Framing the Engineering Outsourcing Debate: Placing the United States on a Level Playing Field with China and India

Faculty Leaders:
Dr. Gary Gereffi
Framing the Engineering Outsourcing
Vivek Wadhwa
Debate: Placing the United States on a
Primary Student Researchers:
Ben Rissing, Kiran Kalakuntla,
Soomi Cheong, Qi Weng,
Level Playing Field with China and India
Nishanth Lingamneni
December 2005

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Acknowledgements
This report is part of an ongoing study to compare the number of U.S. engineering
graduates to those in developing nations, particularly India and China. This is a
complex issue and requires further study but this preliminary report raises several
questions about the numbers quoted in the popular press. This report was developed
by graduate students of Duke University’s Master of Engineering Management Program
under the guidance of Dr. Gary Gereffi, and Vivek Wadhwa with consulting assistance
from Katzenbach Partners LLC.
Faculty Leaders:
Dr. Gary Gereffi
Director of the Center on Globalization,
Governance and Competitiveness at Duke
University, and Professor of Sociology
ggere@soc.duke.edu

Vivek Wadhwa
Executive in Residence and Adjunct Professor,
Master of Engineering Management Program,
Pratt School of Engineering, Duke University
wadhwa@duke.edu

Primary Student Researchers:
Ben Rissing, Kiran Kalakuntla, Soomi Cheong,
Qi Weng, Nishanth Lingamneni
Masters of Engineering Management Program

Special Thanks:
Roopa Unnikrishnan, Dr. Richard Schroth,
Katzenbach Partners LLC














December 12, 2005
1 Master of Engineering Management Program – Duke University

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Abstract


The effect of the dynamics of engineering
outsourcing on the global economy is a
discussion of keen interest in both business and
public circles. Varying, inconsistent reporting of
problematic engineering graduation data has
been used to fuel fears that America is losing its
technological edge. Typical articles have stated
that in 2004 the United States graduated roughly
70,000 undergraduate engineers, while China
graduated 600,000 and India 350,000. Our study
has determined that these are inappropriate
comparisons. These massive numbers of Indian
and Chinese engineering graduates include not
only four-year degrees, but also three-year
training programs and diploma holders. These
numbers have been compared against the annual
production of accredited four-year engineering
degrees in the United States. In addition to the
lack of nuanced analysis around the type of
graduates (transactional or dynamic) and quality
of degrees being awarded, these articles also
tend not to ground the numbers in the larger
demographics of each country. A comparison of
like-to-like data suggests that the U.S. produces
a highly significant number of engineers,
computer scientists and information technology
specialists, and remains competitive in global
markets.
2 Master of Engineering Management Program – Duke University

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The Engineering Outsourcing Debate

The impact of engineering outsourcing on the global economy is a discussion of keen
interest. Consistent reporting of problematic engineering graduation data has been
used to fuel fears that America is losing its technological edge. Typical articles have
stated that in 2004 the United States graduated roughly 70,000 undergraduate
engineers, while China graduated 600,000 and India 350,000. When cited by the
popular media, these numbers were rarely documented or verified.1

Our study has determined that the above comparison is inaccurate, or tells only part of
the story. The commonly quoted numbers are based on reports issued by the Chinese
Ministry of Education and the National Association of Software and Service Companies
in India, who are generally considered to be the authorities on engineering graduation
statistics within their respective countries. However, the statistics released by these
organizations have included not only four-year degrees, but also three-year degrees
and diploma holders. These numbers have been compared against the annual
production of accredited four-year engineering degrees in the United States.
Additionally, these numbers include not only engineers in traditional engineering
disciplines, but information technology specialists and technicians.

Here we will present a clearer analysis of the number of engineering and engineering-
related degrees awarded annually by the United States, India and China. We will define
the term “engineer” and the various degree options that exist. We will then offer what
we believe is a more accurate and balanced comparison between the numbers of
engineering, computer science and information technology degrees awarded in the
United States, China and India.

