Slide 1 Attraction/Retention of Global Talent and its Relation to Economic Development Vivek Wadhwa Visiting Scholar, UC-Berkeley Director of Research, Center for Entrepreneurship and Research Commercialization and Exec in Residence, Pratt School of Engineering, Duke University Senior Research Associate, Harvard Law School Columnist, BusinessWeek www.GlobalizationResearch.com Slide 2 Overview Myths in the globalization debate Research Engineering graduation rates, why companies are going offshore, shortages?, trends The next wave of globalization Solving the mystery of India's success Some American advantages University research Immigration Entrepreneurship Conclusions Slide 3 7 myths in global competitiveness debate We're falling behind in graduating engineers (and scientists) Companies are going where the skills are Strong math and science education = Global Competitiveness More investment in research = more innovation Skilled immigrants fuel the economy: so more H1-B visas Young college dropouts: typical Silicon Valley entrepreneurs America world leader in workforce development Slide 4 Common arguments Last year China's schools graduated more than 600,000 engineers and India's schools produced 350,000, compared with 70,000 in America -- The U.S. Department of Education U.S. children rank below international averages on a test in general knowledge in mathematics and science --National Academies Tech companies going abroad because they can't find enough computer science applicants in the U.S....-- Bill Gates and others Do we have our facts straight? Slide 5 Duke research - part 1 Engineering graduation rates Why companies are going offshore Skills of American engineers vs. Indian/Chinese Trends in globalization Slide 6 Engineering graduation rates Problem: We're not comparing Apples with Apples Slide 7 (graphic) Engineering, CS & IT degrees awarded in 2004 ***China data are considered suspect - collection methods and definition of engineers are inconsistent Slide 8 Questions raised Are companies going offshore because of a U.S. skills shortage or a deficiency in U.S. workers? What are the relative strengths and weaknesses of U.S. engineering graduates vs. India/China? Do companies hire 2- or 3-year degree/diploma holders? How do U.S. engineering jobs compare with India/China? Where is this headed? We surveyed 78 division representatives of 58 U.S. based companies involved in engineering outsourcing Slide 9 Companies are going where the skills are? Is there a shortage of engineers in the U.S.? Acceptance rates: 47% reported acceptance rates greater than 60% 80% said acceptance rates had increased or stayed constant Signup bonuses: 88% offered no bonuses or to less than 20% of hires Time to fill an open position: 80% said engineering jobs were filled within 4 months In other words - No indication of a shortage in U.S. Slide 10 Where are the shortages? Where is there an adequate to large supply of well-qualified entry level workers?: India -- 75% U.S. -- 59% China -- 54% No shortages in India, and greater supply in the U.S. than China?? Slide 11 Skills of Indians/Chinese vs. Americans Productivity -- 87% said U.S. workers more productive or equal Quality -- 98% said U.S. locations produced higher or equal quality Relative advantages: U.S. -- communication skills, understanding of U.S. industry, business acumen, education/training, proximity to work centers China -- cost, willingness to work long hours India -- cost, technical knowledge, English, strong work ethic Americans are ahead in productivity, quality & market knowledge, but Indian and Chinese workers cost less and work harder Slide 12 Do bachelor degrees even matter? Degree requirements: 44% hired engineers with 2- & 3-year degrees. Additional 17% would hire such applicants if they had additional training or experience Companies will make do with the best talent they can find and train employees as needed Slide 13 (graphic) Why are companies going offshore? In your offshoring endeavors, how much of an advantage, if any, has your company gained from the following? (1: No Advantage; 2: Slight Advantage; 3: Moderate Advantage; 4: Strong Advantage; 5: Significant Advantage) In other words, its all about cost and markets -- not the education level of Americans Slide 14 The trend Where is this headed? 95% said outsourcing will continue and gain momentum Most said they would send a greater variety of jobs abroad including research and design Senior execs of India/China divisions of IBM, Microsoft, Oracle, GE, etc. expressed strong satisfaction with local operations and expected their units to increasingly provide R&D for worldwide operations In other words, we've got a lot to worry about Slide 15 More questions Will the new R&D jobs being outsourced require more advanced degrees? How does the U.S. compare to India/China in the production of Masters and PhDs? What has the trend been in degree production? In other words - Where is the U.S. edge? Slide 16 (graphic) Bachelor in engineering, CS and IT China numbers are suspect - inconsistent data collection, unrelated degrees. India/China numbers were revised slightly based on new data Slide 17 (grapic) Masters in engineering, CS and IT China numbers are suspect - inconsistent data collection, unrelated degrees. Slide 18 (graphic) PhD's in engineering, CS and IT Slide 19 (graphic) U.S. engineering degrees earned by foreign nationals Houston, we've got another problem Slide 20 Duke research - part 2 The next wave of globalization Do the numbers tell the complete story? Slide 21 R&D in India - on-the-ground reality India is the rapidly becoming the next global center of research, design and innovation: Pharmaceutical Drug discovery, specialty pharmaceuticals, biologics, high value, bulk manufacturing, advanced intermediate manufacturing Aerospace In-flight entertainment, airline seat design, collision control/navigation control systems, fuel inverting controls, first-class cabin design Consumer Appliances/Semiconductors, etc. Design of next-generation washing machines, dryers, refrigerators, digital TV, cell phones, automobiles, tractors, locomotive motors India is racing ahead in R&D, despite its weak education system and graduation rates Slide 22 R&D in China-on-the-ground reality China is using its manufacturing might to build R&D capability