Wadhwa

Facts and Myths in the Globalization Debate
Duke University – Pratt School of Engineering – www.pratt.duke.edu

Globalization is the new reality:
To compete, we need to fix the real problems

Vivek Wadhwa
Executive in Residence, Pratt School of Engineering, Duke University
Fellow, Labor and Worklife Program, Harvard Law School
Fellow, Social Sciences Research Inst, Duke University
Columnist BusinessWeek.com

www.GlobalizationResearch.com

© 2008 Vivek Wadhwa

Globalization

 Globalization is the new reality:
 U.S. businesses see tremendous opportunities abroad and will
increasingly locate their operations closer to growth markets
 They will also outsource research and development jobs to reduce
costs and move their research functions closer to their offshore
development sites

 The long-term impact of this trend is not clear

What’s at stake:
American standard of living and economic leadership


7 myths in global competitiveness debate

 We’re falling behind in graduating engineers (and scientists)
 Companies are going where the skills are
 More investment in research = more innovation
 Strong math and science education are prerequisites for
global competitiveness and R&D
 Skilled immigrants fuel the economy so we need to expand
the numbers of H1-B visas
 Young college dropouts are the typical Silicon Valley
entrepreneurs
 America is the world leader in workforce development


Common arguments

 Last year China’s schools graduated more than 600,000
engineers and India’s schools produced 350,000, compared
with 70,000 in America -- The U.S. Department of Education
 U.S. children rank below international averages on a test in
general knowledge in mathematics and science --National Academies
 Tech companies going abroad because they can’t find
enough computer science applicants in the U.S.…-- Bill Gates and
others

Do we have our facts straight?


Duke research – part 1

 Engineering graduation rates
 Why companies are going offshore
 Skills of American engineers vs. Indian/Chinese
 Trends in globalization


Engineering graduation rates

Country Graduates What’s Included:

Only accredited 4-year engineering
U.S. 70,000 bachelors degrees

“short cycle” engineering degrees,
China 600,000 inconsistent definition of quot;engineer,“
CS, IT and technician degrees
(motor mechanics, etc)

2 year “diplomas,” CS and IT
India 350,000 degrees

Problem: We’re not comparing Apples with Apples


Engineering, CS & IT degrees awarded in 2004

700,000

600,000 Number of subbaccalaureate degrees
Number of bachelor degrees
500,000 292,569
Degrees Awarded

400,000

300,000

200,000
84,898 103,000 351,537

100,000
137,437 112,000
0
United States India China*

*China data are considered suspect – collection methods and definition of engineers are inconsistent
7 © 2008 Vivek Wadhwa

Questions raised

 Are companies going offshore because of a U.S. skills
shortage or a deficiency in U.S. workers?
 What are the relative strengths and weaknesses of U.S.
engineering graduates vs. India/China?
 Do companies hire 2- or 3-year degree/diploma holders?
 How do U.S. engineering jobs compare with India/China?
 Where is this headed?

We surveyed 78 division representatives of 58 U.S. based
companies involved in engineering outsourcing


Companies are going where the skills are?

Is there a shortage of engineers in the U.S.?
 Acceptance rates:
 47% reported acceptance rates greater than 60%

 80% said acceptance rates had increased or stayed constant

 Signup bonuses:
 88% offered no bonuses or to less than 20% of hires

 Time to fill an open position:
 80% said engineering jobs were filled within 4 months

In other words – No indication of a shortage in U.S.

Where are the shortages?

 Where is there an adequate to large supply of well-qualified entry level
workers?:
 India -- 75%
 U.S. -- 59%
 China -- 54%

No shortages in India, and greater supply in the U.S. than China??


Skills of Indians/Chinese vs. Americans

 Productivity -- 87% said U.S. workers more productive or equal
 Quality -- 98% said U.S. locations produced higher or equal quality
 Relative advantages:
 U.S. -- communication skills, understanding of U.S. industry, business acumen,
education/training, proximity to work centers
 China -- cost, willingness to work long hours
 India -- cost, technical knowledge, English, strong work ethic

Americans are ahead in productivity, quality & market knowledge,
but Indian and Chinese workers cost less and work harder


Do bachelor degrees even matter?