Classifying Engineers

The outsourcing debate has been complicated due to conflicting definitions of the
engineering profession. Different statistical survey groups have adopted their own
engineering classifications.2 Additionally, definitions vary greatly internationally. Within
academic and professional settings, an engineer is defined as a person capable of
using scientific knowledge to solve real-world problems. Engineers utilize their
knowledge of math and science to achieve practical ends. However, this definition
makes it difficult to count engineering populations. In the U.S., the following definitions
have been used in various surveys and reports: an individual working in an engineering
occupation; an individual’s highest or most recent degree; anyone with an engineering
degree or occupation.

Through our research, we have identified two main groups of engineering graduates:
dynamic engineers and transactional engineers. Dynamic engineers are individuals
capable of abstract thinking and high-level problem solving using scientific knowledge.
These engineers thrive in teams, work well across international borders, have strong
interpersonal skills, and are capable of translating technical engineering jargon into
common diction. Dynamic engineers lead innovation. The majority of dynamic
3 Master of Engineering Management Program – Duke University

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engineers have a minimum of a four-year engineering degree from nationally accredited
or highly regarded institutions.

Transactional engineers may possess engineering fundamentals, but not the
experience or expertise to apply this knowledge to larger problems. These individuals
are typically responsible for rote and repetitive tasks in the workforce. Transactional
engineers often receive associate, technician or diploma awards rather than a
bachelor’s degree. These subbaccalaureate degrees can be obtained in less than four
years, but more than one. Most highly accredited universities in China, India and the
United States stress the importance of a four-year education. For instance, master’s
programs within the United States typically will not admit students with three-year
bachelor’s degrees unless they have also completed a one-year post-graduate diploma
from an AIU- or an AICTE-approved institution. Subbaccalaureate degrees normally
are granted at lower-tier institutions that lack the research facilities, dedicated faculty
and budgets of accredited universities. Additionally, the quality of curricula varies
greatly at these institutions. Due to time and budgetary restrains, subbaccalaureate
programs are rarely capable of placing a strong emphasis on research, group work,
applied engineering, or interdisciplinary thinking.

It is important to note that while many bachelor’s programs produce dynamic engineers
and most subbaccalaureate programs produce transactional engineers, this is not a
hard and fast rule. In the last 50 years we’ve seen a number of science and technology
leaders with little or no traditional education. Similarly, a degree from MIT, the Indian
Institutes of Technology, or Tsinghua University in China doesn’t guarantee the
recipient is a dynamic engineer.

Study Methodology: The United States, China and
India in Comparative Perspective

In this study, we sought to identify credible, well-documented and comparable
engineering educational statistics for the U.S., China and India. We also explored the
undergraduate graduation profiles for some of the largest engineering universities within
each of these countries.

We obtained data from Ministry of Education in China, the National Association of
Software and Service Companies (NASSCOM) in India, and the U.S. Department of
Education’s (DoE) National Center for Educational Statistics (NCES). We corroborated
this data by contacting top universities in India and China and analyzing their graduation
data and areas of specialization.

We also contacted various journalists, consultants and other industry experts to gain a
better understanding of the issues and to validate our methodology.




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Findings

To create an accurate and representative comparison between the number of engineers
produced annually by the U.S., China and India, we researched the annual production
of engineers, computer scientists and information technology specialists at the
bachelors and subbaccalaureate levels in 2004. The results from our research can be
found in Table 1 and Graph 1 below:


Table 1: Bachelor’s and Subbaccalaureate Engineering, Computer Science and
Information Technology Degrees Awarded in the U.S., China and India in 2004


Degree Field
United States1
India2 China3 *
Total Bachelors and Subbaccalaureate Engineering,
Computer Science and Information Technology Degrees
222,335
215,000
644,106
Number of Bachelors Degrees
137,437
112,000
351,537

in Engineering (Excluding CS and Electrical)
52,520
17,000 ---

in CS, Electrical and IT
84,917
95,000
---
Number of Subbaccalaureate Degrees **
84,898
103,000
292,569

in Engineering
39,652
57,000
---

in CS and IT
45,246
46,000
---

* This data provided by the Chinese Ministry of Education may include additional engineering and
technology degrees outside traditional engineering fields, CS majors and IT specializations (example:
auto mechanics)
** Subbaccalaureate degrees refer to Associates degrees in the United States, short-cycle degrees in
China, and three-year diplomas in India
Note: The National Center for Education Statistics reports the total US engineering bachelor’s degrees
granted in 2004 to be 63,558. This number differs from the American Society of Engineering Education's
(ASEE) 2004 statistic of 72,893. This variation is due to the way each of these organizations classifies
and categorizes engineering graduates.

