06 Oct Are America's software skills getting soft?
The world of business is globalizing. Fast. In fact, some aspects of globalization are happening so quickly, they are ahead of any attempts to capture data to measure them. One aspect of globalization is what’s come to be known as “off shoring,” which is defined as “work done in another country, whether or not it is done by part of the same company.”
The media is filled with stories about how this trend is occurring in industries and processes such as manufacturing, R&D, and IT. Yet the effect of these trends on different countries remains hard to gauge. Last year, the highly-regarded Association of Computing Machinery (ACM) released the results of a two-year study titled “Globalization and Offshoring of Software.”
The ACM’s report contains the consensus analysis of the Job Migration Task Force consisting of 32 computer scientists, labor economists, R&D leaders and social scientists. It provides a level-headed assessment of how off shoring is playing out in a critical segment of the IT industry – software – and what its implications are for both developed and developing countries.
Software programming goes global
The ACM report documents the dramatic shift of the field of IT software to a truly global industry as programming becomes increasingly geographically dispersed. The task force asserts that the practice of off shoring will continue to grow – driven by changes in information technology, work and business processes, education, and national policies.
It argues that off shoring can be beneficial to both developed and developing countries, but that it’s hard to measure the direct impacts in terms of job migration and creation. The authors predict that higher-value jobs will be sent off shore just as commodity tasks have been.
Increasingly, global investments in research and development will drive this trend as more talent and skills in the industry are distributed around the world. According to the ACM report, the implications for individual companies as well as entire nations are significant. Participation in the global systems, software, and services industry requires a workforce with deep grounding in the fundamentals of computing, the latest knowledge about business processes and platforms, and a sound understanding of the global community in which work will be done.
How countries are coping
The ACM report assesses how individual countries are responding to the globalization of the industry. It notes that Australia has embraced globalization of the software industry but has also instituted initiatives to increase government support for displaced workers, push up foreign direct investment in Australia’s IT industry, and implement improvements of teacher training, educational programs, and educational assessment.
Sweden is another country that the report asserts is positively engaging in off shoring. It has upped investments in R&D, ranking as one of the highest in the world along with outputs in scientific publishing and patents. Instead of trade and job protectionism, Sweden has instituted several initiatives to improve its competitiveness and counteract the effects of off shoring. The country has implemented a national innovation strategy and increased public-private partnerships and R&D investments in key areas, including more funding for start ups and support of small and medium research-driven companies.
Some countries, such as China and India, have been huge benefactors of the software globalization trend. India is a hot magnet for off shoring work. This is no accident, as the Indian government has deliberately pursued policies to nurture the software industry through tax breaks and other incentives and support for a national software industry. Its IT industry has also benefited from the experience of returning Indian entrepreneurs and programmers that have worked in America and become familiar with American-style business practices.
China, according to the report, is a policy-driven society with a great deal of state intervention in the economic development of the software industry. The Chinese government has provided financial and other support to the software industry and has aggressively wooed overseas native talent to return to their birth places to work in the industry. It also strongly supports R&D in universities and research institutes. But the task force asserts that China is the most protectionist of the countries it studied.
The challenge to America
ACM task force member, Professor Steve Andriole of Villanova University warns in a separate article that U.S. dominance in IT R&D is “challenged” and that if present trends continue, the U.S. will lose its position to a set of countries that together will move up the technology food chain and create a variety of hardware, software, and communications innovations. This will further accelerate off shore sourcing strategies, and in his view, the U.S. could find itself outside of the technology food chain altogether.
Most disturbing is his assessment of the U.S. response so far to this challenge. He gives American policy makers an F-grade for their meager level of interest and support for technology-focused education and training. In other words, the federal government has done basically nothing to address this situation. He gives U.S. industry “a generous D,” feeling their obsession with maximizing profits makes them conflicted about intentions, investments, and strategies. This is not surprising, given that the business principles associated with globalization drive many businesses to become nationally neutral.
Professor Andriole also is worried about the educational system’s ability to stay current, foster innovation, and provide leadership. He points out that America’s academia has done little to address the huge declines that have occurred in the number of computer science and management-information systems majors at the undergraduate level.
To H-1B or not to H-1B?
This cleverly-put question is the title of an article that recently appeared in Information Week examining the pros and cons of America’s H-1B program, which underpins the software industry’s skills immigration strategy. This program was set up in 1990 to supply “specialty occupation” visas to allow foreign professionals with college degrees to work for three years in the United States. The visas are then renewable for another three years.
