Steadily declining IC development productivity means more job losses for engineers in the U.S. and Europe to their less expensive counterparts in second-world economies. And the trend is accelerating as chip design complexity outpaces gains in productivity.
Bad news: Steadily declining IC development productivity means more job losses for engineers employed in first-world economies—e.g. U.S. and Europe. Those lost jobs are going to second-world economies because labor costs are much lower. Moreover, the trend is accelerating as chip design complexity outpaces gains in productivity. Don’t shoot the messenger for the message.
IC development productivity isn’t keeping pace with rising design complexity. The solution has been to increase team size—throw more resources at projects. Once that decision is made, the question quickly turns to choosing the geographical location to hire the new resources? Second-world economies that have a good base of technical professionals seem to be the logical choice, at least from the perspective of executive management.
It’s not that engineers in those countries are more productive than their counterparts in North America or Europe. Rather, it’s that they are significantly less expensive—four to eight times less expensive.
I expect the pace of job migration will quicken during the next few years because IC design complexity is non-linearly outpacing increases in productivity. There’s a triple effect happening here—team sizes are growing, off-shore development sites are maturing, and the financial cost of off-shore labor remains low. That’s all bad news for engineers in first-world economies.
If productivity kept pace with rising complexity, team size would be remaining constant. Off-shoring would nonetheless occur, because of the cost advantage. But it would happen at a slower rate—that was the situation 10 to 20 years ago. However, as off-shore development sites matured, and the cost and effectiveness of inter-site communications technology steadily improved, off-shoring became increasingly viable—and effective
Off-shoring of development was a competitive advantage for first movers. But today, it is rapidly losing that edge, because nearly all companies do it. So in most cases, it’s now a necessity in order to compete. If you’re paying four to eight times more for your resources, your cost structure is uncompetitive—even if your productivity is, say, twice as high.
Ronald Collett is president and CEO of Numetrics Management Systems Inc.