Chipped Beef

Outsourcers against outsourcing


The chairman of computer chip maker Intel has a problem with high-tech companies sending jobs overseas. Andy Grove thinks the problem is so big that the federal government should get involved with a proto-industrial policy for technology. But the problem is not so big that Intel should stop sending work overseas.

Confused? So is Grove, as well as much of commentary on the subject. The confusion lies in the difference between a short-term trend and a fundamental shift in doing business—what Grove would call a "10X change."

Intel and many hardware and software firms are currently trying to shed costs while revenue remains flat. Swapping U.S. workers for Indian or Chinese ones sure looks attractive in the current environment, and that explains why Grove says his duty to shareholders compels him to explore outshoring.

But does this mean that the U.S. is losing the vital brainpower it needs to remain a tech leader? Only if the executives outshoring the jobs don't know what they're doing. Companies that don't retain their core competencies—their tech crown jewels—in the U.S., even as they shift grunt work overseas, will not be in business for very long, with or without foreign competition. Grove implicitly doubts the competence of his peers, comparing the software business to the steel and semiconductor industries before they went overseas.

However, the big difference is start-up costs. Engineers carry their raw materials around in their heads. If IBM chops 3,000 of its best engineers one week, in a month it could have a dozen new competitors, particularly in a more robust economy. So the key to retaining tech leadership is keeping entry barriers to tech industries low, not creating new federal programs. Besides, if CEOs, CIOs, and CFOs make mistakes deciding which jobs are vital, why would a bureaucrat do any better?