Sources:
1 National Center for Educational Statistics (NCES). 2003-4 Table 249, 2003-4 Table 253. NCES.
Obtained from NCES Annual Reports Program Director
2 National Association of Software and Service Companies (2005). 2005 Strategic Review: Chp 6:
Sustaining the India Advantage. NASSCOM. Pg 158
3 Chinese Ministry of Education. Number of Students in Regular HEIs by Field of Study.
http://www.moe.gov.cn/edoas/website18/info14477.htm









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Graph 1: Engineering, Computer Science and Information Technology Degrees
Awarded in 2004

Engineering, CS and IT Degrees Awarded in 2004
700,000
600,000
d
e 500,000
292,569
400,000
300,000
r
ees Award
200,000
84,898
351,537
103,000
Deg 100,000
137,437
112,000
0
United States
India
China
Country
Number of Bachelors Degrees
Number of Subbaccalaureate Degrees **



Note: Shaded China data may constitute an overestimate.

This shows that when compared on a level playing field, the U.S. is producing a very
significant number of engineers, CS and IT specialists. China has roughly four times
the population of the U.S., and India is approximately three times as large. If we take
the data from Table 1 and normalize it against country population, we obtain the results
presented in Graph 2.

Graph 2 depicts the annual production of bachelor’s and subbaccalaureate degrees in
Engineering, CS and IT awarded per million citizens. These data imply that per every
one million citizens, the United States is producing roughly 750 technology specialists,
compared with 500 in China and 200 in India.
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Graph 2: The Number of Bachelor’s and Subbaccalaureate Degrees in
Engineering, CS and IT Awarded Annually per Million Citizens
800.0
700.0
600.0
468.3
500.0
400.0
225.7
300.0
200.0
289.3
95.4
271.1
100.0
103.7
Degrees Awarded (per Million Citizens)
0.0
United States
India
China
Country
Bachelors
Subbaccalaureate

Note: Shaded China data may constitute an overestimate

Data Background

The Chinese Ministry of Education is considered to be the definitive source for
information relating to China’s graduation data. We spoke with the Ministry of
Education at length and learned several important points about its engineering
graduation data. In 2004, the Ministry states that 644,106 engineers graduated,
351,537 of which received bachelor’s degrees and 292,569 of which graduated from
short-cycle programs. Short-cycle degrees are two-three year degree programs similar
to U.S. associate’s degrees. However, these statistics are still misleading. There are
questions about what qualifies as an engineering program. As a result, any bachelor’s
or short-cycle degree with “engineering” in its title is included in these numbers,
regardless of the degree’s field or the academic rigor associated with it. This means
that the reported number of engineers produced by China in 2004 may very well include
the equivalent of motor mechanics and industrial technicians.

In all likelihood, this 644,106 number may not be comparable to the engineering
production in the United States and India. The Ministry of Education told us that their
aggregate numbers were obtained by adding the numbers of “engineering” graduates
as reported by different provinces. These provinces were not required to report these
degrees by major and further there was no standard definition of engineering between
the provinces.

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The National Association of Software and Service Companies (NASSCOM) provided
the engineering graduation statistics on India. In NASSCOM’s 2004 Strategic Report,
they estimate that in 2004 a total of 215,000 engineering graduates were produced. Of
this number, 112,000 individuals received four-year bachelor’s degrees, while the
remaining 103,000 received three-year degrees. According to this projection, 84.8% of
India’s four-year engineering graduates received IT-related engineering degrees
(Applied Electronics & Instrumentation; Computer Science & Engineering; Electricals &
Electronics; Electronics & Communication; Electronics & Telecommunication;
Information Technology; Instrumentation Engineering; Instrumentation & Control; and
Computer Application). While NASSCOM’s engineering graduation statistics constitute
projections, these values appear grounded. NASSCOM is currently the de facto
authority for these data, given that the Indian national government records engineering
graduation data on an erratic, non-annual basis. For example, the most recent official
Indian graduation data are from 1993.3 NASSCOM’s projections are based on numbers
that are pulled from three locations:

• The Institute of Applied Manpower Research's annual publication, "Manpower
Profile India"
• The Ministry of Human Resource Department's Annual Report
• IndiaStat.com

Together, these sources provide data with a three- to four-year lag. To extrapolate
2004 data, NASSCOM estimates labor supply numbers based on historical compound
annual growth rates (CAGR). NASSCOM also consistently rechecks its past projections
with current numbers, and it believes that in most cases the projections are accurate.

