CAD Manager's Newsletter #92 (September 10, 2003)

I've received about 30 emails in the last couple of months regarding globalization of technical labor and how it affects CAD professionals in North America and Western Europe. Whether you are located in the U.S., Canada, UK, or Germany, the question is always, "Is my job going to be outsourced to somebody in India?" In the next two issues of the newsletter I'd like to share some information with you regarding this trend and, hopefully, illustrate why CAD professionals should be concerned.

Perception vs. Reality

Recent press stories and political debates, particularly on the lagging North American economy, have focused a lot of attention on job outsourcing. One could easily draw the conclusion that jobs are flowing from western countries into India and the Pacific Rim at a breakneck pace and that the trend is irreversible. I submit that, in reality, outsourcing is not as widespread as the press would have us believe and that we do have some control over this trend (I'll give you further proof in Part 2 of this series).

I've been a consultant in the North American and European manufacturing sectors for 19 years, and I've seen outsourcing's effect. I've seen welding jobs diverted from Finland to Korea, blender assembly jobs diverted from Pennsylvania to Mexico, and plastics molding jobs diverted from Alabama to China. The practice is not new in manufacturing, but when we see that outsourcing has reached prestigious career fields (such as IT) in the west, particularly in the U.S., everyone tends to take notice.

In short, those who've never worried about manufacturing outsourcing are now starting to see that their jobs too may be outsourced. Their concern is evident in the emails I've received.

Key Outsourcing Metrics

In order to understand why jobs get outsourced, you have to understand the evaluation process a company undergoes when it considers this option. Outsourcing is a business phenomenon made possible by the convenience of international trade and the instantaneous speed at which data can be moved via the Internet. In other words, outsourcing is now easier to implement than before.

If a company is considering outsourcing a service, be it the manufacturing of plastic parts or basic IT support, there are a few key metrics (mainly benefits and risks) the company would review before making the decision.

Here are the possible benefits:

• reduction in product/service costs via lower labor costs;
• the ability to use currency conversion to lower costs even more;
• reduction in fulltime employees;
• the ability to access foreign markets more easily;
• reduction in government compliance costs.

And here are the possible risks:

• longer delivery time frames for products;
• language and communication issues;
• the compromise of intellectual properties (such as patents);
• unforeseen political problems affecting the trading partners.

Lower Labor Costs

Can somebody sitting half way around the world with no connection to your company do your job for less money than you can? For most of you in the CAD management field the answer is most likely "no." Your job is specialized enough that nobody can take over your job without specific training and experience. On the other hand, if you are being paid $20 per hour plus benefits to fix spelling mistakes on drawings and then plot the output, there is a chance that somebody sitting in Mexico or India could very well do the same job for $4 per hour. (Are you nervous yet?)

Currency Conversion

In certain cases outsourced labor can be paid in weaker currencies, so the actual cost of labor is lowered even more. Consider, for instance, the relative strength of the Euro against all other currencies. Nobody is rushing to contract European businesses due to inflated costs in the European markets. European firms, by contrast, are finding outsourcing to other countries a bargain because of their currency's strength.

So, CAD professionals in Europe should be more worried than anyone else, and North American professionals should pay attention, because labor costs in countries in the Pacific Rim and Asia, such as India and Malaysia, are a bargain compared to the western market.

Reduction of Employees

No mystery on this one. If your company can easily replace you with somebody else and not have to pay for insurance, vacation, and other benefits, it'll save money. (Enough said on this topic.)

Access to Foreign Markets

In some cases companies choose to outsource to other countries simply to build a business infrastructure in other world markets. While this strategy has been used in the car business for decades (GM buying out Saab in Sweden or Daimler-Benz buying out Chrysler in the U.S. are examples), I don't see this phenomenon having much impact on CAD or design professionals.

Government Compliance Costs

I grew up about a mile away from a big TV factory in Indianapolis, IN. The factory later closed and moved its operations to various offshore locations. The company cited government compliance costs as its primary reason for closure. Its logic was, and still is, that to build a TV in the U.S., it had to do all sorts of government and regulatory compliance reporting, which cost a fortune. By outsourcing to another country, the government compliance issues were simply eliminated and the costs radically reduced.

U.S. CAD professionals really don't have to worry about these factors the way manufacturing workers do, because we're low risk (in terms of exposure to on-the-job injury) and because we tend to work in clean industries that don't require a lot of government monitoring. However, if you work in an industry that comes under substantial government oversight your job is at risk for outsourcing.

Summing Up

In the next issue I'll analyze some of the risks a company takes by outsourcing and give some practical advice on how to spot the signs of outsourcing in your company. If you have any information to share regarding this topic, please email them to rgreen@greenconsulting.com. Until then!

Relevant Links

CAD Manager Survey 2003: www.cad-manager.com/survey.htm