Analysis: Is U.S. tech self-destructing?

[papau]

http://www.upi.com/view.cfm?StoryID=20031114-052912-7678r

Analysis: Is U.S. tech self-destructing?
By Martin Hutchinson
UPI Business and Economics Editor
Published 11/14/2003 5:46 PM

WASHINGTON, Nov. 14 (UPI) -- "Is high-tech offshore outsourcing a threat to innovation and economic prosperity?" asked a New America Foundation forum on Thursday. Rather the question should have been: Given outsourcing, the relative cost structures, and its current modus operandi, is the U.S. tech sector headed for long term decay?
<snip>

Outsourcing research and development, or high level software, or complex engineering, or middle management integration between different elements in the "value chain" of tech products has very different implications from outsourcing low level manufacturing operations. Whereas the workers in say an assembly plant in Malaysia are unlikely to develop the capability to compete with the plant's U.S. owner, Indian software engineers and researchers, with education very nearly as good as that in the U.S., and with experience at a responsible level in a U.S. company, will quickly acquire the capability to compete with the U.S. The largest semiconductor manufacturer in the world, in terms of volume, is no longer Intel but Taiwan Semiconductor; there can potentially be many more such stories in the future.<snip>

Of course, many factors are required for business success beyond entrepreneurial ability. Professor Michael Porter has identified the tendency of regions to form a "pole" of excellence in a particular activity, whose residents will dominate that activity worldwide, providing the majority of the activity's innovation and new business, as well as a high proportion of its overall revenues and employment. Naturally, in the tech sector, this factor has tended so far to favor the United States. However, as higher-level functions are outsourced overseas, "poles" of capability are gradually built up in overseas locations. Once such "poles" have been established, new competitors in the industry are as likely to arise in the new "pole" as in the original one. Two excellent examples of such "poles," both of which have arisen in the last decade are Taiwan in semiconductor manufacturing and Bangalore in software. In both cases, there are plenty of opportunities for new competitors in those locations, and little competitive advantage for U.S. companies against such competitors.

The real advantage that overseas competitors may have against their U.S. counterparts in the tech sector, however, is the cost of top management. In the United States, this can run into the billions, even the billions per person. John Chambers, for example, not the founder of Cisco but a professional manager brought into the company in the early 1990s, cashed in $38 million worth of stock options Friday, but this still left him with options worth $363 million at today's prices, all of which he has received since 2001. In total Cisco's stock option plan has issued 321 million shares, with a total value of $7 billion -- considerably more money than the total earnings of the company since its formation. Except for social security tax, of course, none of this money has been reflected in Cisco's income statement, only in its balance sheet, where the company is buying back shares at a frantic rate -- more than $7.8 billion of scarce cash has been spent on share buybacks since 2001, in years of a tech downturn......In other countries, needless to say, such largesse is unnecessary.<snip>


The short-sighted greed of U.S. tech management, and the foolishness of a (accounting) regulatory system that has allowed them to hide the true costs of their overpayment, will bear true responsibility for this development.

[jonoboy]

1. only one thing to do: eat the rich !

[yella_dawg]

2. This whole thing just blows my mind.

For years, we've been dealing with a "software crisis" meaning that as systems become more complex, oportunities for failure grow. The solution is to heavily stress process and training, with intensive testing, blah, blah, blah. We hope. Finding a long-term, workable solution is critical for continued growth in the software industry. Reducing complexity and increasing reliability were the supposed justifications for Ada, Java, and other expensive but useless tripe. At the moment, we're stuck with implementing rigorous process management or simply waiting for software systems to implode.

The idea of outsourcing breaks the chain of accountability for software quality, it has the potential to reduce to level of training of software producers, and in general, it's about the dumbest thing you could do.

I'm concerned that the software crisis that has been howling around tech's doorstep for thirty years is fixing to crash through the door. I forsee a future where all software is like Windows, and Windows is even worse. (MSoft lead the exodus to overseas development.)

[KT2000]

3. Long range planning

has put countries such as India and China in the position to take these jobs. Years ago India began an initiative to specifically educate people in science and technology. A degree from one of the Indian science and tech universities automatically puts that job candidate ahead of all others in the US.
They planned for this day - when they could offer highly skilled workers for less hourly pay.

They also knew that the US companies operate on a 30 day bottom-line.

Clark has made some good points about this. He has noted that the consumer market of the future is in China - not the US.
Think abou that one!

[Classical_Liberal]

4. It won't be for anything we make

and it won't be that big if they don't make anything.