US tech giants persist in offshoring

David Zielenziger

NEW YORK: U.S. technology services giants such as IBM could move as many as 200,000 engineering jobs annually overseas in the next decade as they trim white collar workforces in the United States, according to industry groups and economists.

The loss of these jobs -- with median annual salaries exceeding $100,000 -- is expected to boost the unemployment rate among U.S. engineers above the 6.7 percent rate today, which is already five times greater than in 2000.

To be sure, tech services giants, led by IBM, Electronic Data Systems Corp. and Computer Sciences Corp., expect to add some U.S. staff because of security requirements for government work and a need to stay close to U.S. customers.

And between now and 2010, the number of U.S. engineers handling applications and systems software should double to about 1.6 million, the Labor Research Association forecasts.

But overall, jobs will go elsewhere, meaning unemployment for highly paid high-tech workers, who have for decades been virtually guaranteed a job in the American marketplace. Jim Schrager, a professor at the University of Chicago Graduate School of Business, says this should not be a surprise.

"Everyone gets a better service and a lower price and benefits," he said. "From the history of the buggy whip forward, what's new?"

The service giants say they want to tap new clusters of English-speaking professionals in India, South Africa, Israel, Brazil, the Philippines and China.

"They have a good grasp of customers' industries and business," said Dan Zadorozny, an EDS global vice president.

Ten years ago, the Institute of Electrical and Electronics Engineers had 24 percent of its members outside the United States. Today, 33 percent of its 380,000 members are abroad.

EDS now splits work on new projects for General Motors Corp., the world's No. 1 automaker, among U.S., Indian and Brazilian engineers.

The shift has slowed growth in engineer pay. Ten years ago, the median income was $69,725. Now, it's around $101,000, according to the IEEE. Adjusted for inflation, that's only an increase of $17,000, despite an explosion in the complexity of computer systems.

Offshore, professionals earn far less. In India, an engineer with a top U.S. company might earn $18 an hour.

But even India is not immune to an outflow of jobs. John McCain, chief U.S. executive for Cap Gemini Ernst & Young, employs about 1,200 there now, but he may add staff in China and the Philippines, where engineers can be hired for $10 an hour. Cap Gemini, a French company, is a top European service provider.

For companies such as IBM, which now derives 50 percent of sales from services, the ability to move those white collar jobs means big cost savings. IBM recently said it plans to hire as many as 10,000 people in "key skill areas" next year but didn't specify where.

"Over the next decade, there'll be a globalization of software services that will reduce prices," predicts Catherine Mann, of the Institute for International Economics in Washington. She adds this will boost U.S. productivity.

Mann says U.S. companies could retrain engineers, perhaps from a "human investment tax credit" similar to what electronics makers got in free-trade deals in the 1990s.

In September, Sprint Corp., the No. 4 long-distance carrier, split a five-year software and applications contract between IBM and EDS, shutting out India's Wipro Ltd. and Infosys Technologies.

Zadorozny, the EDS vice president, said EDS was chosen, in part, because workers would work near Sprint's headquarters near Kansas City, "who are U.S. citizens paying U.S. taxes."

The result: "Sprint gets to wave the U.S. flag but at the same time, it's got to get the cost of systems down," he said.

(C)Reuters