Andy Grove Takes On Offshoring

from the it's-a-big-issue dept

Andy Grove has now taken on the issue of offshoring and he, like so many people, is worried that it will harm the US's software and services business. However, unlike many of the people who are just complaining about it, he has some suggestions on ways to deal with the issue that shouldn't harm our ability to compete. The biggest issue he sees is that American universities are no longer on the forefront of technology research, and we're not churning out enough qualified technologists - so his main focus is on improving funding for research and development at universities. He also suggests adopting "policies" that attract better workers, but doesn't detail what those are. Some in the audience where he gave his talk pointed out that Intel, the company he remains chairman of, is a big part of the outsourcing trend, and Grove responds with something of a cop-out, saying that without public policy assistance they have no choice but to export jobs. I would have expected better from Grove, whose opinion I usually agree with. Outsourcing certain jobs to where they can be done better and cheaper while also creating new jobs at home can be done together - and shouldn't require government support. The real issue is what needs to be done for the company to remain competitive so that it can (and will) create new American jobs.


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  1.  
    identicon
    slim, Oct 10th, 2003 @ 10:51am

    Grove is right

    Grove is right. Colleges are no longer churning out technologists. Who in their right mind would pay $100,000 for a technology MBA from Stanford when the job they'll be applying for when they get out of college pays 40,000 rupees a month and requires them to rent an apartment in Bangalore?

    Fact of the matter is: Grove is the problem. He says he's torn between doing what's right for shareholders and what's right for the country ... but always seems to come down on doing what's right for him economically ... the country be damned.

    Who, one might wonder, will buy all of Grove's fancy foreign-designed and foreign-built technology when the last American interested in technology can't get a tech job?

     

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  2.  
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    Mike (profile), Oct 10th, 2003 @ 11:06am

    Re: Grove is right

    Okay, so if Intel did what (in your mind) was "right for the country" and refused to outsource - even when it would help the company do better - such that others came along and could beat Intel at their own game, making Intel go out of business.... all of those people would still lose their jobs. In fact, more people would lose their jobs.

    How does that help?

    A much more useful way to look at this is to look for ways to accept the fact that certain jobs are clearly better served overseas, but working on creating more jobs at home as well.

    This is not an all or nothing proposition. Just because some jobs can be outsourced, it doesn't mean that other jobs won't be created. The question is where will those jobs be. Historically, for every wave of outsourcing, new higher level job opportunities have opened up.

    Why is it that folks believe this won't happen this time?

    I stand by my prediction that, as the economy continues to come back, new job creation in the US will pick up again. It may not be the same types of jobs - but in many cases, they will be better jobs.

     

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  3.  
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    dorpus, Oct 10th, 2003 @ 11:22am

    Re: Grove is right

    I'm curious, though, which foreign competitors would outdo Intel if it were to not outsource. India has no chip-making technology to speak of.

    To look at the record of Detroit or Pittsburgh, the masses of laid-off factory workers became security guards, house painters, janitors, and the like. Not exactly a step up.


     

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  4.  
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    Director Mitch, Oct 10th, 2003 @ 11:57am

    Conflicting Thoughts

    Well, I'm a little all over the map in my thoughts, and being Friday I don't have the time or energy to make them coherent, but here were some of the things that went through my head:

    1. The first thing I thought was "this is the chairman of a company that just announced a big investment in a China fab facility and he is complaining about outsourcing?"

    2. Dorpus has a point in "which foreign competitors?", but not because there are no fabs in India (there are two biggies UMC and TSMC in Taiwan and three major fabs coming on line in Red China such as Shanghai Grace). Intel is a part of the Wintel duopoly. Foreign competitors can't take away their market since they have a wrap on the IP and PC market. (AMD is the only one keeping them honest, but haven't been able put Intel below 85% of the PC CPU market. And don't mention Transmetta which hasn't gotten more than 1% of the market). Since no one but Intel can make Intel chips, why are they building a fab in China? (they would argue that this is for the China domestic market so they don't go to another PC architecture).

    3. The whole offshore manufacturing and outsourcing is to streamline operations for *commodity products*, which the Intel CPU isn't at this time.

    If ANYONE could afford to keep fabs in the U.S. it would be Intel since they charge monopolistic prices (check out their margins compared to other semiconductor segments). And they are not passing these cost savings to the consumer. Check out non-Intel CPU processor pricing versus Intel pricing. Price per MIP, per die area, whatever measure you use, you will see that Intel doesn't have to compete down where everyone else does.


    Generally speaking I agree with Mike on the outsourcing issue, and Intel is free to do what it wants, but I think some of Grove's comments were disingenuous at best.

     

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  5.  
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    Anon Coward, Oct 10th, 2003 @ 12:31pm

    Public policy elimination is what's needed

    I don't know exactly what Grove means by "public policy assistance". However, I do think that "public policy reform" is desperately needed.

    By "public policy reform", I mean a variety of things--from elimination of regulatory rules and even entire bureaucracies, to a revision of the USPTO's patent issuing process, to further tax relief across the board (corp and individual), to tort reform.

