The new logic of offshoring: the next generation of offshoring—innovating and engineering—is at hand

Chief Executive, The, Sept, 2007 by Jennifer Pellet

In the past, the domestic talent pool was augmented by foreign-born U.S. undergraduates who opted to stay in the country after graduation. In fact, more than 60 percent of engineering Ph.D.s awarded in the 2005-2006 academic year in the U.S. were earned by foreign nationals, according to Engineering Trends, a Houghton, Mich.-based educational consulting firm. But with overseas markets booming, many more of these students choose to return and pursue a career in their home countries. And those who do wish to stay often find that they cannot get around the more stringent requirements of post-9/11 immigration regulations.

"We are educating the world," said Jack Manning, vice president of engineering and offshore services at Butler International. "But the U.S. government cap on H1B visas is denying access to some of the best and the brightest graduates--and in turn, putting a stranglehold on U.S. competitiveness. Policies that restrict smart people from all over from coming here and being able to work are actually helping to spur the rush offshore."

Outside Innovation

Even as the trend toward offshoring and outsourcing innovation gains momentum, CEOs are well aware that the practice comes with a host of challenges and concerns, chief among them issues of control, intellectual property theft, internal resistance, cultural differences and communications.

"Engineering is such a primal part of companies that they need to have control," said Manning, who noted that when it comes to off-shoring arrangements it's far better to wish you were married than to wish you weren't. "It's not like IT, which is often a support function. Engineering is the family jewels, so you have to be very careful about how you tie up."

Manning, who has worked with hundreds of companies on offshoring initiatives, outlined three prerequisites for successful global sourcing: a compelling business reason, good domain matching and the right culture and leadership within the company. "You can't expect a middle manager to move a mountain," he asserted, likening the process to that of integrating an acquisition. "You need to have top-down leadership and a culture that will make it happen."

A clear business imperative is one of the most critical pieces of the puzzle, added Ed Kopko, CEO of Butler International, who noted that often even components of the most mission-critical innovation process can be done more effectively through outsourcing. "Most companies, for example, have cycles where they spend a lot of money on innovation to get the product to market," he said, pointing to the aviation industry as an example. "When you design a new aircraft, you spend a huge amount of money during a short period of time. It doesn't make sense to have all the people and functions involved internal to your company because after the three- to five-year cycle you'll be left with tons of cost."

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"Something can be mission-critical and not strategic," agreed McGrath. "There may be no way to differentiate in that particular area of expertise, so you make a choice to outsource that."