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Business for Engineers: Offshore Outsourcing

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MeasurementBlues
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Too youg and too old
MeasurementBlues   2/7/2014 5:44:57 PM
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Henry,

Have you seen Lance Jone's recent post Engineers in America: Too Young, Too Old? He would certainly agree with you about the shortage of engineers with 10 years experience.

henry..12
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Re: Too youg and too old
henry..12   2/10/2014 8:38:25 AM
@MeasurementBlues I saw that post as  was finishing this blog - it was an intersting read.

I dco find that some special;ties are in short suply. <y question has become "why" over the last thirty years. There certainly have been surpluses of various engineering specialties at various times, largely driven by popular enthisiasm for a new technology. Sometimes it's driven by social influence, and other times by the newness of the specialty.

I believe that the whip sawing that electrical engineers experieinced because of bad management decisions had a dramatic impact on the financial attractiveness for engineers to enter the profession, or stay in, a field being (temporarily) decimated by management fads.

I had dinner with a friend who is a medical trancriptionist yesterday. Her job was eliminated because the hispital decided to outsource transcription services. A large company convinced the CFO of the hospital system that outsourcing transcription would be more efficient. And they promised that only native english speakers would perform transcription for the hospital. The CFO is happy because costs have gone down. BUT, turn around time has gone up, not down and because QC of the transcription is done in India by British speakers (their second language) the words are not always correct.

Decisions made for purely financial reasons sometimes have a negative imapct right away. Sometimes the impact is felt for decades. 

MeasurementBlues
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Re: Too youg and too old
MeasurementBlues   2/10/2014 9:01:56 AM
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"Decisions made for purely financial reasons sometimes have a negative imapct right away. Sometimes the impact is felt for decades. "

Every now and then I hear about jobs coming back because of poor quality overseas.

henry..12
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Re: Too youg and too old
henry..12   2/10/2014 9:06:54 AM
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@MeasurementBlues  Ironically, the decisions to "on shore" jobs has been made for financial reasons. The cost of poor quality outweighs the original fincnial reason to off shore. But the full impact of the decisions 309-30 years ago to off shore has yet to be felt I'm afraid.

MeasurementBlues
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Re: Too youg and too old
MeasurementBlues   2/16/2014 12:52:37 AM
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I recall being at a panel session at the old Design East where someone said "If you're starting a company, employee #10 should be in India."

henry..12
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Re: Too youg and too old
henry..12   2/16/2014 4:32:44 PM
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@MeasurementBlues    Wow! As late as employee #10? I've heard the same class of comments for may years as well. At different points in time it was Taiwan, China, Malysia, Philipines, Mexico, and others.

In my experience off-shoring is seldom the answer to cost containment. In most circumsytances, shortening the development cycle yields much better results than simply controlling costs by using the lowest cost supplier.

Consider a development that is spending $150k per month. A decision to avoid a PCB layout verification cost of about $20k cost 3-5 months of added debug AND a board re-spin. That $20k cost savings cost  more than $500k. Then, there is the opportunity cost of being late to market.

"Sin in haste, and repent in leisure." And pay for it too.

 

MeasurementBlues
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Re: Too youg and too old
MeasurementBlues   2/16/2014 6:06:47 PM
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@henry

But once a product is shipping, the move to offshore manufacturing is enticing to those who only understand the quarterly numbers.

"In my experience off-shoring is seldom the answer to cost containment. In most circumsytances, shortening the development cycle yields much better results than simply controlling costs by using the lowest cost supplier."

henry..12
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Re: Too youg and too old
henry..12   2/16/2014 8:54:22 PM
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@MeasurementBlues   You're right that folks get all worked up contemplating off-shoring manufacturing, with visions of dollars signs dancing in their heads.

But the promise often falls short in practice.

Successully managing a multi-continent inter-related organization is not a simple task. Moving to lower cost labor markets carries with it some substantial risk. Some of these markets suffer from institutionalized graft and forgery of basic materials documents. At the very least, the environment requires heightened security and quality control.

But as technology marches forward, the cost of labor becomes a decreasing portion of manufacturing costs. The real advantage that some off-shore facties enjoy comes from lower capital costs and strategic government credits or forgiveness of taxes. In a study that I did a dozen years ago, the major difference in off-shore manufacturing vs US-based factories boiled down to cost of capital. Raw materials costs were essentially the same regardless of location.

Historic decisions to move some capabilities to low wage countries (like semiconductor packaging) led to a dominance by off-shore companies. These previously "low margin" activities have become startegic over time. Thus, US semiconductor companies "gave" this piece of technology away.

Decisions made to off-shore regardless of your country of origin are deceptively strategic. Business executives must take a longer view of their industry and their technology.  

 

 

vlsi_guy
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Excellent article...
vlsi_guy   2/9/2014 12:26:59 PM
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Excellent article, exactly what many of us engineers have been trying to articulate to management over the decades with little or no success...

henry..12
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Re: Excellent article...
henry..12   2/10/2014 8:47:07 AM
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@vlsi_guy Thanks for the comment. Fortunately   there are always a few hold-outs for sound strategic decision making. Unfortunately, a handful of companies don't create a "jobs ecosystem" that encourages new engineers to enter a specific specialty in large enough numbers to make a difference. On th eother hand, the pockets of good, or accidental, decisions sometimes keep a skill alive.

Space filght is one example - while there is a rebirth of space-capable craft in the private sector, the US has mostly lost the practical engineering skills that landed men on the moon.

