R&D Starts to Move Offshore - Outsourcing evolves beyond low-wage programming jobs

ComputerWorld ^ | 3/1/2004 | Patrick Thibodeau and Sumner Lemon

[ZeitgeistSurfer]

As corporate America becomes increasingly comfortable with offshore development, it's sending substantially more sophisticated IT work overseas. Companies such as Google Inc. are turning to foreign workers not for their willingness to work for lower wages but for their technological prowess.

Google is advertising for highly skilled IT help at its recently opened research and development facility in Bangalore, India. These employees will be involved in all aspects of Google's computer engineering work: conception, research, implementation and deployment.

"Bangalore is the so-called Silicon Valley of India, and there is a large pool of talented software engineers there," said Krishna Bharat, Google's principal scientist.

R&D is core to most companies. They guard it carefully, and their brightest people work on it. But as offshoring becomes increasingly commonplace, companies are moving up the value chain, using foreign workers in ways that make them a more integral part of the corporate identity.

Silicon Valley venture capital firms are encouraging start-ups to send their product development work overseas, said Marc Hebert, a vice president at Sierra Atlantic Inc., a Fremont, Calif.-based outsourcing firm that specializes in R&D. While Google was explicit about talent rather than cost being the driver of its offshore move, most companies are equally keen to tap the lower wages, which enable them to hire more people to bring products to market faster.

Hebert said that although idea generation and funding are still coming from the U.S., more and more of the R&D work needed to actually bring a product to market is being done offshore. "That's the really interesting trend," he said.

What that means for the future of Silicon Valley and IT development in the U.S. is unclear. But while overseas firms are hiring, the IEEE-USA said last week that the 2003 U.S. jobless rate for computer scientists and systems analysts has reached an all-time high of 5.2%.

The Asia Connection

Although the number of R&D jobs that have moved to Asia doesn't yet approach the number of low-end IT jobs that have moved, such as those in programming, the gap is bound to narrow, said Bob Hayward, an Australia-based senior vice president at Gartner Inc.

"There's a certain amount of inevitability about it," Hayward said, noting that the highly skilled Asian workforce and the leading role taken by those countries in developing cutting-edge services and technologies, such as broadband Internet access and flat-panel technology, have attracted the attention of U.S. IT vendors.

Just in the past three to four years, U.S.-backed investments in Asian R&D operations have increased dramatically, Hayward said. He noted that those investments have soared while IT vendors, faced with a global slowdown in demand for their products, have held back investments in other areas.

Several of the largest U.S. IT vendors started building R&D centers in China in 1998. Intel Corp. and Microsoft Corp. have opened facilities in Beijing. Intel has 40 researchers; Microsoft has 200 Ph.D. candidate interns and 170 researchers.

Some governments provide economic incentives to attract U.S. companies to invest in R&D operations in their countries. In Taiwan, for example, foreign firms can deduct 35% of their R&D investments from the income tax owed by their profit-making operations.

Still, some IT development work can be done only in the U.S., said Richard Brown, associate vice president of marketing at Via Technologies Inc. in Taipei, Taiwan. For example, the design and development of Via's PC chip-set products is done in Taiwan, but the company's CPU and graphics-chips products are designed by teams in the U.S., reflecting the dominance of the U.S. in those product areas, he said.

'Big Picture' Question

But the trend is clear. About half of the IT R&D done by Stratex Networks Inc. takes place overseas, some at its New Zealand subsidiary, and some in India. That has included development of a network configuration tool, said B. Lee Jones, vice president of IT and CIO at the San Jose-based company.

Jones has eight data centers to run on five continents and offices across 22 time zones. Like many U.S. IT executives, he wonders about the big picture: the long-term impact on the U.S. as more work is shifted offshore. But Jones said he believes the U.S. will remain dominant in IT.

Though he has some hesitancy about moving high-level work offshore, along with a desire to keep core development in the U.S., Jones said that "as the comfort level goes up and we are able to take advantage of having comparable quality for smaller prices, people will naturally migrate there."

Lemon is the IDG News Service correspondent in Taipei.

[Cronos]

Giving them a path into the first world also benefits us

Quite right, and what better proof than our ally in Asia -- Japan? THe Asians have long memories, along with their long lived civilisations and Japan won't forget that it was the US that made it the state it is todya.

[Cronos]

What worked when we were a small, poor nation in the 1700s will not work in the 2000s...

[Cronos]

They impose rules on trade that are not fair, but a one way street. They often give the advantage to "least developed countries" in their trade decisions, instead of fairly determining trade rules. That is, when it comes to a trade policy that pits a "least developed countries" against a "rich country", they will allow the "least developed countries" to impose tariffs to protect their producers, at the same time fining "rich countries" for having tariffs against the "least developed countries" goods.

