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Outsourcing Research and Development Poses Major Risk for U.S.

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Editor’s note: Vivek Wadhwa, a serial entrepreneur, is the Executive in Residence at Duke’s Pratt School of Engineering.

DURHAM, N.C. - At Duke University we had published a study in 2005 on the engineering graduation rates of India/China and the U.S., which received extensive attention. We’ve spent the last 15 months researching this topic further and are releasing the latest data in a report in the National Academy of Sciences magazine – “Issues in Science and Technology”.

This new report presents lots of new information which has not been published before – even in India and China. It raises concerns that in China is racing ahead of the U.S. and India in its ability to perform basic research. The U.S. risks losing its global edge by outsourcing critical R&D, and while India debates quotas and plays politics with education, China is positioned well for the future.

Our earlier study corrected the myths about India and China graduating 12 times as many bachelors level engineers as the U.S., and the U.S. being in trouble because of this. We reported that the U.S. actually graduates a comparable number of such engineers, and reported serious problems with the quality of Indian and Chinese graduates. We predicted shortages in India and unemployment in China.

It seems we were right. China’s National Reform Commission reported that the majority of its 2006 graduates will not find work, and there have been several reports about engineering shortages in India. The press has generally stopped using the incorrect numbers, but some still do. For example, Senate Majority Leader Harry Reid, was quoted last week, saying– "Consider that in 2005, more than 600,000 engineers graduated from institutions of higher education in China, compared to 350,000 in India and only 70,000 in the United States. China's population is more than three times that of the US, yet they graduate more than eight times the number of engineers" .

Our research had raised many questions. What was the trend? Did degrees really matter? Was it a deficiency or shortage of skilled Americans that was causing companies to go offshore? Where was this headed? What about Masters and PhD graduation rates? What are the American advantages? Our new report addresses these issues.

What our research highlights is that we’re fixing the wrong problems. Outsourcing will continue and gain momentum, but this is not what we have to worry the most about. It is the outsourcing of critical research and design that is likely to go next. The bottom line is that U.S. and India simply seem to be asleep at the wheel while China races ahead.

Here are some of the highlights:

1. Starting in 1999, China flooded the market with bachelor’s level graduates to bring elite education to the masses and to drive down salaries and costs.

2. This created massive unemployment, and the vast majority of these graduates won’t find work. China has now slowed down.

3. India has serious problems in quantity and quality, but private enterprise has been India’s salvation – private colleges and “finishing schools” make up for the deficiencies.

4. Multinationals can hire from most colleges in India but they can’t hire from other than 10-15 schools in China.

5. It is not the education of Indian and Chinese workers that is causing outsourcing or a deficiency in the American workforce – it’s all about cost savings. There is no shortage of engineers in the U.S.

6. Outsourcing will continue and build momentum and what will go next is research and design. The loss of R&D is what poses the real threat to U.S. competitiveness.

7. These new jobs will require more Masters and PhD’s.

8. China now graduates more Masters and PhD’s in engineering than the U.S. Over a 10 year period, India and U.S. graduation rates have shown relatively very small increases.

9. India’s engineering PhD’s numbers have remained flat – less than 1,000 per year, while China graduated 9,427 in 2005 and the U.S. graduated 7,333. India does not even graduate enough to staff its growing universities.

A few of the conclusions:

1. Even if the U.S. fixed K-12 education as Senator Reid and others are rightfully advocating, it would take 10-15 years before we saw the benefits, and the U.S. would have lost its competitive edge.

2. If we simply increased graduation rates, our graduates would suffer the same fate as Chinese graduates – unemployment and dropping salaries.

3. We can’t continue to depend on foreign students to fill our graduate and post-graduate programs – as the economies of India and China improve, they will start returning home.

4. While we improve our education, we need to welcome skilled immigrants.

5. Broad and informed solutions are needed to fix the problem of research going offshore.