Harry the ASIC Guy got into the outsourcing discussion that has been going on in EE Times, starting with the "secret" IBM layoffs, and now with revelations that Chinese engineers will work for a fifth of the salary of a comparable American engineer. He asked fro responses but as I started getting into this I realized it was too long for a comment, so I'm putting it here today.
As usual, American corporations take it on the chin. The main excuse the corporations make is that they are beholding to their stockholders and have to maximize profits in a down economy. Unemployed engineers, union workers and politicians say they are disloyal to America.
The truth is that everyone has a hand at sending jobs overseas.
Let's take a look at the unions and engineers first. The largest single stockholding group in the US is retirement funds... for unions. The pressure to maximize profits, that is causing corporations to look for offshore answers comes directly from those being pressured by the rank and file to make sure that retirement fund is healthy. So the workers being laid off, teachers, government employees. And if those funds start to dip because the stock market is on the skids ... like it is now ... the union pressure the corporations to up their contributions to the fund.
Second, US workers, including engineers, had a competitive advantage for many years because they had unbridled greed, superior technical competence and lofty ambition. But they have left the field by exchanging ambition for complacency. The attitude is, "we are the best so we must be compensated." As I have pointed out earlier this week, low cost trumps quality in today's electronics world. Outsourcing centers have adopted good old American greed and have come close enough to matching US competence to make the choice comparable. They have also adopted the long-term attitude that was once the hallmark of American business. They are willing to sacrifice monetarily in the immediate to establish dominance later. The attitude of entitlement of American workers is making them a poor choice in today's economy. That attitude is not nationwide. Many workers are taking huge salary cuts in order to stay competitive. That willingness to sacrifice is not, however, taking hold within the electronics world.
Third, government still seems to think that the big stick is a carrot and can't figure out why US companies are leaving the US for other countries. At a talk in Monterey a couple of years ago, former Seagate CEO Bill Watkins said, "If I get approached by a country that tells me if I move my corporate headquarters to their island, they will give me office space and eliminate my taxes as long as I hire locally, I'd be crazy not to take them up on it." Watkins pointed out, even before the crash in '08, that US government makes no effort to keep US companies in the US.
Fourth, corporate management in the tech sector is lead by sheep. They see a competitor do something and they go do it too, often at the prodding of the board and investors. That's what got everyone excited about off-shoring in the first place. There was little research done regarding the long term benefits. Now we're seeing some of the early adopters of the practice rethink their decision. Offshore jobs increased job mobility in India, so companies had to increase the amount of training for workers that might last only 6 months. IP theft in China has cost the electronics industry billions of dollars. The financial justification of going overseas is a lot less viable now than it was 10 years ago, especially when you factor in the significant drop in quality.
Finally, US consumers want things cheap even if they are poorly made. That's the magic of Walmart. It's hard to blame them in these times, but we got into that mindset long before things crashed. I have noticed in my trips to Europe that the cheap crap for sale is only available where American tourists show up. If you shop where the locals go, you find quality and you pay for it. When you buy a car in Europe, you can expect to keep if for at least 10 years. In the US, we want a new one every three. Same with computers. And we want a new cell phone every year. But we can't afford that anymore.
So what are the answers to losing jobs?
- Institutional investors -- yes, I mean unions -- need to instruct their fund managers to pressure companies to keep jobs in the US, even at the cost of higher dividends. I've already taken that position individually with my investment manager. I dump stock on companies that go far to deep, in my opinion, in offshoring knowing that it's going to bite them in the end.
- Unions need to be as concerned about corporate profitability as they are about job security, and union members need to tell their leadership that. Workers need to care about their company if they want the company to care about them.
- American workers need to get back their competitive attitude, even at the cost of salaries and benefits. The unusually high cost of increasing mobility and IP theft is making the wage benefits of offshoring look less attractive. Workers would not have to lose half of what they would normally get, but 10 percent reductions are not enough. We need to go deeper.
- American business leaders need to grow a pair and realize that just because the investors or board wants them to jump on the latest trend doesn't mean they have to. A CEO is hired to start trends, not follow them. One company in the UK has figured that out and is using it to their advantage. TT Electronics has recently reorganized to locate manufacturing where demand for products is. Their US facility is concentrating heavily on medical devices, aerospace products and military development, because that's what is hot in the US. But they are not limited to those arenas. They key is reducing cost by reducing shipping. The expense of moving product from an offshore facility to the actual market is becoming untenable. By locating manufacturing near the demand, they more than make up the extra cost of higher wages.
- For cryin' out loud Washington, start thinking about incentives to stay in the US. Real ones.
- We need to start thinking long-term as consumers and demand products that provide long-term service. It's time to stop being cheap and start being smart.