Bert22306
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There's more than one dichotomy
Bert22306   2/9/2014 6:47:10 PM
There's more than this outsourcing issue, in the dichotomy between the thinking of top corporate execs and the engineers that work to make them rich. I totally agree with you that the obsession about "shareholder value" can lead to more outsourcing than would be optimal for the long term (not that this matters to some CEOs, who are looking only for their golden parachute). But even more problematic, the corporate exec's "measure of effectiveness" is purely growth. In spite of their nice-sounding propagandish "mission statements," utlimately if they could sell hamburgers, and show more growth than developing high tech, they would do so in a flash.

It's actually not all that different in academia. The researchers that bring in the most lucrative grants are the heroes of the administration, never mind the long term significance of their work to the knowledge base of the human race.

Hard to say where this obsession for growth will lead. So far, we seem to have muddled through quite well, in the US anyway. I can't help but think that there are more important goals than short term growth, to benefit the paychecks of corporate execs. When their glossy brochures claim that "the company's top assets are its employees," the top execs know full well they are lying through their teeth. The corporate exec simply wants to show the largest possible quarterly and annual growth of his division, whether with these employees, different employees, or no employees at all!

Cliché example: It couldn't matter less to the human race now, whether or not Albert Einstein brought in the most lucrative grant dollars to Princeton. Einstein is far more important to the world than whatever grant dollars his Princeton administration may have gotten all giddy about. Heaven only knows how much truly significant work has had to be scrapped, because bean counters couldn't comprehend beyond their obsession for short-term growth.

David Ashton
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Re: There's more than one dichotomy
David Ashton   2/10/2014 4:25:58 AM
@Bert - your post brought this quote to mind:

Growth for the sake of growth is the ideology of the cancer cell.

- Edward Abbey

While I was looking for that I also found this pertinent one from the same guy:


A patriot must always be ready to defend his country against his government.

MeasurementBlues
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Re: There's more than one dichotomy
MeasurementBlues   2/10/2014 9:00:47 AM
"A patriot must always be ready to defend his country against his government."

and

"A patriot must always be ready to defend his country against big business."

henry..12
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Re: There's more than one dichotomy
henry..12   2/10/2014 9:03:16 AM
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@Bert22306 Excellent points!

It's easy to blame the "bean counters" for bad decisions - and in the vast majority of really bad strategic decisions seem to come down to a "provable" financial decision. These are of necessity backwards looking analysis with steady-state forward projections.

Like driving a car by only looking in the rear view mirror, strategic decision making can work if you're going slow enough and there are no major technical breakthroughs loomin on the horizon.

We work in an environment filled with technological change bubbling around us. Sometimes there are changes coming for valid, defendable engineering reasons that only a technologist can fully understand. Those situations are ones that made for purely financial reasons offer a crippling blow to a company or even an entire geographic region. 

Bert22306
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Re: There's more than one dichotomy
Bert22306   2/10/2014 4:16:01 PM
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It's easy to blame the "bean counters" for bad decisions

Sorry, Henry, that was not at all my intention. My point was, instead, that the bean counters have different motivations from engineers that work at the company. We march to the beat of two different drummers.

Even if the top execs habitually sugar-coat their motivations with words to soothe the employees, flowery mission statements and the like, it pays for engineers to know the truth.

Outsourcing is but one manifestation of these different motivations. Ultimately, history may be able to decide, in some cases, which decisions were "bad."

henry..12
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Re: There's more than one dichotomy
henry..12   2/11/2014 12:22:29 AM
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@Bert22306  My apologies for the misunderstanding!

The distinction you make is critical.

At the end, I agree that is essential that engineers understand that motivation for execs. A few execs are straight up about their objectives.. Unfortunately too many executives went to B-school without a strong engineering foundation and now have a toolbox filled with easily misused tools.

"When the only tool you have is a hammer, you tend to view every problem as a nail"   

And so it seems to be the case with too many management decisions.

dougwithau
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Long term effect is not known
dougwithau   2/10/2014 4:07:46 PM
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I like the graph. Nice to see some numbers attached to the argument. It matches my personal experience.

The thing that gets missed is the long term effect of outsourcing. Maintenance, updates and other activities sound like good outsourcing candidates. Keep the hard, high value, exciting design work onshore and close to headquarters. My experience is that this fails given some time. The grunt work is a good place to train new people. It also lets the designers and engineers know what should be fixed. Without doing the grunt work, you don't have the tools to actually make a better finished product.

We should also remember that headquarters may not be in the US. The outsourcing can come from and go to anyplace in a flat world.

I would also like to see the differnces in offshoring work, versus letting people work remotely. There are similar problems, of distance, communication, and time zones, but remote work still "works", at least according to some people.

escher
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Vicious cycle
escher   2/10/2014 10:08:00 PM
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One key enabler of technoloy progree is the close connection between research and manufacturing/production. Invaluable knowledge and training is gained by debugging production issues and refining technology developed in R&D. Once manufacturing is gone, the training ground is gone, along with all the tribal knowledge transfer and cross pollination between the researchers and the shop floor engineers/techs. As some of the other commentators have said, the long term impact of outsourcing and offshoring has yet to hit.

henry..12
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Re: Vicious cycle
henry..12   2/11/2014 12:35:30 AM
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@escher


I'm reminded of the story VCRs:

VCR technology originated in the US and many of the original manudacturers of VCRs were based in the US.

Manufacturing in the US was "too expensive" so manufacturing was moved offshore to countries with no real engineering expertise.

Smart people at the manufacturing company learned how the VCRs worked and grew a local expertise.

Local engineers designed and built competitive VCRs based on their combined manufacturing AND engineering.

Here's a challeng: Name one major VCR brand made in the US today (admittantly VCRs are a less important product today).

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