Issue Date: April 2003

Robert Spiegel

NEWTON, MA - For two or three decades, U.S. companies had a good deal going with the rest of the world. They'd keep all of the high-pay technical jobs such as product design and development, and ship the low-pay unpleasant work off to China, Mexico, and Eastern Europe. It was a net gain for the U.S., since a good portion of aging blue collar workers encouraged their kids to get a college education and become the engineers and managers who ran the outsourced manufacturing from here.
But something has started happening to threaten that deal with the manufacturing countries of the world. They have educated their own young too, and now a new generation of engineers in China and India want the American engineering jobs - and they're willing to work for $ 10,000 per year. A good portion of American industry finds this prospect very attractive, especially coming off the tech talent dearth of 1999 and 2000.
Not all engineering jobs, however, are fit for product design and development outsourcing. "The engineering jobs that are most affected are those that are most closely related to manufacturing," says Robert Freid, president of Bellevue, WA-based Contract Manufacturing Consultants Inc. (www.cmc-inc.net), which helps companies manage their overseas outsourcing. "The engineers affected are equipment engineers, test engineers, industrial engineers, quality engineers and materials engineers."
And there's plenty of engineers to fill the jobs. The number of engineering graduates in India doubled in the past years. In China, the number tripled in the past ten years. But even with the growth of graduating engineering students, the U.S. still graduates four times as many engineers per 100 students (6) than China (1.5).
CoCreate Software (www.cocreate.com), which uses design collaboration tools to help its customers communicate with outsourced design, is outsourcing its own software development. "We currently outsource software development to Eastern Europe and India because of the lower cost," says Irv Christy, director of marketing. "Through this outsourcing, we learned how to communicate effectively so there are no ambiguities or conflict."
Though most of the "form, fit and function" design jobs remain here in the U.S., contract manufacturers (CMs) abroad are eager to compete for the work. "They want to secure the eventual manufacturing of these products, and if they can secure the product design, it's highly likely they will be awarded the manufacturing," says Freid. Some CMs such as Flextronics International Ltd. (www. flextronics.com) do their design services here in the U.S. in order to be close to their OEM customers.
But with the growing domestic market in emerging economies such as China, eventually U.S. companies will need to use designers who are close to the swelling markets. "The Asian market is very different from the U.S., due to its cultural diversity and various consumer tastes," says Raymond Tsang, president of Avnet Electronics Marketing Asia. "A lack of breadth of the product offering in the U.S. will be a drawback."
One area of form, fit, and function that is drifting overseas is outsourcing product design work by automotive suppliers. Both first and second tier suppliers are outsourcing design across the globe. "Some of our customers are moving design projects to countries such as Australia, New Zealand, and Brazil," says Christy.
One of the determining factors on whether or not engineering jobs are candidates for outsourcing conies down to a company's view of its core competencies. "The majority of design is still done stateside because OEMs want to control the design of their products," says Jim Schaeffer, senior vice president of Avnet Design Services, a unit of Avnet Inc. (Phoenix, AZ). Schaeffer notes that OEMs may choose to outsource some of this design, but they will look for nearby design firms. "They want good crisp communication, which is difficult overseas."
So far, a good amount of the outsourced engineering is typically tied to high-volume manufacturing. "In Taiwan and Korea, they don't do original design; they do copy and modify," says Richard Timmons, senior vice president of engineering and design services at Arrow Electronics Inc. (www.arrow.com). "Original design will always be done in the U.S., Europe, or Japan."
Most of the product design work that is presently safe from outsourcing involves new innovative product development and small manufacturing runs. "Small design will always be the innovator," says Timmons. "As it comes to volume, it could be copies in Asia for specific volume production," he adds.

Homeward Bound
As engineering jobs begin to migrate to Asia, many foreign-born engineers are getting tapped for a trip back to their homeland. Homegrown corporations in China are targeting expatriates in hopes of bringing back some American ingenuity with their prodigals. So far, they're not hitting a high success rate. "Mainland China wants to get the real brain power to build their companies, but it hasn't happened yet," says Timmons. He explains that even with the U.S. draining brain power from other countries, there is still plenty of talent left behind. "We're taking the best out of other countries, but their resources are great, so we haven't drained that much."
Avnet's Schaeffer, however, believes China is beginning to get some traction in its drive to bring its engineering talent back home. "They used to come here and get educated and stay," says Schaeffer. "Now there is some evidence that they come here, get educated, and return to their homes." Schaeffer attributes this to a tighter U.S. job market and a shift toward more openness in Asian countries.
While some engineering jobs will inevitably drift overseas, most analysts see the trend in decades rather than years. The U.S. continues to attract the best and brightest engineers from around the globe, and as long as the top talent collects in the U.S., the top design jobs will collect around the talent.

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