UTC Sends Jobs Abroad

Date: Tuesday, February 25, 2003 10:54 AM

H-1B and JOB DESTRUCTION NEWSLETTER

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Once again Americans are blamed for this exodus of jobs. Supposedly
jobs will stop going overseas when U.S. schools do a better job of
encouraging math and science, improve their curriculum and spark
students' interest in technical careers.

UTC Chairman George David was more veracious when he told Wall Street
analysts that sending more engineering work overseas boosts profit
margins because costs are lower. What he is really saying is that
Americans will continue to lose jobs until they accept the salaries and
working conditions in India and China. He doesn't offer a reason why
students would be interested in technical careers that force them into
the global race to the bottom.

http://www.ctnow.com/hc-utc2.artfeb24.story

UTC Sends Jobs Abroad
Cost-Cutting Move Alarming Engineers
By BARBARA NAGY And JOHN M. MORAN
Courant Staff Writers

February 24 2003

Being an engineer at Pratt & Whitney has always meant a secure job with
a decent salary, good benefits and a promising future.

Today, many of those engineers fear their world is about to be turned
upside down.

Bottom-line pressures that prompted the jet-engine maker to send
thousands of manufacturing and computer jobs overseas are threatening
to push other white-collar jobs to low-wage countries as well.

The work of about 200 engineers is already being done for Pratt in
India by InfoTech Enterprises Ltd., a company that has grown rapidly by
courting European and American businesses eager to cut costs.

And that could be only the beginning, both for Pratt and for its sister
divisions at United Technologies Corp.

UTC Chairman George David told Wall Street analysts recently that
sending more engineering work overseas would help the company keep its
pricing competitive, which in turn would boost profit margins.

"We're just getting started," David said during a presentation at a
Bear Stearns investment conference last month.

UTC is not alone. White-collar work in fields ranging from accounting
to architecture is moving to low-wage countries in eastern Europe and
Asia. Forrester Research Inc., a consulting company based in Cambridge,
Mass., predicts that 3.3 million service jobs - along with $136 billion
in wages - will leave the United States over the next 15 years.

Overseas Risks

The migration of engineering jobs overseas comes in for particular
criticism from those who say the losses threaten America's
technological edge. Others minimize the risk, saying companies such as
UTC have no choice if they are to remain competitive.

"It's one of those kind of Catch-22s. The issue is, where does it end?"
said Thomas Gutteridge, a management professor at the University of
Connecticut whose graduate students include Pratt engineers. "The bar
has kept moving up. We're clearly a knowledge economy, but knowledge
now is clearly global."

David likened the outsourcing of engineering work to UTC's "very
successful" efforts to move information technology services to outside
contractors. The number of IT workers employed directly by UTC has
dropped by half since 1996, a decline of 1,200 positions, he said.

"I think we have the potential for the same kinds of transitions in our
engineering workforce," David said. He said that should benefit UTC's
bottom line, but added later that, at this point, the company doesn't
have a specific plan or detailed estimates of savings.

The comments raise troubling questions for U.S. engineers, who wonder
where UTC will draw the line. Many of them could one day be competing
with engineers overseas who are paid a fraction of U.S. wages. Even if
the U.S. engineers don't lose their jobs as a result, competition is
likely to affect salaries.

"There's a lot of tension," one former Pratt supervisor said, speaking
on condition of anonymity for fear of losing his benefits. "What it's
eventually going to do is lower the wages of all the people who are
left behind here, and I don't think the public understands that."

Wage Pressures

Engineers say U.S. wages have stayed high because there is a shortage
of people in the field. Sending work overseas would ease the shortage
in the short term, potentially driving pay scales down. That, in turn,
could aggravate the shortage over the long term.

"It's like opening Pandora's box," said Alice Heist, executive director
of the Connecticut Quality Council, a nonprofit group that works with
manufacturers to become more efficient. "What happens to all the big
houses in Avon and Glastonbury and Simsbury? Aren't these the people
who are living in them?"

Engineers are critical to designing new products, figuring out how to
manufacture them and planning their maintenance. As such, their work
can't be outsourced to the extent that IT services have been, UTC
spokesman Paul Jackson said.

He said UTC has to balance its need for technical expertise with the
need to attain that expertise at a competitive price. Achieving that
balance may result in the outsourcing of engineering work that has "low
strategic" importance, Jackson said.

