November 10, 2003
Peace & Prosperity
Please note that contributed articles, blog entries, and comments posted on EDACafe.com are the views and opinion of the author and do not necessarily represent the views and opinions of the management and staff of Internet Business Systems and its subsidiary web-sites.
Peggy Aycinena - Contributing Editor


by Peggy Aycinena - Contributing Editor
Posted anew every four weeks or so, the EDA WEEKLY delivers to its readers information concerning the latest happenings in the EDA industry, covering vendors, products, finances and new developments. Frequently, feature articles on selected public or private EDA companies are presented. Brought to you by EDACafe.com. If we miss a story or subject that you feel deserves to be included, or you just want to suggest a future topic, please contact us! Questions? Feedback? Click here. Thank you!

As I begin to assemble this weighty piece on this most complex and sensitive of subjects, it's striking - and helpful as an ice breaker - to note that there are 7 jobs posted at this moment on the home page for EDAToolsCafe.com. All 7 jobs are with Mentor Graphics and all 7 jobs are in Hyderabad, India.


Opportunity or Obligation? Writing on the wall or Passing fancy? Cup half empty or Cup half full?


As with most things in life, it depends on where you're sitting.


The widely proclaimed “jobless recovery” continues in the U.S., yet friends and family remain unemployed. And as state and national governments celebrate recent reports of a 7.2-percent growth in the U.S. economy for the 3rd quarter, job-loss statistics in the U.S. continue to mount at a blistering pace - over 171,000 jobs eliminated in October per reports (more than double the 76,500 jobs cut in September) and the highest number lost in a single month since October 2002.


Meanwhile, we're seeing a plethora of reports in the American press attributing this economic-growth/job-loss dichotomy to the legions of jobs being outsourced to off-shore locations.


Is it true, and what do folks in and around EDA have to say about all of this? The EDA industry has a history of global software development and the EDA industry is selling into an increasingly global user community. It makes sense that people in this industry should have lots to say with regards to the national debate on outsourcing - and they do.


Following are a set of lengthy comments from a number of individuals. If you can manage it, read through to the end. In the process, I promise you'll end up learning something. Or at least, you'll end up sensing a nuance here that you might not have otherwise noticed.


(Editor's Note: My initial intention was only to solicit responses from Mentor Graphics, Synopsys, and Cadence. Short of Mentor Graphics, that proved pretty difficult. Hence, I opened the conversation up to a wider panel of contributors. Thanks to Nanette Collins, Judy Erkanat, Cedric Iwashina, Ed Lee, Monica Marmie, Georgia Marzalek, Giovanni Rodriguez, Ry Schwark, and Jan Willis for their help with this project.)


The Questions


Here are the questions that served as framework for the comments below. Most of the responses were made in conversations by phone, although several came by e-mail. All of the people I spoke with are associated with companies headquartered in Silicon Valley, short of one.


1 - Where are your R&D centers outside of the U.S.?


2 - How are those centers managed? From North America or by way of local management?


3 - What are the issues and pros & cons related to using R&D and development resources off-shore, when there appears to be a significant population of unemployed developers here in the U.S.?


4 - If it had not been for the economic downturn, would we have seen as much interest in developing off-shore R&D capability?


5 - Is the fact that many foreign-national engineers have been sent home in the last 3 years a factor in all of this?


6 - How does the emerging EDA user market in Asia affect your decision to aggressively pursue off-shore development capability?


7 - Are there national security issues related to the burgeoning EDA user community in Asia, Russia, etc.?


8 - Are there national security issues related to various announcements from the large EDA vendors regarding support for training centers in Russia and the PRC?


9 - If this is a global economy, why are American-based press reports sounding the alarm with regards to software/hardware design and IT infrastructure support/development being sent at such a rapid clip to India and other countries in that region?


10 - Is Silicon Valley going to be able to create a whole new set of needs and requirements that will continue to drive employment and prosperity in the North American high-tech sector?


The Responses


Mentor Graphics Corp - Walden Rhines, CEO and Chairman of the Board


“Mentor thinks that those who are off-shoring electronics jobs to save costs are misguided. Right now, unless things change dramatically, electronics is an innovation-driven business. You need the best talent to stay competitive, so you need to be where the talent pool is. The talent pool today can be found in many places, both in the U.S. and internationally, so we've been hiring in both the U.S. and internationally. In fact, when you factor in the costs of software, expensive high-end workstations and assorted expenses, salaries are not the majority of the costs of having an engineer on the team. And since salaries tend to balance over time, reduced salary is never enough of a
reason to look elsewhere.”


“We also believe that there are hidden costs associated with having a geographically distributed team. First of all, there are travel costs associated with transporting the people back and forth between development sites. Second, there are also language and cultural issues that arise from trying to work across geographical boundaries. Third, communications and time-zone lag can cause development to take longer or have more false starts because teams can't sit down in a room together and hash the design out. Again, the reduced salaries associated with doing R&D off-shore have to be balanced against these other costs.”


“Now there can be circumstances where off-shore R&D can be beneficial, both to the company and to our employees. A while ago, we had an employee who wanted to return home to Pakistan. We worked with him after his return and he developed a team for us there, which is now contributing to our R&D. He's happy and we're benefiting from the efforts of the team.”


“We also have R&D teams in India, Egypt, Japan, and Russia. However, none of these teams got up and running simply to save on labor costs associated with R&D in North America. Those teams are contributing to our efforts because they bring skills to the table that augment our efforts here, not in lieu of efforts here. Electronics really is a global market, and you have to be part of it.”


QualCore Logic Inc. - Mahendra Jain, President


“QualCore has a center in Hyderabad, India, with about 90 people, and we've got about 50 people here in North America in our Sunnyvale facility. The 90 people in India are mostly focused on digital design. Our staff here in the U.S. [concentrates on] sales and marketing, analog and mixed-signal design, IP development, and consulting.”


“We have a local management structure in place in India, but at the end of the day they report to us here in Sunnyvale. We have a local VP of engineering in India and other local management. We have regular conference calls between India and California, and I go to Hyderabad every quarter. Sometimes we'll bring staff from there over here for 2 or 3 months, depending on the project. Some projects can be transferred to India, other cannot. It's decided on a project-by-project basis.”


“The major issue is the cost structure - you do what you need to do to survive. Three years ago, people were outsourcing, but now economic conditions are tough. The companies need to show [concern with their bottom line]. What happened in manufacturing, is now happening in design services and software. But it's not all due to the downturn because there has always been an interest in showing growth and profitability. Outsourcing was there before, but now it's being highlighted. I wrote an article about it back in 1993 for ASIC & EDA Magazine called 'Is Software Going the Way of Manufacturing?' - this is not new.”


“Today, people are cutting back on jobs because the economic conditions are tough - people are cutting back on local employees in North America and sending the work to where people are willing to do the job [for less]. There's definitely a difference in cost - overall, a 3 or 4-to-1 differential in salaries between North America and India. An engineering salary here of $80,000 might be $15,000 there. But there are also costs associated with the management bandwidth required, [so it's really not that simple].”




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-- Peggy Aycinena, EDACafe.com Contributing Editor.




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