What does outsourcing mean to the photonics industry?

As a changed economy begins to pick up and the downturn that hit the optics and photonics industry ends, the issue of offshore technology outsourcing has been given increasing media attention. Managers and technologists need to understand how outsourcing and the global economy could impact their businesses.

Jun 1st, 2004
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As a changed economy begins to pick up and the downturn that hit the optics and photonics industry ends, the issue of offshore technology outsourcing has been given increasing media attention. Managers and technologists need to understand how outsourcing and the global economy could impact their businesses.


Economic change is often uncomfortable for individuals, but when change leads to greater productivity these transitions power the U.S. economy and allow everyone to enjoy a higher standard of living.
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The stock market and economic decline of the past three years from which we have now exited can be attributed to a single issue—profits, and the lack of them. Unprofitable public companies lost their stock market value, and private and public firms laid off hundreds of thousands of employees to cut costs in an attempt to regain profitability.

Add to this equation the potential value offered by the use of labor from low-wage economies. For more than a decade India and nations in the developing world have been growing industries specializing in providing technical labor to U.S. and European firms. This has allowed U.S. companies to lower costs and tap into a pool of highly talented workers who were initially used only in areas such as phone technical support. Now it has become common in software development and some Fortune 500 firms have opened entire engineering centers overseas. Even the banking industry has moved certain investment analysis functions overseas. The optics and photonics industry is no different in the use of offshore labor. Many U.S. optics and photonics firms now employ very capable offshore engineers and scientists in places ranging from Russia to India.

The combined forces of cost cutting to regain profits by U.S. businesses and the growth of outsourcing in the developing world have been powerful. It is certainly not the first time in our history, however, that economic forces have changed the structure of the U.S. economy.

By lowering product development costs, the use of offshore services can help companies become more profitable. Profitable U.S. companies are growing companies, and growing U.S. companies will eventually need more U.S. workers. But as was the case after previous economic shifts, those new jobs may be in different areas or require slightly different skills.

Economic change is often uncomfortable for individuals, but when change leads to greater productivity these transitions power the U.S. economy and allow everyone to enjoy a higher standard of living. The riverbanks of New England were once dotted with textile mills and the area led the world in textile manufacturing. The buildings are still there but the textile industry has long ago gone overseas in search of lower wages.

The textile jobs have gone, but high-tech companies, and others of all sorts, now fill the old mills, where new workers (wearing clothing made in low-cost overseas plants) make far higher salaries and work in much better conditions. A more recent example is the consumer-electronics manufacturing industry, which moved to Japan and then China during the 1980s and 1990s, just before one of the biggest economic booms in U.S. history.

The creative destruction and rebuilding of a capitalist economy does not happen overnight and the transition can be difficult for individuals, which is where the government can play a role through training programs and unemployment insurance. But our economy has been through far more severe changes.

In the early 1900s, my great grandfather owned a carriage and wheel factory in Philadelphia, PA. Given the introduction of the automobile, this wasn't a great business to be in. After a fire, the company couldn't rebuild and its employees lost their jobs, but the end of the carriage and carriage-wheel business was not a death knell for the U.S. economy. In fact, the automobile created dozens of industries and millions of jobs, some in the U.S. and some not. In the road industry, the vacation industry, the oil industry, and automobile manufacturing, millions of jobs were created in place of those lost at carriage-making firms like my great grandfather's.

So what does the outsourcing trend mean for the optics and photonics industry? Be ready. Change is coming, even if your company isn't finding ways to integrate overseas technical help, your company's competitors probably are. Big companies already have overseas operations while small- to mid-sized firms are still trying to figure out how to take advantage of the brain power and expertise of highly trained optics professionals from around the world.

In my own experience even though e-mail and instant messaging allow for long-range project management, the need for local experienced project managers and technologists is just as great, but now they can get more done at a lower cost. U.S.-based engineers may focus on jobs closer to the customer or on future products, or more likely on sectors, jobs, and technologies just now evolving. The challenge for managers is to harness these new talent sources to benefit their financial bottom lines, while combining the overseas talent with high-value expertise at home.

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