Proponents of the program include the cream of America’s IT corporate elite, such as Google, Microsoft, and Cisco. They claim it is essential to the competitiveness of American technology companies because it helps them source technical talent they can’t otherwise find here. Opponents argue there is plenty of skilled home-grown technical talent, but companies like these simply don’t want to pay the U.S. market rate for them. Instead, they use the H-1B program to import foreigners willing to work at cut-rate prices.
Many academics studying the H-1B program are critical of it. Vivek Wadhwa, an executive-in-residence at Duke University’s Pratt School of engineering, said, “The H-1B program is deeply flawed. It’s lose-lose for the U.S. economy and for the technology profession, and lose-lose for the H-1B workers themselves.”
Ron Hira, an assistant professor of public policy at the Rochester Institute of Technology and a research associate at the Economic Policy Institute, points out that government data shows that the medium wage in 2005 for new H-1B computing professionals was just $50,000. That figure is lower than the entry-level wages that a newly graduated tech worker with a bachelor’s degree and no experience would command in most regions of the U.S.
In addition, these workers hold employer-sponsored visas that make them captive employees. They are not allowed to quit and take another U.S.-based job and must return to their home countries immediately if they lose their employer-sponsored position.
Further undermining the argument that H-1B’s are used mostly for scarce high-caliber talent is the fact that a full 56 percent of applications filed are for H-1B workers with the lowest skill level (level 1 of 4), according to the Department of Labor. Says Jessica Vaughan, a senior policy analyst at the Center for Immigration Studies, “It’s difficult to say whether the people coming in are really less skilled, or whether firms are simply claiming they are to avoid paying them market salaries. Either way, it’s an indictment of the system.”
In addition, many suspect the H-1B visa is being used to facilitate the permanent relocation of American IT jobs off shore. According to the Department of Labor, seven of the top 10 employers of H-1B visa holders have most of their staffs in India. Those seven employed 19,400 H-1B visa workers in 2006. It should also be noted, however, that the H-1B visas also are being used to enable American companies to hire top-tier foreign graduates of U.S. universities such as the 60 percent of engineering PhD. degrees awarded annually to foreign nationals.
Step back to go forward
So what can be done to redress the flaws in American government, corporate, and academic policy in dealing with the effects of globalization of software? The ACM report doesn’t provide very specific answers to this question, other than to assert that America can offset the negative effects of globalization and produce high-value jobs through policies that create a climate of innovation.
More specific and potentially useful actions are offered by Lael Brainard and Robert E. Litan at the Brookings Institution in a policy brief on how to respond to off shoring. They warn against policy makers implementing a host of band-aid solutions that do more harm than good. Instead, they recommend the following proactive steps:
Take a hard look at the tax code. America’s tax policies may artificially encourage offshoring, such as the current corporate tax system that permits deferral of taxation on foreign earnings but not on domestic earnings, and that result in the highest corporate tax burden among industrialized countries.
Increase funding in science and engineering education and training at all levels. Cultivating a competitive, highly skilled workforce means strengthening education and training at all levels – in the kindergarten through 12th-grade curriculum, in the university, in overlooked technical schools and community colleges, and in programs to re-skill displaced workers.
Do more on trade, not less. Policymakers must enforce trade agreements and regain the market-opening momentum that has disappeared in recent years. Ultimately, it will not be feasible to sustain political support for the relative openness of U.S. services markets while countries such as India maintain high barriers on entry into their own services markets.
Enforce regulations that protect against risks. While policymakers should refrain from blunt, potentially counterproductive approaches, they must address oversight of consumer privacy, cyber security, and consumer protection when services – especially those dealing with sensitive medical and financial information – are produced in other countries with different laws, regulations, and professional credentials.
Improve the data that the government collects. Gathering accurate, official data on off shoring, is difficult but policymakers must make it a priority to greatly improve the statistics on this phenomenon so that policymakers, education and training experts, companies, and workers can make informed decisions sooner rather than later.
Address the dislocation faced by workers in the services sector. This is the most urgent priority. Extend wage insurance, adjustment assistance, and training to cover all permanently displaced workers. The authors estimate this would cost roughly $4.5 to $5 billion today and about $50 billion over ten years, all which could be funded through the repeal of tax cuts enacted in 2001.
These suggestions may not solve the problem entirely, but they would definitely be a huge step in the right direction. People and brainpower are a country’s greatest assets in the arena of global business. The U.S. still has substantial software IP and capability. It’s high time America’s political leaders abandoned laissez-faire policies and did more to encourage companies and academic institutions to invest in our programming knowledge and skills base, eliminate age and gender discrimination in the IT and software fields, and redouble efforts to interest and prepare more young students to take up technical careers.
How is your company responding IT globalization? In what ways have you been personally affected? Please e-mail Tony DiRomualdo at email@example.com.
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