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U.S. engineers battle globalization impact

Posted: 01 Jan 2007 ?? ?Print Version ?Bookmark and Share

Keywords:design? engineering? offshoring? chip? wafer?

The U.S. engineering community is wrestling with the quickening pace of offshoring. As they work to document the extent of offshoring in areas such as chip design, experts are trying to get their arms around globalization's implications for the engineering profession and, more important, for the future of U.S. innovation.

Recent examinations of the issue by some of the profession's top thinkers have found that the United States still leads in areas like advanced chip design. But there's concern that the United States lead could be shrinking. Indeed, rising costs, competitive pressures and the global transmission of intellectual property are reshaping the engineering profession and the nature of innovation in ways that are just beginning to be understood.

Part of the debate focuses on whether location matters in engineering. Some argue that a connected world renders a company's location irrelevant. Others say proximity to clusters of innovative startups, corporate R&D labs, universities and venture capital are the pistons that drive the engine of innovation.

Both sides have a point, Charles Vest, president emeritus of the Massachusetts Institute of Technology, told a recent offshoring workshop in Washington. But however you view it, "globalization is the new reality."

Between 2000 and 2003, according to the National Academy of Sciences, foreign-owned companies built an estimated 60,000 manufacturing plants in China. During the same period, an estimated 400,000 U.S. IT manufacturing jobs were lost, according to presidential advisory panel statistics.

Vest told the workshop, sponsored by the National Academy of Engineering, that the high-tech industry is "migrating and morphing" in a sea change driven largely by economicsby lower overseas wages, tax and trade policies, and global networks.

Other drivers are speed and complexity, Vest said. "Everyone is in a hurry" to rush innovative products to market, he said, and only the nimblest will reap a return on their staggering investments. The laggards will morph into something else or vanish.

Innovation models
New models for innovation are also emerging. Vest cited IBM CEO Sam Palmisano's concept of a "globally integrated enterprise" as the successor to the multinational corporation. In this model, technologies are borderless and technical standards are based on global technology. An "open innovation" model postulated by Harry Chesbrough of Harvard Business School argues that companies must integrate the best ideas regardless of where they originate.

Vest and others insisted that the United States remains the leader in technology innovation, with the best research universities and R&D infrastructure. "The enemy I fear most is complacency," Vest said.

In agreement were other experts at the workshop who have focused on the impact of offshoring on specific technologies, like semiconductor design.

"So far, offshore activities appear to complement design activities with expansion" in the United States, said researchers Clair Brown and Greg Linden of the University of California at Berkeley. But the "long-run impact on U.S. leadership and jobs remains unclear." In the meantime, China and India will grow in importance as markets and suppliers of engineers and design skills, they said.

The cost of labor outside the United Statesup to 90 percent lower in some locationsprovide U.S. chipmakers with competitive advantages, the Berkeley researchers found. The "ideal result" of the offshoring trend would be that U.S. companies "will grow and hire more workers at home and abroad." But the pair warned that some U.S. engineers will lose jobs because of the offshoring of design projects, and "only the remaining overseas workers and consumers will benefit from the firm's move offshore."

Offshoring risks
Their study also found that competitive advantages are offset by other costs associated with design offshoring. These include the need to describe design tasks more precisely to overseas design teams; extra controls on intellectual property; increased management costs; and reduced productivity and slower product cycles. Together, these factors raise the risks for offshoring design and R&D projects, they concluded.

The debate over offshoring is getting louder, with all sides in the engineering community weighing in on the implications for employment and innovation. Much of the debate has shifted to assembling reliable data, such as labor statistics, to determine the overall economic impact of outsourcing activities like chip design. Meanwhile, critics worry that a new wave of offshoring to India and China will stifle U.S. innovation as the United States confronts stiffening global competition.

Other observers note that recent political shifts in the United States may strengthen the hand of organized labor, which provided much of the financial backing used by Democrats to recapture control of Congress. In return for their campaign contributions, labor groups will likely press lawmakers to put the brakes on offshoring as a way to preserve U.S. manufacturing jobs. What impact that might have on the future of U.S. innovation remains unclear.

- George Leopold
EE Times

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