    Of course, all of these boil down to having far too many bureaucrats (with too much time on their hands to develop costly regulations on tax dollars) and lawyers (too much time on their hands to litigate against said regulations).

     

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  6.  
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    Anonymous Coward, Oct 10th, 2003 @ 12:35pm

    indeed

    Regime Change begins at home...

     

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  7.  
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    agw, Oct 10th, 2003 @ 2:49pm

    Re: Grove is right

    "Historically, for every wave of outsourcing, new higher level job opportunities have opened up."

    What data are you using for this claim? Outsourcing is not necessarily correlated with job creation. As a previous poster has mentioned, what occurred in areas like Detroit and Pittsburgh after the loss of the manufacturing base doesn't mesh with your statement.

    Detroit is just a microcosm of what is happening in this country. Good, middle class jobs are lost to outsourcing, and there are few of the "new, higher level job opportunities" to fill the void. One of the main causes of the polarization of wealth in this country is that formerly middle class families are being forced to take poor paying "service" sector employment after being outsourced. When jobs like manufacturing, programming--and soon software architecture and finance-- are lost a large plurality of the "outsourced" fall out of the middle class because the newly created jobs tend to be lower paying service sector jobs.

    So what jobs are going to be created that are at least equivalent to what is now being lost? What areas of industry is going to create these jobs? Time and again I have heard people claim that something new better will come along. But what? I have yet to hear of possible replacements for the outsourced jobs. Biotech? What in biotech? Something else? And what will prevent these new jobs from going overseas almost immediately?

    The recent wave of outsourcing is hitting our knowledge/ideas industries, which are completely and irretrievably tied to computers. If someone's primary job function is to type something into a computer (be it code, data entry, financial spreadsheets, system specs, computational models of drug interactions or some new job) that job can be outsourced. A lot of people are vulnerable--both now and in the future. Anymore, just because someone in the U.S. creates a new company/industry does not mean that a large number of new, U.S.-based jobs will be created beyond the janitorial positions that will open to keep the new office headquarters clean.

    Again, what are you basing your claim on? What is your data? What jobs do you see being created to replace the ones lost?

    And here is an issue that has hardly been touched on in these forums and the business press--what about national security? Our software now controls our banks, our power grids, our flow of information. These are essential services-- not luxuries-- without which we are back in the middle ages. By extension, our software is also an essential service. With the outsourcing in software we are increasingly putting our infrastructure at risk. Yes, software development has always been vulnerable to the insertion of trojan horse/backdoor functions by programmers no matter what their country of origin. But outsourcing the development of this software only increases the risks. It is safe to say that country X's intelligence service will have an easier time creating trojans/backdoors in vital software being developed for country Y's industries if that software is actually coded in country X. In fact I can think of examples of America doing this to other countries. So why is America putting itself in this same, vulnerable position?

     

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  8.  
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    Mike (profile), Oct 10th, 2003 @ 4:25pm

    Re: Conflicting Thoughts

    Hi Mitch,

    You're looking at this on too narrow a scale. By making it so that the chips are increasingly more powerful AND cheaper, it lets us do a lot more with the chips that can create jobs elsewhere in areas that those chips will impact.

     

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  9.  
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    Mike (profile), Oct 10th, 2003 @ 4:33pm

    Re: Grove is right

    Look beyond just localized regions. By outsourcing work, we've continually reinvented our economy, from agriculture, to manufacturing, to service. Each time, we've grown our economy, as a whole, tremendously. Just look at the percentage of our workforce that has worked in various industries over time - it's constantly changing - and if you looked at data from five years ago, average salaries were much higher and unemployment was much lower. We are going through difficult times now, but I don't believe it will last. There's a difference between a cycle and a trend.

    I never said that this doesn't suck for some of the people it impacts. I AM saying that if you just complain about it and try to put in protectionist policies it hurts a whole lot worse.

    I'm all for creating new American jobs. However, they can't be jobs that compete directly with cheaper workers. They need to be jobs where there's a reason that they're here. So, instead of complaining about lost jobs, why not suggest ideas on where we can help build new jobs? Already, I've said that there is clear value in customer facing jobs, where people need to be here. I also think there are plenty of reasons why it makes more sense to keep technology staff in the US for *certain* things, where continual interaction is necessary.

    So, instead of just telling me I'm wrong, please help come up with a solution.

    And, by the way, I absolutely agree with you on the security issue! That IS a perfectly good reason why jobs SHOULD be HERE - just like I was saying above. There are reasons to keep that stuff here, but it doesn't happen by creating protectionist policies that make our companies fat and lazy. It happens by educating people of the dangers.

     

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  10.  
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    agw, Oct 10th, 2003 @ 7:48pm

    Re: Grove is right

    Some things we can do:

    No, we don't need to create protectionist policies. But there are some policies that can be put into place that may help.