The WTO has ruled in favour of the US as well, look it up.

[null and void]

Color me shocked...

[null and void]

Naw, I prefer to listen to Texas_Dawg. He tells me we'll all be sports-team owners.

And stock traders, don't forget stock traders...

[Doohickey]

Maybe we can get together and start a joint venture to train formerly productive people to become government functionaries and general drains on society.

[null and void]

I admire your steadfast unremitting unwillingness to observe your surrounding reality.

[Cronos]

OTTAWA, Jan 16 (Reuters) - A World Trade Organization panel has ruled the United States was within its rights to impose anti-dumping duties against softwood lumber imports from Canada, a Canadian official said on Friday.

After a long series of back-and-forth negotiations and further pro-US rulings from the WTO, the United States has now been authorised to undertake retaliation to the tune of $191.4 million against Europe in connection with the banana case. Under WTO rules, the United States has the right to impose countervailing sanctions against European imports in industries totally unrelated to the dispute. The United States has chosen to impose 100% tariffs on a range of European luxury imports, hoping that the affected industries will become internal lobbyists in the EU for a change in Europe's banana policy.

The WTO is reviled in developing nations papers as being a tool of the developed nations and vice-versa. Hence it's doing a good job as an impartial board -- not favourable to either.

[null and void]

Maybe you are right but maybe you are not. But in terms of this election does it matter. I have talked to about ten fellow it professionals and none are happy with the outsourcing. All either have or know someone who has lost their jobs. It will affect how they vote. This issue will be big in this election. ~ TXBSAFH

Yes. People aren't apt to forget they are unemployed when the step into the voter's booth.

Someone must pay.

And the (false) promises of more jobs from the opposition are a seductive siren call even to those who know better...

[hedgetrimmer]

These negotiations shall take fully into account the special needs and interests of developing and least-developed countries, and recognize that these countries do not need to match or reciprocate in full tariff-reduction commitments by other participants.

Some technical assistance is targeted specifically for least-developed countries. The Doha Declaration urges WTO member donors to significantly increase their contributions.

The Doha round, WTO

THE HIPC DEBT INITIATIVE

Was proposed by the World Bank and IMF and agreed by governments around the world in the fall of 1996. It was the first comprehensive approach to reduce the external debt of the world's poorest, most heavily indebted countries, and represented an important step forward in placing debt relief within an overall framework of poverty reduction

The plan to redistribute our wealth to "least developed countries". This is a one way street for our tax dollars.

[hedgetrimmer]

How is it Constitutional that the WTO is granting "rights"?
Enquiring minds want to know.

[Cronos]

The US could impose sanctions on it's own, so could any other bloc/nation. This would return the world to the closed economies before GATT. The WTO exists to prevent that, to give nations an impartial arbitrator who can say: it's fair or not. If the WTO rules in favour of a country, it's just giving legal weight to that country to impose sanctions, nothing more.

[null and void]

Its going to fall further, much further, as techies in industry now (or who have lost their jobs) steer their own college bound children into other fields because they see what is going on.

*sigh* Yeah. I'm at a total loss as to where to steer my kids.

What job can't be outsourced? What job is immune to insourcing with call-it-anything-but-an-amnesty-amnesty "guest workers?

I know of only one, President of the United States.

And Ahhhhhnold is working on eliminating the native born Constitutional restriction from that job...

[Cronos]

It was the first comprehensive approach to reduce the external debt of the world's poorest, most heavily indebted countries, and represented an important step forward in placing debt relief within an overall framework of poverty reduction

Oh, so you'd prefer it if the cruddiest states went under because of incredible debt? Like the Weimar Republic? I do grant you that this needs to be done carefully, with pressure brought on the countries given this to shape up. You want Mozambique to pay up all it's debts, no matter if it takes it about 100 years to do so? Perpetual slavery?

[null and void]

What worked when we were a small, poor nation in the 1700s will not work in the 2000s...

Then you favor scrapping the Constitution and starting over? Sorta killing the living document?...

[Cronos]

I'm talking about tariffs......

[oceanview]

well, sales and marketing, even in tech companies, is a good place to be. what else do they like to do? owning a small business is also good. so is real estate.

[BillM]

Nobody wants to work hard anymore. If we don't educate engineers and scientists we will need to buy them from someone else. It's simple logic. The average age of an Aeronautical Engineer is 56. There is an enormous crisis coming. What do you plan?

[null and void]

Tariffs today, free speech a month before the election tomorrow, guns the next day, warrentless search and seizure the day after.

While we're at it think of the money the Pentagon could save if we could only quarter troops in private housing...

You've made a distinction without a difference, IMHO...

[Cronos]

YEs, tariffs would be as bad as curtailling free speech, removing guns from honest citizens or giving fascist powers to the police.