Outsourcing Debate Rages On

By Mark Hachman  |  Posted 2004-08-24

Outsourcing Debate Rages On

STANFORD, Calif.—A conference of the meritoriously employed debated the benefits and pitfalls of outsourcing Monday night, largely concluding that the trend toward shipping jobs abroad was inevitable.

The post-dinner panel discussion at the Hot Chips conference here topped 2 hours, with questioners lining up to question, challenge and debate a panel of Silicon Valley executives, at least two of whom have tried to use their U.S. education to benefit India, a touchstone for the outsourcing debate.

Outsourcing, also called offshoring, has been among Silicon Valleys most hotly debated issues since companies started eyeing their bottom lines in the wake of the dot-com bust. On one hand, high-tech employers have realized that there are hundreds of thousands of foreign-born engineers willing to work for a fraction of the cost of American workers. Those same American employees, on the other hand, have found themselves on the down side of a global economy finding its level.

Panelists included Ron Hira, an engineer and now assistant professor of public policy at the Rochester Institute of Technology, who joined Natasha Humphries of the TechsUnite Silicon Valley chapter in a largely critical stance toward outsourcing. Vinod Dham, co-founder of VC firm NewPath Ventures, and Pratul Shroff, founder and chief executive of eInfoChips, both said outsourcing could work, if managed correctly.

Where do the candidates stand on outsourcing? Find out here.

According to Hira, the chief problem with outsourcing is that its effects have not been quantitatively studied and its terminology is open for debate. "Outsourcing" assumes jobs move in one direction, away from the United States to a foreign country. Foreign employers also come to the United States to employ workers, other panelists pointed out, but the effects of "insourcing" are equally unknown. A Commerce Department study is currently being vetted by the White House, and its results have not been made public.

Panelists largely ignored the issue of free trade, which assumes that jobs can move to and from the United States without being hindered by tariffs or protectionist practices. Hira noted that a Russian or Indian employee can make a fraction of what a U.S. employee is paid, as little as 20 percent, and still maintain his standard of living.

The problem is that Humphries, a former senior software quality assurance engineer with Palm Inc., was forced to train her replacement three years ago before receiving less than 48 hours notice of her impending layoff. She was not offered the opportunity to work in India, even at a fraction of her former salary. She said the global drop in IT salaries has affected her ability to be re-employed.

"Overseas they have protectionist policies," she said. "We dont have these protectionist things."

Next Page: Taking the employers side.

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Others took the viewpoint of the employers.

Industry gadfly T.J. Rodgers, chief executive of Cypress Semiconductor, said he began his career at Cypress determined to protect American jobs. After being photographed jogging around Tokyo in shorts decorated with the American flag in the 1990s, he built a test and assembly center in the Valley. But he soon realized that paying American employees $10.50 an hour where competitors were paying a fraction of the cost to employ workers overseas "was a poor move." Rodgers and Cypress were forced to close the plant, laying off 250 workers in the process.

Rodgers said he became a converter from the religion that companies do best by doing best by their employees. "The data just doesnt support it," he said, arguing that increases in productivity nudged employees into different fields. In 1870, for example, half of Americans were forced to work on farms to support Americas agricultural needs. Now, fewer than 2 percent of the population work the same fields, he said.

Dham, who managed the Pentium program at Intel Corp. and served as vice president responsible for Advanced Micro Devices Inc.s processor products, now runs NewPath Ventures, an Indo-Silicon Valley venture-capital firm. According to Dham, semiconductors have reached commodity status, and working with foreign workers is necessary to keep the business profitable.

"From all the things I have read, we need to stop whining about offshoring, or outsourcing," he said. "The train has left the station. We need to control its direction. … Any attempt to block it will cause economic hardships and disasters."

Is outsourcing good for business but bad for America? Read David Courseys view.

Rodgers, Dham and others said Silicon Valley must become the management capital of the world, coming up with the ideas that its legions of engineers would nurture into reality. One audience member countered by claiming that the shift would put the technological center of gravity overseas, turning the Silicon Valley staffers into a sales and marketing appendix.

According to one anecdote Rodgers recalled, a Caterpillar executive traveled to China, seeking to sell his companys tractors. The executive stood amazed at hundreds of workers shoveling dirt, and told them how much time a few bulldozers could save them.

"But look at all the jobs you will throw away," the Chinese officials allegedly said. "Then why dont you give them spoons?" the Caterpillar executive responded.

Carl Everett, a former Intel microprocessor executive and most recently head of Dell Inc.s Personal Systems Group, said it is likely future companies will be formed by a small cadre of Silicon Valley employees, then quickly absorb foreign engineers as a cheap work force. Everett, now a partner with Accel Partners, called those companies that look overseas for talent "entrepreneurs."

"You have to educate these kids on how to learn to adapt to a new career," Dham added.

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