Global Lab

Even High-Skill Research Jobs Are Moving Abroad

By Peter Loftus
Dow Jones Newswires

One of the key economic arguments in favor of offshore outsourcing is that it allows U.S. companies to save money and create new opportunities at home for higher-wage, higher-skill jobs at home, such as in research and development.

COVER STORY

ECONOMICS The Battle Over Outsourcing Does Exporting Jobs Really Help Create New Ones at Home?

CAREERS Global Lab Even High-Skill Research Jobs Are Moving Abroad

INTERNATIONAL Two-Way Street Free Trade Sends Jobs Abroad, but It Also Brings New Ones Here

SPECIAL COVERAGE Understanding Outsourcing Updated coverage from the global Wall Street Journal staff on the issue of offshore outsourcing,

EDITORIAL Creative Job Destruction Answer to Outsourcing Is to Help Americans Be More Competitive

But what if companies decided that they could outsource those jobs as well?

Actually, they're doing it already.

One of General Motors' newest research projects is to make a digital version of the human body, which would ride in virtual cars in computerized crash tests. But this crash-test dummy of the future isn't being developed by workers at GM's famed Warren Technical Center, the Michigan laboratory where the car maker's research has been conducted for decades. Instead, it is being developed by a new GM research lab in Bangalore, India. The lab is eventually expected to employ about 100 Indian researchers with expertise in software, electronics and materials.

GM's move to India illustrates the growing role that foreign labs are playing in research, particularly in software-related projects. Much of the high-technology industry has already embraced offshore R&D. In Bangalore, GM researchers can rub shoulders with their counterparts at Cisco Systems, Intel, Oracle and Sun Microsystems, among others.

More for the Money

Companies say they are taking advantage of world-wide scientific talent, and offshore R&D is a natural outgrowth of having large international sales. Cisco established an R&D center in India because it has strong talent, spokeswoman Elizabeth McNichols says. She also notes that India is a growing market, and that it was natural for Cisco to have a presence overseas because more than 50% of its sales are international.

But an obvious advantage is cost. In a time of shrinking corporate research budgets, companies that outsource overseas are able to cut costs without reducing the volume of research that they do. Indeed, many of the companies that have cut R&D spending in recent years are adding R&D jobs overseas. R&D spending at Unisys, for example, fell 18% in 2002. But the company has boosted the number of full-time-equivalent researchers by doing R&D in India, says Executive Vice President Joseph McGrath.

"You can get a very good quality of service on a much better price point than you can in the U.S.," said Frances Karamouzis, research director at Gartner Inc.

India has several advantages in attracting R&D investments, in addition to cheap labor. Its universities churn out English-speaking software engineers who are widely regarded as talented. The country's communications infrastructure has improved in recent years, making it relatively easy and inexpensive to transmit software code electronically to the U.S. And with India halfway around the globe-nighttime here is daytime there-companies are able to keep their R&D operations running round the clock.

Industry executives say the level of work being performed in India is becoming increasingly sophisticated. At Cisco's in-house R&D lab in Bangalore, which opened in 1999, engineers have developed some of the company's high-end routers, which help steer traffic on the Internet and corporate networks.

"We used to just do back-end testing in India," says Pallab Chatterjee, president of operations solutions at I2 Technologies, a Dallas software company with 1,000 workers in India. "Today we actually do core development both in India and in the U.S."

While some companies, like GM and Cisco, set up their own research labs in India, others outsource R&D work to foreign technology companies, including Wipro and Infosys Technologies, which are based in India. Wipro derives about one-third of its $637 million in annual revenue from R&D contracts with other companies. Its 5,400 R&D workers design microchips for consumer-electronics products, develop components for telecommunications equipment and write software that is embedded in computer printers and automotive parts.

In a sense, it is no surprise that American companies are opening foreign R&D labs. Many R&D labs in the U.S. are home to foreign-born researchers. I2's Indian development center was launched in 2001 by Indian employees who had been working in the U.S.

Minding Perception

Given the growing controversy over outsourcing-labor unions and some politicians have criticized what they see as an exodus of white-collar jobs to India and other developing countries-many companies try to avoid the perception that they are moving high-paying American jobs overseas, or doing R&D on the cheap.

Alan Taub, executive director of science labs for GM's R&D arm, plays down the importance of cost savings in GM's expansion into offshore R&D. He says GM chose to open a new lab in India to diversify its talent pool and tap into the technical universities in the region. "On research, if you make a decision solely by cost, you'll end up making some bad choices," he says.

And no one should expect that all R&D will be done overseas in the future, says Ashish Thadhani, an industry analyst. Even as R&D in India becomes more sophisticated, some R&D work will always be done in the U.S., including emerging technologies and R&D related to national security. What's more, Mr. Thadhani believes that any American jobs lost to offshore R&D will be more than offset by jobs created by new technology innovations. For instance, he says, the field of nanotechnology will create many new jobs for American researchers.

"History confirms that the U.S. is the most resilient and innovative economy in world," Mr. Thadhani says. "It exports routine jobs to low-wage countries and replaces them with new, high-skilled categories."

What effect will research outsourcing have on the U.S. scientific community? Write to us.