Globalization Stage 3 - use offshore design talent


Thread Starter

Jim Pinto

Automation List :

This item, from the recent eNews,
has attracted a lot of commentary.

Jack Welch, Chairman of General Electric made the following comments recently to a group of Boeing engineers in Seattle:

"When we started our globalization efforts, it was all about selling products offshore. That's Stage 1 of any globalization in my view. Stage 2 is making it and selling it there; Stage 3 is sourcing products and services there.

"Stage 3 is the one we're in now in a big way. It is by far the most difficult - it's globalizing intellect. That really gets close to home. I saw a chart this morning in our lighting business: the average cost of an engineer is $150,000 in
Cleveland, Ohio. The average price in our R&D Center outside Shanghai, China: $17,000. Average price in India: $12,000 for PhDs. Hungary: $24,000.

"The people at GE Lighting have a chart that shows that design engineering is done 60% outside the US now, 40% in the US; and they were planning on going to 35% US-based engineering in 2002. I asked why we aren't targeting for 10% in 2002?
Why are we hanging around Cleveland (laughter in the background) with a bunch of high-paid engineers? We don't need it! It's wrong, it makes no sense! You've got to globalize the
intellect if you're going to compete in a global world."

An interesting follow-on comment came from a Boeing engineer, passed along to the press person reporting the story:

"When will we get to Stage 4 of globalization? A good Indian or Chinese CEO for $100,000 or less!"

Read the original newspaper story :
Boeing Country: Welch talk gets attention of engineers:

This affects us all, as engineers. It deserves some attention, and commentary on the Automation List.


Jim Pinto
email : [email protected]
San Diego, CA., USA
A strong business case can be made for sourcing cheap overseas Eng talent. It is an emerging trend that will no doubt grow.

As a matter of public policy however, there needs to be some limit to how far this is taken, particularly as concerns specific industries and disciplines. National security arguments can easily be made for maintaining and cultivating a preeminent talent base in many engineering disciplines, many of which were no doubt present among the Boeing (aerospace is kinda important vis-a-vis national security) audience.

The challenge to policy makers is in the parallel trend of increasing importance of information and related technologies in military applications and national defense in general. IT innovation has occurred largely in the private sector which will make public policy that much more difficult to properly formulate (e.g. stipulating that key government contracts be performed with high % of domestic content will not be sufficient).

Jack Welch presided over arguably the most successful company in the world for some two decades; GE offers some of the most highly engineered products available. Jack Welch also has a PhD in Chemical Engineering - his position should not be casually dismissed.

Michael R. Batchelor

Well, stop buying it here is exactly what will happen. The reason it gets "bought" here is because there's a consumer market available. I don't care if we're talking about $50K-$150K machine tools instead of VCR's, the market, *all of the market* - including infrastructure, is ultimately driven by consumers. If the salaries to support that consumer market goes away, the
market goes away.

Now, that's not too likely to happen. What will really happen is that the people *there* will begin to develop a consumer market, and the whole system will reach a new equilibrium. (No doubt
based on bunches of variables that only an economist can truly decipher.)

Frankly, the "new equilibrium" isn't a bad thing in my mind. I'd sincerely love for my services to be in demand in small third world countries (which would no longer be "third world"), But
someone is going to squirm while the change occurs. (Jeez, didn't I just make that same point in another thread about something which threatens income. So the moral is, when income gets
threatened, someone squirms.)
> A strong business case can be made for sourcing cheap overseas Eng
> talent. It is an emerging trend that will no doubt grow.

If it becomes a trend, then ultimately it will be self defeating, IMHO. By essentially shrinking a major domestic employment sector, overall economic
growth will be diminished, and companies will find themselves facing a downturn. Like the great downsizing fad - it worked great for the first few
companies that tried it, then as it became a general fashion, it actually caused a near recession. CEO's (not mine, I hasten to add!) often seem to believe their organisation are outside the system in some way so that the changes they make have no external effect. They aren't.

Very personal opinions, and therefore squarely my own and not my company's!

Tim Linnell
JimU <[email protected]> wrote :

>A strong business case can be made for sourcing cheap
>overseas Eng talent. It is an emerging trend that
>will no doubt grow.

Jim Pinto responds :

Major software companies like Infosys and Wippro, based in Bangalore, India, are already growing significantly with this trend. Both companies have sales in the $ 0.5b range, with market-caps (Nasdaq) in the billions. Their primary offering is low-cost, fast and effective software development. A large percentage (about 90%) of their revenue comes from the US and Europe.

Jim U continues:
>As a matter of public policy however, there needs to be some limit to
>how far this is taken, particularly as concerns specific industries and
>disciplines. National security arguments can easily be made for
>maintaining and cultivating a preeminent talent base in many
>engineering disciplines.

Jim Pinto:
Business is notoriously short-sighted when it comes to hiring the cheapest (most effective) labor. "Public policy" will lag until this becomes a serious problem.

Jim U:
>Jack Welch presided over arguably the most successful company in the
>world for some two decades; GE offers some of the most highly
>engineered products available. Jack Welch's position should not be
>casually dismissed.