Degree requirements:
 44% hired engineers with 2- & 3-year degrees. Additional 17%
would hire such applicants if they had additional training or
experience

Companies will make do with the best talent they can find and
train employees as needed


Why are companies going offshore?

Salary or Personnel savings 3.83

Overhead savings 3.06

24/7 continuous development cycle 2.97

Access to new markets 2.89

Cultural or geographic proximity to customers 2.86

Tax incentives & host government assistance 2.52

Co-location of design and production facilities 2.32

0 1 2 3 4 5

In your offshoring endeavors, how much of an advantage, if any, has your company gained from the following? (1: No Advantage; 2: Slight
Advantage; 3: Moderate Advantage; 4: Strong Advantage; 5: Significant Advantage)

In other words, its all about cost and markets -- not the
education level of Americans

The trend

Where is this headed?
 95% said outsourcing will continue and gain momentum
 Most said they would send a greater variety of jobs abroad including
research and design
 Senior execs of India/China divisions of IBM, Microsoft, Oracle, GE,
etc. expressed strong satisfaction with local operations and
expected their units to increasingly provide R&D for worldwide
operations

In other words, we’ve got a lot to worry about


More questions

 Will the new R&D jobs being outsourced require more
advanced degrees?
 How does the U.S. compare to India/China in the production
of Masters and PhDs?
 What has the trend been in degree production?

In other words – Where is the U.S. edge?


Bachelor in engineering, CS and IT

600,000

500,000

400,000
Graduates

300,000

200,000
China (MoE)

US
100,000

India
0
1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05
Academic Year

US China (MoE) India

China numbers are suspect – inconsistent data collection, unrelated degrees.
India/China numbers were revised slightly based on new data


Masters in engineering, CS and IT

70,000

60,000

50,000

US (Engr/Tech)
Graduates

40,000

30,000

20,000
China (Engr/Tech)
India (Engr/Tech)
10,000
India (MCA)

0
1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05
Academic Year

US (Engr/Tech) China (Engr/Tech) India (Engr/Tech) India (MCA)

China numbers are suspect – inconsistent data collection, unrelated degrees.


PhD’s in engineering, CS and IT

10,000

9,000

8,000
US (Engr/Tech)
7,000

6,000
Graduates

5,000

4,000

3,000
China (Engr/Tech)
2,000

1,000 India (Engr/Tech)
0
1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05
Academic Year

US (Engr/Tech) China (Engr/Tech) India (Engr/Tech)


U.S. engineering degrees earned by
foreign nationals

59.4%
Percentage of Degrees Earned by Foreign Nationals

60% 57.8%
55.2%
53.8% 54.0%
50.1%
50% 46.0%
45.6% 45.5%
43.0% 42.1% 42.6%
39.7% 40.6%
40%

30%

20%

10% 7.8% 8.3% 7.5% 7.2% 7.7% 7.8% 7.5%

0%
1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-5
Year
US Bachelors Degrees US Masters Degrees US Doctoral Degrees

Houston, we’ve got another problem


The next wave of globalization

Do the numbers tell the complete story?


R&D in India – on-the-ground reality

India is the rapidly becoming the next global center of
research, design and innovation:
 Pharmaceutical
 Drug discovery, specialty pharmaceuticals, biologics, high value, bulk
manufacturing, advanced intermediate manufacturing
 Aerospace
 In-flight entertainment, airline seat design, collision control/navigation
control systems, fuel inverting controls, first-class cabin design
 Consumer Appliances/Semiconductors, etc.
 Design of next-generation washing machines, dryers, refrigerators,
digital TV, cell phones, automobiles, tractors, locomotive motors

India is racing ahead in R&D, despite its weak education
system and graduation rates

