by govern- health and prosperity of the engineering enterprise in the ment and the private sector. United States. The engineering enterprise includes engi- In the course of organizing the workshop and preparing neering professionals, the organizations that employ them, the summary, the committee reviewed some recent analyses the institutions that educate and train them, the government of offshoring, as well as articles that have appeared in the entities that support and rely on engineering, and the societ- business and general press. Because the offshoring of en- ies and associations that serve the engineering profession. gineering is a complex, controversial phenomenon that is NAE President Wm. A. Wulf appointed an ad hoc steering changing rapidly, the conclusions of scholars and analysts committee composed of eight NAE members representing on all sides of the issues were questioned and their ideas a range of engineering fields and two additional experts to debated. oversee the drafting of the commissioned papers, develop the Some of the examinations of offshoring the committee agenda for the public workshop, and prepare the final report. found most useful have been called into question because The papers provide an overview of offshoring in specific they were produced by organizations affiliated with com- industries—software, personal computer manufacturing, panies or associations with financial or other interests in automobiles, semiconductors, construction engineering and offshoring. The committee kept these affiliations in mind in services, and pharmaceuticals. Taken together, these six in- preparing the report. However, because the report does not dustries account for a significant share of U.S. engineering include policy recommendations, and because one of the key activity. In all of the selected sectors, significant research findings is that more data are needed on offshoring, the com- on globalization and U.S. competitiveness has been done mittee chose not to continually raise questions about sources in recent years. However, some important industries that that have not been challenged on substantive grounds. In ad- also employ engineers were not included, such as financial dition, the NAE Program Office commissioned an overview services, transportation/logistics, aerospace, and others. The paper to review statistical and other sources (Morgan, 2006). papers can be found in Part 2 of this report. Finally, although a variety of sources is referenced in the The committee met face to face in April 2006 and held summary, the primary bases for the committee’s findings are regular teleconferences throughout the project. The public the industry-focused commissioned papers and the workshop workshop was held in October 2006. Following the work- discussions. shop, the steering committee prepared a summary report, including findings, and provided suggestions to the authors REFERENCES of the commissioned papers, who then revised their work. In addition, several experts who made presentations at the Dobbs, L. 2004. A Home Advantage for U.S. Corporations. Commentary, workshop were invited to convert their presentations into August 27. Available online at home.advantage/index.html. brief papers (see Part 2). By its nature, this project does not Morgan, R.P. 2006. The Impact of Offshoring on the Engineering Pro- constitute a comprehensive examination of all industries or fession. Background paper prepared for the National Academy of all aspects of engineering. Engineering. Available online at Following the workshop, the steering committee devel- nsf/weblinks/PGIS-6WHU3R/$file/Morgan%20Paper.pdf. oped this report, which includes an overview of the current

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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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