Engineering Goes Global

The push to outsource engineering and programming to lower wage countries remains a hot button, but it is rapidly becoming a common business practice. As the practice grows, it's forcing U.S. engineers to factor globalization into their career decisions.

Electronics and automotive are leading the trend, viewing offshoring as a routine tool. Once a controversial issue that was sidestepped or ignored, international contract engineering is well on the way to becoming as accepted as contract manufacturing.

"It's part of life, every major automotive supplier has a significant low-cost outsourcing base," says Mark Haller, deputy director, Slip Control and Global Slip Control Software Development at TRW Automotive of Livonia, MI.

Many observers agree outsourcing benefits U.S. companies and workers by helping corporations compete, which makes it possible for them to retain workers. But groups that represent individual engineers contend this attitude gives companies the edge when they hire engineers and dole out raises.

"The bargaining power of engineers is going down," says Ron Hira, vice president of the IEEE-USA's Career Activities Committee.

A recent study by Booz Allen Hamilton of McLean, VA, estimated that spending for engineering services outsourced to both domestic and international firms was $750 billion in 2004. That's projected to grow at a low single-digit percentage, increasing to $1.1 trillion by 2020. Presently, only $10-15 billion of these engineering services are offshored. But Booz Allen predicts the market will explode to $150 -225 billion by 2020.

India has only about $1.5 billion of the offshored engineering service market, a relatively small number compared to its outsourced information technology and business process sectors. The study predicts India will increase its 12 percent market share of engineering offshoring to 30 percent by 2020, with a market that could exceed $60 billion by 2020.

However, U.S. suppliers consider China a more likely area for offshoring engineering jobs. A full 46 percent of companies identified China as a potential resource, compared to 26 percent for India, 13 percent for Latin America and 9 percent for Eastern Europe.

Autodesk is one of the companies that has already tapped China which, like India, is graduating far more engineers than the U.S. The company has a large offshore development partner in China.

Managers note there are benefits beyond the country's low wages. The combination of outsourcing and looser labor laws make it easier to rightsize staffs. "It's not just for cost, we do it for scalability. If we have a large project, we can get a large number of people there," says Richard Jones, a vice president at Autodesk, based in San Rafael, CA.

Other firms are focusing more on Eastern Europe and India. "There's no question there's a cost advantage in Romania and India," said Piero Caporuscio, software group leader for Siemens VDO Powertrain, based in Auburn Hills, MI. He notes that the quality of engineering graduates is high in both areas.

While some companies are just dipping their toes into globalization, others are embracing it fully. "About 50 percent of our software is produced at our facilities outside North America. It breaks down to about 25 percent in Europe and 25 percent in Asia/Pacific," said Ashok Ramaswamy, software engineering competency manager at Delphi Automotive of Kokomo, IN.

Domestic Concern

The ability to utilize workers who are happy to work for low wages, often well below half the average salary for U.S. engineers, provides obvious benefits for companies striving to compete against competitors based in those regions.

But for American engineers who hope to see paychecks that grow rather than getting pink slips, offshoring is a constant concern. "A lot of IEEE-USA members are certainly worried about what companies are doing," says Hira, who's also a professor at the Rochester Institute of Technology in New York.

For many of these engineers, the focus has shifted from trying to prevent global outsourcing to trying to discern which jobs are more likely to stay in the U.S. At present, most companies tend to send fairly low-level aspects of product development projects offshore.

"When software is complete and you know it works, maintenance is a good thing to do offshore," said Joseph Lemieux, chief project engineer at Detroit-based Ricardo Inc.

While American engineers want to focus on jobs that are more difficult to outsource, finding out what those areas are is not always simple. Some companies still fear backlash if they talk much about offshoring, making data hard to find.

"Companies have been misrepresenting what's going offshore and what's staying. We're working with the government to see what can be done about that. Obviously, everyone wants to focus their energy on what's staying," Hira says.

What Stays?

Most observers say innovation is a key factor, leveraging America's entrepreneurial spirit. Many universities are working to figure out how to instill this spirit in engineering students.

Also, suppliers need to keep engineering teams close to their customers. "Just because you can do jobs globally doesn't always mean it's best to do that. Some things are best handled when people can meet face to face," says Brad Holtz, CEO at Cyon Research.