R&D in China– on-the-ground reality

China is using its manufacturing might to build R&D capability
 Massive investments in infrastructure
 Massive investments in technology parks
 Massive amounts of investment capital in key industries
 Massive subsidies for R&D
 Pressure on multi-nationals to move R&D to China

Yet, China is “limping forward” – MNC investment in R&D in
China is largely directed at Chinese Market. China excels in
imitation – not innovation
Lesson: You can’t mandate or buy innovation



Some American advantages:
 Immigrants -- “the melting pot”
 Entrepreneurship/innovation
 Education/university research
 Democracy/freedom/legal system
 Workforce development


Skilled immigration

 Contribution of skilled immigrants to the tech sector
 Called 2,054 engineering and tech companies founded from 1995-2005
 Was the CEO or CTO a first-generation immigrant? From what country?


Americas New Immigrant Entrepreneurs

Tech and engineering companies founded from 1995-2005:
 25.3% nationwide had an immigrant as a key founder

 52.4% of Silicon Valley startups founded by immigrants

 2005 revenue -- $52 billion. Employed 450,000

 Indians founded 26% of these -- more than the next 4 groups (from U.K, China, Taiwan and
Japan) combined

WIPO patents:
 25.6% had foreign national authors in 2006. This increased from 7.6% in 1998

 16.8% had a Chinese-name and 13.7% had and Indian-name authors in 2006. This
increased from11.2% and 9.5% in 1998


Background of immigrant entrepreneurs

 96% of immigrant company founders have bachelors degrees
 74%+ have a Masters or PhD
 75%+ have degrees in engineering, math, or science-related fields
 52% obtained degrees in the U.S. and stayed after graduation
 Plus, anecdotal evidence indicates that immigrants who come to the
U.S. are risk takers and highly entrepreneurial

Higher Education in STEM does provide advantage


U.S. immigration backlog

Legal, educated, skilled workers currently waiting for green cards:
 500,040 in main employment-based visa categories plus 555,044 family members

 259,717 intl. grad students plus 38,096 in practical training (includes postdocs)

Permanent resident visas available yearly:
 120,120 in the three main employment visa categories (EB-1, EB-2, and EB-3)

 Largest numbers in queue from India and China

 Max. number of visas per country – 8,400 (7% of pool)

Over 1 million skilled immigrants waiting for yearly quota of 120,000
visas – with 8,400 max/country

U.S. is headed for a massive reverse brain-drain –
Returnees will accelerate the offshoring of R&D

Entrepreneurship

 To understand more about American entrepreneurs, we
surveyed 652 CEO’s/CTO’s of 502 tech companies

Are universities the source of our tech entrepreneurs?


American Tech Entrepreneurs: Young?

US Founder Age at the Time of Startup Establishment

0 - 19 1.2%

20 - 29 14.2%
Founder Age

30 - 39 37.5%

40 - 49 34.1%

50 - 59 10.5%

60 - 69 2.5%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0%
Percentage of all Respondents


American Tech Entrepreneurs: College Dropouts?

Associates
Degree,
High School
Certification, MD, STEM Fields 46.5%
Diploma or
Some 3.8%
JD, Arts, Economics,
Lower, 5.9%
College, 3.5% Humanities 1.8%
2.3% and Social
Sciences, Other,
2.8% Law, 4.6% Applied
4.2% Sciences*,
9.0%
Healthcare,
PhD, 5.5%
10.0%

Engineering
27.6%

Bachelors,
44.0%

Masters, Business, Mathematics
31.0% Accounting, 1.5%
Finance, Computer
33.4% Science,
Information
Technology
9.0%

Highest Completed Degree Fields of Highest Degree


They start companies right out of college?

Average Time Lag Between US Founders' Highest Education and
Startup Founding
25.0
Years Between Highest Degree and Startup Founding

20.9
20.0
16.7
14.7
15.0
13.1

10.0

5.0

0.0
MBA Masters Bachelors PhD
Highest Degree


Or where they study?