Once we obtained engineering graduation data from China and India, we then sought
comparable engineering data for the United States. The American Society for
Engineering Education (ASEE) and the Engineering Workforce Commission (EWC) are
known for being the definitive sources for such statistics. Unfortunately, neither of these
organizations publishes comprehensive reports detailing the graduation rates of IT
specialists or individuals receiving subbaccalaureate degrees. As a result, we turned to
the DoE’s National Center for Education Statistics (NCES). This statistical databank
contains comprehensive post-secondary graduation data across all majors and degree
types. We accessed this database to obtain bachelor’s and associate’s level
engineering, CS and IT graduation statistics. It is important to note that NCES
engineering data differ from those recorded by the ASEE and EWC. This is due to the
way NCES classifies various majors and because the NCES does not classify
Computer Science as an engineering discipline. However, because we are focusing on
Engineering, Computer Science and Information Technology, the NCES data are ideal.

Is America Losing its Technology Leadership?

Today, almost one-third of the globe’s science and engineering researchers are
employed by the United States. Thirty-five percent of science and engineering articles
are published within the U.S. and the U.S. accounts for 40% of the globe’s research and
development (R&D) expenditure. Over the past two years, politicians, statisticians and
policy makers have asked how much longer we can maintain our technological edge
8 Master of Engineering Management Program – Duke University

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when other nations with greater populations are producing more and more scientists
and engineers. Many have argued that we are actively fueling this process by
outsourcing American science and engineering jobs overseas.

There is no definitive answer to what the future holds. It is clear that the U.S. is not in
the desperate state that is routinely portrayed. The country needs to maintain its focus
on improving the quality of education and maintain its momentum, but there is no
imminent crisis.

Outsourcing creates a clear threat to certain professions and it is likely that this trend
will continue. It seems that the jobs of transactional engineers are easily outsourced and
are routinely being taken by relatively low paid engineers in countries like India and
China. However, the outsourcing of high-level engineering and IT professions is
another story. These jobs often require specialized dynamic engineers: individuals with
strong interpersonal skills, technical knowledge and the ability to communicate across
borders.

The great majority of engineers involved in outsourced professions hold a minimum of a
four-year degree. As a result, one could argue that approximately half of China’s and
India’s annual engineering and IT graduates are capable of competing in the global
outsourcing environment. However, a recent McKinsey global labor market study
argues that this estimate is far too generous. McKinsey concluded that only 10% of
Chinese engineers and 25% of Indian engineers can compete in the global outsourcing
arena.4 McKinsey attributed these figures to limited language proficiency, educational
quality, cultural issues, job accessibility and the attractiveness of domestic non-
outsourced jobs.

So, the real threat to the United States’ science and technology economy exists in a
subset of the engineering populations produced by China and India. Foreign dynamic
engineers trained by accredited universities with high language proficiencies and close
proximity to their country’s industrial and commercial centers are the most likely to
compete with U.S.-based engineers for offshore engineering jobs, and they also will be
central to innovation drives in their domestic economies.

America: Innovating and Evolving

Many of the studies and articles published to date paint a grim picture for the future of
American science and technology. Fortune magazine argued that a restructuring of the
global economy is an unprecedented event, and no one knows for certain what the
impact of such an event might be.5 A recent article in Finance and Development
showed that in 2003 the rest of the world outsourced more to the United States and the
United Kingdom than the other way around. The article went on to argue that despite
U.S. outsourcing activities, a net loss of jobs within the United States has not occurred.6
However, McKinsey Global Institute believes that in a worst-case scenario, 49% of
packaged software, 44% of infotech services, 25% of banking services, 19% of
insurance jobs and 13% of pharmaceutical jobs could be outsourced.7 These again are
services that can be produced by transactional engineers.

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