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Tech Industry

Report: Offshoring only one drain on tech jobs

Study of San Francisco Bay Area finds unstoppable forces leech jobs from mature sectors--but related trends create new ones.

"Offshoring" shouldn't shoulder all the blame for job losses in the technology-heavy San Francisco Bay Area, according to a study released Thursday.

The shift of work to lower-wage countries is just one of a number of global forces affecting job creation and loss in the region, and efforts to prevent offshoring will not succeed, according to the report. The study was sponsored by community groups Joint Venture: Silicon Valley Network and the Bay Area Economic Forum, as well as the Stanford Project on Regions of Innovation and Entrepreneurship. Conducted by management consulting firm A.T. Kearney, 120 interviews, analysis of 9,000 job listings and other research went into the report.

"The research makes clear that global trends will force continued creation and destruction of jobs in the Bay Area," said a statement by Sean Randolph, CEO of the Bay Area Economic Forum. "These trends can't be reversed. Policies and investment should be directed toward helping the region strengthen its core capabilities to compete effectively on a national and global basis."

Offshore outsourcing, which refers to farming out tasks to lower-wage nations such as India or the Philippines, has become a hot-button issue over the past year or so. Defenders of the practice say it ultimately assists the U.S. economy and its workers. But critics say it costs U.S. workers jobs and threatens the country's long-term tech leadership. The exact scale of the trend remains unclear.

The Bay Area is in many ways the home to the U.S. high-tech industry. And a number of prominent companies with operations here--such as Hewlett-Packard, IBM and Intel--conduct some of their work overseas.

Already global
According the new study, the Bay Area already has more experience with globalization and offshoring than other parts of the United States. Bay Area manufacturers earn almost 60 percent of their revenue in overseas markets. In addition, 94 percent of companies that make semiconductors, semiconductor equipment and software are using offshore workers, the study found.

On the other hand, one in four job postings by large companies in those sectors in April was for positions in the Bay Area.

According to the study, trends that enable offshoring include technology-driven improvements in productivity and so-called business disintermediation. Disintermediation refers to removing of intermediaries--middlemen--in a supply chain.

The study called for policy-makers to maintain strong support for basic research, invest in education and fix vulnerabilities in the regional business environment, including housing, transportation and "business regulations that hinder local job creation." Business leaders must also "support transition programs and consider investment in local employee development to meet their future job needs," the report said.

Grow and flow
The study indicated that the Bay Area will continue to incubate new businesses. But, it said, the region's weaknesses lead to job growth elsewhere in the later stages of the "business lifecycle."

"Companies founded in the Bay Area will typically maintain the majority of their workforce in the region until their first products or services gain market traction and key business processes stabilize," John Ciacchella, A.T. Kearney vice president, said in a statement. "However, as these companies expand and mature, many of the new jobs that stay local will focus on management of expanding business operations that are outsourced, offshored and distributed to other regions."

According to the study, the Bay Area is "well positioned" in the industries likely to spawn new technology start-ups. The region has the highest concentration of biotechnology firms in the country and more nanotechnology firms than all countries except Germany, the study said.