RealTime IT News

R&D the Latest Target of Silicon Valley Outsourcing

The next wave of outsourcing will be research and development (R&D) functions, according to the latest Santa Clara University Business Index released Thursday.

The monthly business indicator tracks business conditions and jobs by polling executives and managers in a wide range of companies. While R&D hasn't been moving offshore at the rate of manufacturing and customer support, SCU finance professor Robert Henderschott told internetnews.com that a trend is developing.

"There are quite a few companies in our survey -- over one-fifth -- putting their toe in the water," he said.

If these companies' experience with their initial trials is positive, Henderschott said, it could lead to more R&D outsourcing in the future.

This trend is different than the practice of small startups developing new technology or services then selling out to larger companies that roll it into their own offerings, Henderschott said.

"In this case, the company still has ownership of the IP and manages product development. We're talking about formally saying, 'Here's a set of goals, here's the timetable.' Just as a contract manufacturer would commit to delivering a certain number of boxes, this involves another company committing to deliver a set of technology milestones," Henderschott said.

The report could result in a collective groan from the estimated 8.4 percent of Santa Clara County citizens who are currently unemployed and their still-employed but worried counterparts. But Henderschott said this latest emigration of jobs follows history -- and history shows that some sort of new jobs will take their place.

"Every time we've seen this trend in manufacturing, there are people who believe the sky is falling once the jobs and activities move elsewhere," Henderschott said. "But if you look at history, it's never happened."

For example, hardware and chip manufacturing moved abroad at a time when they were already being automated and using fewer and fewer workers. Then the Internet came along and provided new kinds of jobs.

"I can't tell you what the next thing will be that will employ all these people, but in the past there always has been a next thing," he said.

Offshore outsourcing of manufacturing has enabled companies like Cisco Systems and Intel to compete globally by being more competitive, Henderschott said, and that ultimately benefited the whole economy.

"That process will hopefully continue," he said, "as they tap into best and brightest and cheapest around the world."