Tuesday, April 17, 2007

Offshore outsourcing of Engineers

You might find this article in Issues in Science and Technology interesting. The paper, written by researchers at Duke is one outcome of a project that has
sought to assess the comparative engineering education of the United States and its major new competitors, India and China; identify the sources of current U.S. global advantages; explore the factors driving the U.S. trend toward outsourcing; and learn what the United States can do to keep its economic edge.

The paper does a fairly detailed analysis of graduation statistics in India and China with an eye toward establishing reliable estimates. They also surveyed corporations that have outsourced some engineering projects. The findings include:
Degree requirements. We were surprised that the majority of respondents said they did not mandate that job candidates possess a four-year engineering degree. Forty percent hired engineers with two- or three-year degrees, and an additional 17% said they would hire similar applicants if they had additional training or experience.

Engineering offshore. Forty-four percent of respondents said their company’s U.S. engineering jobs are more technical in nature than those sent abroad, 1% said their offshore engineering jobs are more technical in nature, and 33% said their jobs were equivalent. Thirty-seven percent said U.S. engineering employees are more productive, whereas 24% said U.S. and offshore engineering teams are equivalent in terms of productivity. Thirty-eight percent said their U.S. engineering employees produced higher-quality work, 1% said their company’s offshore engineering employees produced higher-quality work, and 40% said the groups were equal.

Engineering shortages in the United States. We asked several questions about company policies in hiring engineers to work in the United States. First, we asked about job acceptance rates, which are an indicator of the competition a company faces in recruiting staff. Acceptance rates of greater than 50% are generally considered good. Nearly one-half of the respondents had acceptance rates of 60% or higher. Twenty-one percent reported acceptance rates of 80 to 100%, and 26% of respondents reported 60 to 79% acceptance rates. Eighty percent said acceptance rates had stayed constant or increased over the past few years.

It is common in many industries to offer signing bonuses to encourage potential employees to accept a job offer. We found, however, that 88% of respondents to our survey did not offer signing bonuses to potential engineering employees or offered them to only a small percentage of their new hires. Another measure of skill supply is the amount of time it takes to fill a vacant position. Respondents to our survey reported that they were able to fill 80% of engineering jobs at their companies within four months. In other words, we found no indication of a shortage of engineers in the United States.

Reasons for going offshore. India and China are the top offshoring destinations, with Mexico in third place. The top reasons survey respondents cited for going offshore were salary and personnel savings, overhead cost savings, 24/7 continuous development cycles, access to new markets, and proximity to new markets.

Workforce issues. Given the graduation numbers we collected for China and India, we expected to hear that Indian corporations had difficulty hiring whereas Chinese companies did not. Surprisingly, 75% of respondents said India had an adequate to large supply of well-qualified entry-level engineers. Fifty-nine percent said the United States had an adequate supply, whereas 54% said this was the case in China.

Respondents said the disadvantages of hiring U.S. engineers were salary demands, limited supply of available people, and lack of industry experience. The disadvantages of hiring Chinese engineers included inadequate communication skills, visa restrictions, lack of proximity, inadequate experience, lack of loyalty, cultural differences, intellectual property concerns, and a limited “big-picture” mindset. The disadvantages of hiring Indian engineers included inadequate communication skills, lack of specific industry knowledge or domain experience, visa restrictions, lack of proximity, limited project management skills, high turnover rates, and cultural differences.

Respondents said the advantages of hiring U.S. engineers were strong communication skills, an understanding of U.S. industry, superior business acumen, strong education or training, strong technical skills, proximity to work centers, lack of cultural issues, and a sense of creativity and desire to challenge the status quo. The key advantage of hiring Chinese entry-level engineers was cost savings, whereas a few respondents cited strong education or training and a willingness to work long hours. Similarly, cost savings were cited as a major advantage of hiring Indian entry-level engineers, whereas other advantages were technical knowledge, English language skills, strong education or training, ability to learn quickly, and a strong work ethic.

Future of engineering offshore. The vast majority of respondents said the trend will continue, and their companies plan to send an even wider variety of jobs offshore. Only 5% said their overseas operations would stabilize or contract.

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