Percentage of US Founders who Establish a Startup in the Same
State in which they Received a Degree
69.2%
70.0%
Percentage of Founders with a Degree and Startup in the Given

58.3%
60.0%
52.4% 52.9%
50.0% 45.0% 45.2%

40.0%

29.0% 29.7% 30.0%
30.0% 28.1%
State

21.2%
20.0% 17.9%
15.0%

10.0%

0.0%

-10.0%

State


Ivy-league education provides BIG advantage?

$8

50
$7
Average 2005 Sales (Millions of USD)

Average 2005 Total Employees
$6
40

$5
30
$4

$3 20

$2
10
$1

$0 0
All Startups Startups w/ an Ivy-Leauge Founder Startups w/ a High School Founder

Average 2005 Sales Average 2005 Employment

What makes the difference is higher education: not the degree or school.
The place where the most entrepreneurs originate is the workforce

University research

$45 billion invested every year in U.S. university research with very few
spinoffs and less than $2 billion in license revenue. European
university investment is much lower than the U.S., but generates 3
times as many startups… but generates far fewer patents

Common Problems – U.S. and Europe:
 Incomplete system -- legal and finance in place, but corporate
development, marketing, and sales are missing
 Cultural issues -- academics want to disseminate knowledge and
publish papers rather than inhibit it’s use. What comes first --
students or commercialization? What about the conflicts of interest?
 University technology is half-baked -- proof of concept not funded

Untapped goldmine of knowledge and innovation

Duke research – Part 4

Workforce development: the secret of India’s
success


India’s challenge and achievement

 50% of engineering graduates are not employable
 Famed IIT’s graduate less than 5000 engineers
 Country has weak infrastructure and weak education system
Yet:
 Tip of the iceberg: In 2007, top 5 IT companies hired 120,000
engineers. Accenture and IBM India added 14,000 each.
 India is racing ahead in becoming a global R&D hub
How? India has adopted the best practices of its Guru (the
U.S.) and perfected these


Workforce development in India -1

 Workforce Recruitment
 Résumés don’t reflect potential and degrees are not a proxy for skill and
competency. Hiring is based on ability and competence
 “Bulk” hiring from universities
 Open door interviews/storefronts
 Lower–tier schools, non-metro areas, women, retirees, ex-servicemen, older
workers, disadvantaged groups

 New Employee Training
 “Army boot camp” like training for new recruits in technical as well as soft-skills
 2-7 month training programs for “freshers”
 Infosys’ new center can train 13,500. TCS aiming for 30,000 at a time
 Complemented by extensive mentoring and on-the-job training


Workforce development in India -2

 Ongoing Skill Development
 40-150 hours mandatory formal training every year for every employee
 Supplemented by extensive mentoring/informal training
 Extensive online training programs which employee are rewarded for completing
 “Leaders as Teachers” – senior executives deliver training. Cadence requires
every manager to spend 1-2 weeks a year. Satyam mandates 30 hrs.
 “Communities of learning”, seminars, expert talks, online technical forums

 Managerial development – 3 years from “fresher” to manager
 Extensive managerial development programs usually in conjunction with leading
business schools.
 Career progression planned and predictable
 Senior Management invests significant time in coaching/mentoring
 Promotion from within policies


Workforce development in India - 3

 Performance management/appraisal
 ERP-like systems manage employee development through their careers
 Sophisticated, frequent review processes like 360 degree feedback
 Tied to training, salary and career progression
 HCL has “Employee first, customers second” program to empower employees
 Employees often appraise managers and senior leaders; results available on line
 Upgrading education
 Training academics, funding curriculum development
 Leading companies have helped develop customized degree programs
 Strong university to industry linkages


Conclusions

 Learn from the former disciple: focus on moving workforce up
the ladder rather than graduating more
 Bring and keep the worlds best and brightest
 Make our investments in research more effective
 Foster entrepreneurship at its source – the workforce
 Understand globalization and create new business models
which leverage innovation abroad
 Compete on American strengths -- In other words, let’s do
what we do better



More information at:

www.GlobalizationResearch.com


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