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Offshore Outsourcing Mostly About Lower Salaries? No Kidding!

There's a new study out by Duke University challenging the belief that a common reason businesses go to China and India for engineers is because the United States doesn't graduate nearly enough of them. The main reason businesses offshore outsource, the study concludes, is because the salaries are lower. Well, no $#*&!
There's a new study out by Duke University challenging the belief that a common reason businesses go to China and India for engineers is because the United States doesn't graduate nearly enough of them. The main reason businesses offshore outsource, the study concludes, is because the salaries are lower. Well, no $#*&!I'm not criticizing the work of the researchers of this interesting study. In fact, I'm glad they're debunking numbers thrown out by the Department of Education and in reports to Congress: that India graduates 350,000 engineers each year compared with the United States' 70,000, and China graduates 600,000. I've always been suspicious of these numbers. But policy makers bought them, and Democrats about a year ago proposed an "Innovation Agenda" that called for graduating 100,000 more engineers and scientists annually.

Full disclosure: I see logic in both sides of the argument over offshore outsourcing, but I tend to sway toward the free-market, global economy point of view that a business has the right to hire anyone, anywhere, as long as it follows the laws, pays fair wages, treats people ethically, and doesn't put kids to work in sweatshops. But it's counterproductive when businesses tiptoe around the truth or claim they're going offshore because of a lack of talent here. Duke University's study shows that lack of U.S. talent is a concern among some of the businesses it surveyed, but it's farther down the list. Mostly, it's about money. Period.

Consider that a U.S. company can increase its operating margin by $14 million if it pays 200 engineers a $30,000 salary instead of $100,000. Once everyone can agree on (and admit) that it's about money, then we can debate the pros and cons of offshore outsourcing as a nation. Does offshore outsourcing hinder our competitive advantage? Or could a U.S. company throw that $14 million back into research and development and create the next-big-thing that will lead to thousands more jobs in this country?

What follows are some excerpts from the report, titled "Seeing Through Preconceptions: A Deeper Look At China And India":

• "U.S. graduation statistics are readily available from the Department of Education's National Center for Education Statistics. Extensive data on engineering education are also collected by the American Society for Engineering Education and the Engineering Workforce Commission. In order to collect similar data for China and India, we initially contacted more than 200 universities in China and 100 in India. Chinese universities readily provided aggregated data, but not detail. Some Indian universities shared comprehensive spreadsheets, but others claimed not to know how many engineering colleges were affiliated with their schools or lacked detail on graduation rates by major… What we learned was that no one was comparing apples to apples. In China, the word 'engineer' does not translate well into different dialects and has no standard definition. … A motor mechanic or a technician could be considered an engineer, for example. Also, the numbers included all degrees related to information technology and to specialized fields such as shipbuilding. It seems that any bachelor's degree with 'engineering' in its title was included in the ministry's statistics, regardless of the degree's field or associated academic rigor."

• "In India, data from NASSCOM were most useful. ... However, NASSCOM's definition of engineer includes a wide variety of jobs in computer science and fields related to information technology, and no breakdown is available that precisely matches the U.S. definition of engineer, which generally requires at least four years of undergraduate education."

• "…we surveyed 58 U.S. corporations engaged in outsourcing engineering jobs. Our findings include:…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."

• "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."