"Most of the key strategic work occurs in Connecticut, where it will
remain," he said.

Still, UTC employs some 12,000 engineers - 7,000 of them in
Connecticut. Another 3,000 employees are in engineering support
services. So even a modest boost in outsourcing could mean the loss of
hundreds of high-paying jobs.

A good share of the losses might not be at UTC, but at Connecticut
subcontractors that now do contract engineering work for the company.
Most of the work sent overseas by UTC so far, for example, was done by
U.S. subcontractors. Pratt transferred the work to India, cutting costs
by 80 percent, according to one company estimate.

Hemmed in by a sluggish economy, U.S. corporations are searching
vigorously for ways to contain costs, and outsourcing continues to play
a key role. Citigroup Inc., for example, recently said it was likely to
expand its customer call-center operations in India.

Backlash Looms

But the trend toward sending work overseas may also result in a
protectionist backlash aimed at preserving U.S. jobs; several states
are considering legislation requiring that work performed under
government contract be done domestically, whenever possible.

Some argue that the hazards of sending engineering work overseas aren't
worth the potential savings. By outsourcing, a company like UTC risks
losing ownership of the core innovations that give the company its
competitive edge, said Mark Bobbi, an aerospace consultant.

"They are talking about outsourcing critical aerospace components
strictly for cost reasons," he said. "In a technical environment like
aerospace, when you outsource engineering, what else is left?"

Edward J. Deak, an economics professor at Fairfield University who
specializes in employment issues, sees the extension of overseas
outsourcing as a broader warning for the state. Other companies, he
predicts, will look to do the same.

"What the companies are doing is looking for cheaper ways to be able to
produce these products," he said. "We've moved into the higher-grade,
knowledge-based, value-added kind of work that one would think would
normally reside here in Connecticut."

Greater Creativity

Others are less certain of the threat.

Paul Nisbet, an industry analyst with JSA Research in Newport, R.I.,
said restrictions on doing defense work overseas and the need to keep
engineering close to production at Middletown would place sharp limits
on how much work Pratt could farm out.

"Very little of the military engineering could be done over there and I
can't imagine a lot of the commercial would be, either," Nisbet said.
"I don't see a mass exodus."

Edward Crow, retired vice president of engineering at Pratt, wrestles
with the arguments on both sides of the question. He's worried about
the shortage of engineers, knows Pratt employees are upset about work
sent to India and says Pratt must draw a line on what will and won't be
sent overseas.

So far, Crow said, the work sent to India is tedious, low-level
engineering that his staff hated to do anyway. For example, InfoTech is
updating manuals used by repair technicians and analyzing stress on
engine components. The scope of the work will grow, Crow said.

Pratt needs to keep costs in line and it needs to find engineers to get
its work done, Crow said. India offers a ready workforce at a low cost.
Pratt also hopes that sending work to India, with a rapidly developing
economy and rising number of air travelers, will help the company win
engine contracts when airlines there buy jets.

Crow hopes U.S. schools do more to encourage math and science, improve
their curriculum and spark students' interest in technical careers.
Their leading-edge advances, high productivity and creative thinking
are what will keep wages higher in the U.S., Crow said.

"You cannot maintain the standard of living in the United States unless
it's built on something," he said. "We need to create new things."

Others suggest the loss of work to countries such as India and Russia
will be painful, but could push American engineers to specialize,
become more proficient and focus on higher-level work.

"We have to adjust," said Neil H. Livingston, a former engineering
manager at Pratt, now president of Chester Precision.

"You build your Rolodex continuously from the time you're a young
engineer. You seek out new programs to work on. You volunteer for
projects when you can. You continue your education," he said. "You can
flourish in this environment."

Lee Langston, an engineering professor at UConn, said his Indian
students raise the standard for math proficiency in his classes and his
American students bring greater creativity.

It will be hard for UTC to have two groups of engineers with different
strengths thousands of miles apart, trying to work on the same system,
Langston said. He said that alone might limit UTC's ability to shift
work overseas.

"You've got to be in the same room, looking people in the eye, doing
things together, collaborating," he said. "Give it five years. Let's
see what happens."

Staff Writer Michael Remez contributed to this story.
Copyright 2003, Hartford Courant

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