Jim Pinto:
Jack Welch is the quintessential American Manager - chasing the effective, lowest cost solution.

The Boeing Engineer's remark should also not be dismissed - American CEO's get HUGE salaries and perks, and often ruin the companies that they head-up. One wonders how that trend will end....

Jim Pinto
Tel : (858) 353-JIMP (5467)
email : [email protected]
San Diego, CA., USA
> > A strong business case can be made for sourcing cheap overseas Eng
> > talent. It is an emerging trend that will no doubt grow.

Having lived and worked in Singapore for 12 years, I can say that GE's CEO logic is about as solid as saying "Since I can take a bucket, go out to the local ditch and scoop up a gallon of water for free, why should I pay $1.95 for a bottle of drinking water?". It over-simplifies a complex and largely intangible matching of "tools" to "problems-at-hand".

Some engineers take a fairly narrow, well defined project - such as how to make this ABS brake controller or compact-fluorescent light smaller/cheaper/faster.

Others need to take a broader view - how can I create something new-to-the-world that the market needs so our company can continue to make money?

I won't get too specific, but let me say it was very easy when working with on-site engineers around South-East-Asia to tell who had gotten
their degree from a local university verses one in the USA/UK/Australia. All were "smart" and capable - that wasn't the issue. But the approach they'd take to problem solving was VERY different and will have a strong impact on which types of engineering GE's planning to move over there.

Best of luck to them.

Lynn August Linse, Senior IA Application Engineer
15353 Barranca Parkway, Lantronix Inc, Irvine CA 92618
[email protected]
Tel: (949)300-6337 Fax: (949)453-7152
Read Work 2.0 and find out. There is a story in it of a corporation who fired the CEO because he couldn't get along with the rest of the staff. The Chairman decided that it was easier to get a new CEO than a new staff.

Walt Boyes

---------SPITZER AND BOYES, LLC-------------
"Consulting from the engineer
to the distribution channel"
[email protected]
21118 SE 278th Place
Maple Valley, WA 98038
253-709-5046 cell 425-432-8262 home office

Bruce Durdle

In other parts of the world, this works in reverse.

Phase 1: Pay expensive and hard-to-get foreign currency to large overseas corporations to whom you are a very minor player with no real clout. Struggle to persuade these corporations to provide minimal amounts of training of your staff, after realising that the insignificance of your project is such as to ensure any requests for support are delegated either to the MD's know-nothing nephew ("Hey - it gets him out of the office for 6 months") or ignored until the major players have nothing they need looking at.

Phase 2: After getting through a large number of engineers who have taken the training and stayed on the host country rather than return home, you finally build up a pool of reasonable expertise. To keep them happy, you have to offer them a bit more in the way of salary and future job prospects. Country therefore embarks on a large-scale nationalised industrialisation process. (Aside - if this involves armaments or the N*
***** word, questions will be raised in the UN and embassy windows may be smashed in the "advanced" countries.)

Phase 3: after a generation setting up a national engineering system with decent training facilities being established, and getting companies in operation to make use of the expertise being produced, "free trade" is raised (strangely enough, usually by countries that are quite capable of inventing new excuses to keep out imported products if local jobs are threatened - any of you US contributors work in the steel industry?). Political pressure is brought to bear and the nationalised industries put up for sale.

Phase 4: the global capitalists buy up, close down, deskill

Phase 5: what was a prospective market because of rising standards of living gradually falls back to reliance on cash crops and subsistence.

I don't think the world would vbe a better place if all engineering activities were confined to one country.


Jimmy Saldivias

Enlightening comment from someone with international experience. Thanks a lot for it. Sometimes I wonder if we are overdoing our "preparedness" for bussiness. I guess we are not.
MBA Ing. Jimmy Saldivias Gerente TECSIM
Phone: 591-4-4523438
Fax: 591-4-4523413
I'm sure that the employee making 12-24K will be more than willing to buy a $1500.00 refrigerator...right?

Automation Lost :

The discussion of Jack Welch's comments regarding
the use of offshore design talent raises some
significant reality-checks :

Low-cost air travel and effective communications
(Internet) have made the world a 'global village'.
Design talent is a resource (like anything else)
and gets developed and traded, just like any other resource.

When design talent is equivalent, then Jack Welch
is correct in suggesting that corporations should
look for the most effective resource - time (speed to develop) and money (lowest-cost).

For example, companies who develop software in India (Infosys, Wippro, in Bangalore India) typically send project coordinators to the customers location (cheap air travel makes this easy), to communicate (cheap and effective via Internet and telephone) with the software group in India. The cost/performance improves significantly. These companies have grown rapidly and profitably, to the extent that their stock is worth billions on NASDAQ, because the resources they offer are significantly better (price/performance) than the equivalent available here.

Jim Pinto
email : [email protected]
San Diego, CA., USA
The trend of greed and the love of money will always be the foundation for behavior patterns within corporate. After all, it is the fuel behind many American success stories.