The U.S. tech industry began offshoring assembly and testing in the 1970s, followed by chip fabrication and much system design work in the 1980s and ’90s. Next went software development, which was outsourced to offshore service providers, followed by business process outsourcing (BPO). Now experts believe another offshoring wave looms: engineering design.

Recently, India IT industry trade group National Association of Software and Service Companies (NASSCOM), in association with consultancy Booz Allen Hamilton, released a study on the design engineering sector that takes a systematic and comprehensive view of the role of engineering services and assesses the evolution of the engineering market between 2005 and 2020. Engineering work such as designing and testing cars, consumer products and military equipment is the “next frontier” of outsourcing for India, the report said. Based on the current momentum of the market, engineering design outsourcing to India should generate about $3-5 billion by 2010. (The global offshoring engineering industry is expected to grow to $150-225 billion by 2020, from $10-15 billion last year, according to the report.)

The controversial issue struck a sour note in late July 2006 when a Commerce Department report came to light, in which a growing pile of evidence showed that U.S. chip design — which, with platform-level design, employs the highest number of electronic engineers — is becoming more vulnerable to offshoring in places such as China and India.

“For too long, the U.S. has been complacent in its leadership role and too many people have failed to recognize the significant advancements in other countries and the clear, strong talent pool that has been increasing in its size and competencies,” Michael Krause, an engineering fellow at a U.S. company, recently told Electronic Engineering Times. “People need to wake up to the fact that a global economy touches all jobs and all skill sets.”

Traditionally, lower cost has been the primary reason why companies looked to offshore engineering services. And although this continues to be true, a large talent pool and requisite infrastructure are also key reasons why India, for example, has the potential to control what the NASSCOM/Booz Allen Hamilton report estimates will be 25 percent of the industry’s market share by 2020 across a range of sectors.

Additional key drivers of the Indian design engineering outsourcing market, according to India’s Express Computer, include the following: variety, as seven types of providers exist in India’s engineering services space; critical mass to support ESO is in place, as the current supply-side scenario is dominated by non-captive models that include joint ventures and vendor-based models; and quality standards are being followed, due to India’s experience with international markets in the IT and BPO markets having brought home the value of and need for globally acceptable delivery standards.

Pavan Kumar, Managing Director, Altair Engineering, India & ASEAN, highlights another consideration:

Initially, India was considered as an outsourcing destination purely from the cost perspective in the design engineering domain which resulted in low-end work being outsourced to the country. [But today], innovation is critical in any design development process, and global players are setting up design centres [sic.] to leverage the base of experienced engineers coupled with the cost advantage to outsource high-end engineering. The cost-value proposition is one of the principal reasons for attracting global players.

Meanwhile, even if you have not been to China, you’ve probably heard about the country’s staggering GDP growth rate of 9.1 percent [Source: IMF World Economic Outlook 2003 Report] and its emerging 1.3 billion people market (almost five times the size of the U.S. population). Simply open a business or design magazine and you’ll see plenty of hype in China. Designers fear losing their jobs to China with an 8:1 pricing difference.

For electronics engineers, the ultrasensitive part of offshoring now is its move into the part of the industry — chip- and platform-level design — that employs not only the highest number of electronic engineers, but also the highest paid, EE Times recently noted.

Electronics engineers in the U.S. fear that domestic companies are looking for equally smart, but cheaper, engineers in developing markets who can be “future stars” once they gain experience. And they wonder if the U.S. is trading away its future industrial leadership for short-term gains in the bottom line — all the while short-changing long-term priorities such as investments in education and basic R&D. Others would like to see more enlightened policies that encourage foreign talent to study and live in the U.S.

Yet a lack of reliable data “makes it hugely problematic to determine the impact of offshore chip design on the U.S., according to researchers who have studied globalization in the high-tech industry.” Says EE Times:

The suppressed Commerce Department report didn’t cite BLS statistics but instead included Semiconductor Industry Association (SIA) estimates. The SIA figures showed that the number of engineers employed offshore by U.S. chipmakers climbed by more than 10,000 between 2000 and 2003, while U.S. engineering employment declined by 4,000. This is contrary to BLS statistics.

In a recent e-mail interview between former designer Jason Walsh, of Digit Online, and Jon Kolko, a professor of interaction design and industrial design at Savannah College of Art and Design, Kolko assumed that “most traditional graphic and industrial design work has reached a level of commoditization, and most practicing designers will soon find themselves adapting as necessary to the offshoring that has occurred, and will continue to occur, in their professions.”

Part of this adaptation, he noted, is a “shift toward designer as generalist, or one who can provide value regardless of the medium in which they are required to work.”

Kolko recalled:

A friend of mine, the former head of experience design at a major consultancy in the U.S., used to talk about how they were offshoring their *sketch models* because it was cheaper than maintaining a shop, they could overnight them each way, and the quality was simply amazing. I’ve heard anecdotal evidence of manufacturing and assembly situations in China that throw in design work for free if you go to tooling with them; even the Taiwanese are starting to “offshore” to mainland China, because it simply makes financial sense.

Despite past offshoring trends and present hints of change, it is still too early to tell the long-term impact of design offshoring. From your experience in the field, where is design engineering heading? Is the claim of this offshoring threat to U.S. design just more spin and panic, or is it yet another element in a grim acknowledgement that it is a “dog-eat-dog” world and globalization, while good on many levels, will also leave no industry unscathed?

Resources

Design offshoring troubles U.S. engineers
by Mike Clendenin
EE Times, Sept. 18, 2006

Growing Demand for Engineering Services Creates Opportunities for Emerging Economies
Booz Allen Hamilton, Aug. 3, 2006

The Top 10 Myths & Truths about Design in China
by Elaine Ann
Core 77

The next big thing in offshoring
by Faiz Askari
Express Computer, Oct. 9, 2006

Better life through design
Interview by Jason Walsh
Digit Online blog, Sept. 20, 2006