Outsourcing concerns include fears that higher value work may shift from the United States to other locations, impacting U.S. industrial strength and high salary employment, says a controversial report done by the United States Department of Commerce on outsourcing, released by Manufacturing &Technology News (MTN). MTN says that it “obtained the elusive” report after nearly two years. The statement was part of a passage in the full study that was deleted in the 12-pages version, says MTN. “Layoffs in the United States, especially in the information technology sector, have only exacerbated this concern,” the passage concluded. MTN says they had a tough time getting hold of the report on the outsourcing of high tech jobs in the information technology, semiconductor and pharmaceutical industries. The report, which was acquired by an Act of Congress, was to be submitted to Congress in July 2004. “But it was never released, due to fears within the Bush administration that the controversial subject would hurt the president’s re-election campaign,” says MTN.
The $335,000, 336-page report obtained last week never saw the light of day, says MTN. They submitted a Freedom of Information Act request to the Department of Commerce on March 17, 2005, seeking release of the study, but that request was denied.
Eventually, what was produced and provided by the Department of Commerce in September 2005, was a 12-page document bearing a July 2004 publication date that bore little resemblance to the work done by analysts at the Technology Administration, all of whom have recently been told they will be laid off due to severe budget cuts for the agency and the issuance of a reduction in force, MTN alleges.
Although that 12-page report (at $28,000 per page) was provided to MTN and Congress, it was not made available to the public and never posted to the Department of Commerce’s website.
Democrats on the House Science Committee asked for a copy of the full report in October 2005, but the Department of Commerce denied that request on a specious Freedom of Information Act legal claim that only the political party in power in Congress could require the document’s release, MTN says.
After Republicans on the Science Commitee acquiesced to Democrat’s demands, the Commerce Department provided Congress with the full document, a copy which has been provided to MTN.
The 360-page version of the report describes the type of information technology services and software jobs that are being outsourced. It states that Indian outsourcing companies “are expanding staff annually by the thousands.” The report describes the reason for the trend including the fact that “venture capitalists are encouraging IT start-ups in the United States to use lower-cost offshore destinations for software development to reduce the cash burn rate.”
The report states that there is “a growing pressure in corporate America – from customers, consultants and financial markets – to offshore information technology work, as well as growing external and political pressure to stem the flow of American jobs going overseas.” Yet the report also highlights the fact that the impact on U.S. competitiveness “appears to be negligible.”
The full report, that wasn’t released, also contains a long (and sobering) section on the shift of the U.S. semiconductors industry to offshore locations. Again, the 12-page Bush administration release differs markedly from the one the Department of Commerce quashed.
It states that U.S. semiconductor companies “are hiring more engineers overseas than in the United States,” due to their need to “reduce labor and operation costs and serve the growing customer base in Asia.
“In the long term, the United States risks losing high-end R&D and design jobs because, as semiconductor fabs move to Asia, high-skilled jobs move with them,” states the report.
The design centers that U.S. companies are “rapidly” creating in Asia “do not support local customers but support the home office with lower-cost designers,” says a section of the report that was deleted from the one that was released, according to MTN.
The costs of employing a design engineer in Ireland, Taiwan, China or India has been estimated to be 50 to 90 percent lower than in the United States” The report further states that “the number of engineers employed offshore by U.S. semiconductor companies rose by more than 10,000 between 2000 and 2003, while engineers employed in the United States dropped by 4,000 during the same period, according to estimates by the Semiconductor Industry Association.” The report ventured into issues impacting the continued loss of semiconductor industry jobs, says MTN.
“With fewer companies investing in wafer manufacturing in the United States, process R&D co-located with leading edge facilities may also decline, resulting in fewer high-skill jobs for U.S. graduates. Offshoring of design work can also impose downward pressure on U.S. wages and reduce the demand for U.S. design engineers. As the number of overseas design centers increases, it may draw foreign talent from the United States,” the report says.
Deleted from the final version was a discussion of how skyrocketing health care costs could lead to pharmaceutical companies deciding not to make future investments in the United States. “It may be that investment incentives and the global geography of capabilities and infrastructure will shift in the years ahead in ways that will help other countries’ pharmaceutical industries take a larger role than at present in the global pharmaceutical innovation engine,” says the report. The report provides a comparison of the average annual pay for global software workers: United States: $63, 000; Japan, $44,000; Canada: $28,174; Indonesia: $12,200; Thailand: $11,124; Russia: $7,500; Philippines: $6,550; Poland: $6,400; Hungary: $ 6,400; Pakistan: $ 4,860 and China: $4,750.