    First, for both economic and security reasons software for critical infrastructure needs to be developed in America. I know this is already policy for defense applications, but it needs to be expanded to include all governmental technological needs as well as those systems deemed necessary to the functioning of this country. These systems would include financial/banking systems, anything to do with the power grid, and airflight control systems. In essence, critical infrastructure.

    But everything else is fair game. It has to be. The NY TImes cannot be expected to pay an American business $100,000 for some application when they can get that same app by paying an Indian team $30,000. This is where government steps in. Government can afford to go with the American team--in fact it is in the U.S. government's best interest to do so in order to guarantee that this country will maintain and grow certain knowledge bases (ie CS and related fields) which are necessary to build, secure and protect vital infrastructure.

    Something like this policy will ensure that there is always be a core of technologists (engineers, cs guys, plain old coders) and related businesses in this country--and this is essential for our security.

    Second, foreigners have to be allowed to work on all government and critical infrastructure projects--including defense-- as long as they are based in the U.S. and they pass the usual security checks. If we are to get and retain the best as a country, then potential immigrants must feel welcome. And once exclusionary policies are enacted, then the potential pool of immigrants contracts. Any exclusionary policies based on place of origin only hurts us as a country. And the fact is we want the best, be they American or not. If there is any doubt about the validity of this view, think back to WW2. If it wasn't for Hitler's policies enacted in 1933 of excluding Jews from Academia, the U.S. would have never gotten the talent to build the Bomb, and develop radar, sonar and the computer. For every Klas Fuchs there was a Von Neumman, Pauling, Fermi, Bethe, etc. Just look at the technologies that were developed in WW2 by America, what it meant for our economy, and where a crucial portion of the talent came from.

    Scholarships. Simple. Effective. If scholarships were handed out for people to major in science and engineering, there would be no shortage of takers. This leads to...

    University/college funding. Funding is Dismally short, and science and engineering majors are the most expensive majors to train. If scholarships for science and engineering majors is to work, the colleges need the funding to run these programs. Simply put, our colleges need more money. When the University of Michigan and Virginia are forced to both cut back programs AND increase tuition, it is time to ask if they are getting enough money.

    What did we do in the 1960's to increase the number of engineers and scientists so drastically? Well, we were in the Cold War and the space race and we needed them, so the federal government pushed science and math programs in high school. We need to do this again.

    Loosen some ridiculous patent laws and change the patent system. Imagine if Xerox and Cal-Berkley and MIT had at their disposal our current USPTO in the 1960's and 1970's. Where would we be now? Or worse, what if some lonely inventor at Iowa State in 1935 had our USPTO at his disposal, and the Iowa State University Legal Department pushing him to patent everything? There would have existed the equivalent of Eolas. Yikes.

    Anymore, patents are stifling innovation. And when universities--the engine of American invention-- patents everything they can, then where do the future open standards of the new technologies come from? Eolas is not an abberation. As things stand they are the future.

    Next, Grove is right, we need research funding and we need it now. But we need basic research: the type of research that Darpa funds, or the NIH. Too much research funding is now devoted to incremental improvements when what the future is built on is fundamental research, like the computer, or atomic energy, or high frequency radio waves, or distributed networks. Too often now this is not the case. Research is increasingly driven by the short term needs of American business (robotic legos. Though cool, not exactly ground-breaking) at the expense of laying the groundwork for future science and technology. Basic research is a long-term investment--20-30 years before the public sees its fruits-- and without it we as a society will cease to innovate in ground-breaking ways. And others need free and unencumbered access to this research (ie no restrictive licenses or prohibitive patent fees).

    I think my last point here is that it isn't the general populous that needs to be educated, but instead it is our congressional representatives at the federal and state level, business people and academics. Without business, government and academia working together we as a country are in some danger.

    I hope this will serve as a beginning point of discussion for some possible solutions in the world of policy.

     

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  11.  
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    dorpus, Oct 10th, 2003 @ 11:45pm

    The OBL Factor

    So, US companies are outsourcing in order to stay "globally competitive". Is it possible that the act of giving jobs to foreigners trains foreigners in our technology, so that foreigners become more globally competitive at our expense? What would prevent foreign engineers from helping their own country build better WMD's, better net-tracking police states? Could such engineers help build the next generation of oppressive theocracies that monitor every thought their citizens have?

    The last time the USA outsourced to foreigners the job of fighting Soviets, there was a certain fellow with the initials OBL among them; he helped found one of the most oppressive regimes in the world, brought down buildings, caused expensive military campaigns to occur, so cost us dearly in the end.



     

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  12.  
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    Mike (profile), Oct 12th, 2003 @ 11:07pm

    Re: Grove is right

    agw,

    Thanks for a fanstastic post. Definitely provides some thought-provoking ideas. Plenty to think about in your very convincing post.

    Mike

     

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  13.  
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    Tom McGill, Nov 30th, 2003 @ 9:51am

    Re: Grove is right

    We are churning out technologist with government funds (US taxpayers). They are mostly PRC and India and go home to lead the competition. Something is really wrong. We are buidling the competition with US Resources.

    Tom

     

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