Massive investments in infrastructure Massive investments in technology parks Massive amounts of investment capital in key industries Massive subsidies for R&D Pressure on multi-nationals to move R&D to China Dependant on returnees for management/R&D Yet, China is "limping forward" - MNC investment in R&D in China is largely directed at Chinese Market. China excels in imitation � not innovation Lesson: You can't mandate or buy innovation Slide 23 Duke research - Part 3 Workforce development: the secret of India's success Slide 24 India's challenge and achievement 50% of engineering graduates are not employable Famed IIT's graduate less than 5000 engineers Country has weak infrastructure and weak education system Yet: Tip of the iceberg: In 2007, top 5 IT companies hired 120,000 engineers. Accenture and IBM India added 14,000 each. India is racing ahead in becoming a global R&D hub How? India has adopted the best practices of its Guru (the U.S.) and perfected these Slide 25 Workforce development in India -1 Workforce Recruitment Resumes don't reflect potential and degrees are not a proxy for skill and competency. Hiring is based on ability and competence "Bulk" hiring from universities Open door interviews/storefronts Lower-tier schools, non-metro areas, women, retirees, ex-servicemen, older workers, disadvantaged groups New Employee Training "Army boot camp" like training for new recruits in technical as well as soft-skills 2-7 month training programs for "freshers" Infosys' new center can train 13,500. TCS aiming for 30,000 at a time Complemented by extensive mentoring and on-the-job training Slide 26 Workforce development in India -2 Ongoing Skill Development 40-150 hours mandatory formal training every year for every employee Supplemented by extensive mentoring/informal training Extensive online training programs which employee are rewarded for completing "Leaders as Teachers" - senior executives deliver training. Cadence requires every manager to spend 1-2 weeks a year. Satyam mandates 30 hrs. "Communities of learning", seminars, expert talks, online technical forums Managerial development - 3 years from "fresher" to manager Extensive managerial development programs usually in conjunction with leading business schools. Career progression planned and predictable Senior Management invests significant time in coaching/mentoring Promotion from within policies Slide 27 Workforce development in India - 3 Performance management/appraisal ERP-like systems manage employee development through their careers Sophisticated, frequent review processes like 360 degree feedback Tied to training, salary and career progression HCL has "Employee first, customers second" program to empower employees Employees often appraise managers and senior leaders; results available on line Upgrading education Training academics, funding curriculum development Leading companies have helped develop customized degree programs Strong university to industry linkages Slide 28 Indian outsourcers growth and turnover Accenture global attrition rate 2008 - 18%, U.S. It services industry norms - 15-30% Slide 29 Duke research - Part 4 What does this mean for the U.S. and how can we compete in era of globalization? Slide 30 The U.S. is in greater trouble than it thinks Rather than making policy based on myth...we need to focus on our strengths: Commercialize university research Bring in the worlds best and brightest...to stay Foster entrepreneurship And we need to understand globalization - the biggest opportunities are now abroad Slide 31 University research $48.8 billion invested every year in U.S. university research with very few spinoffs and less than $2 billion in license revenue. European university investment is much lower than the U.S., but generates 3 times as many startups and far fewer patents Common Problems Incomplete system -- legal and finance in place, but corporate development, marketing, and sales are missing Cultural issues -- academics want to disseminate knowledge and publish papers rather than inhibit it's use. What comes first -- students or commercialization? What about the conflicts of interest? University technology is half-baked -- proof of concept not funded Untapped goldmine of knowledge and innovation Slide 32 Skilled immigration Based on 5 research projects: Contribution of skilled immigrants to the tech sector Called 2,054 engineering and tech companies founded from 1995-2005 Was the CEO or CTO a first-generation immigrant? From what country? Interviews with 144 immigrant tech founders Analysis of WIPO patents, U.S. government data Survey of 1200+ returnees to India/China Survey of 2000 foreign students in U.S. Slide 33 Americas New Immigrant Entrepreneurs Tech and engineering companies founded from 1995-2005: 25.3% nationwide had an immigrant as a key founder 52.4% of Silicon Valley startups founded by immigrants 2005 revenue -- $52 billion. Employed 450,000 Indians founded 26% of these -- more than the next 4 groups (from U.K, China, Taiwan and Japan) combined WIPO patents: 25.6% had foreign national authors in 2006. This increased from 7.6% in 1998 16.8% had a Chinese-name and 13.7% had and Indian-name authors in 2006. This increased from11.2% and 9.5% in 1998 Slide 24 Background of immigrant entrepreneurs 96% of immigrant company founders have bachelors degrees 74%+ have a Masters or PhD 75%+ have degrees in engineering, math, or science-related fields 52% obtained degrees in the U.S. and stayed after graduation Plus, anecdotal evidence indicates that immigrants who come to the U.S. are risk takers and highly entrepreneurial Higher Education in STEM does provide advantage Slide 35 U.S. immigration backlog Legal, educated, skilled workers currently waiting for green cards: 500,040 in main employment-based visa categories plus 555,044 family members 259,717 intl. grad students plus 38,096 in practical training (includes postdocs) Permanent resident visas available yearly: 120,120 in the three main employment visa categories (EB-1, EB-2, and EB-3) Largest numbers in queue from India and China Max. number of visas per country - 8,400 (7% of pool) Over 1 million skilled immigrants waiting for yearly quota of 120,000 visas - with 8,400 max/country U.S. is headed for a massive reverse brain-drain - Returnees will accelerate the offshoring of R&D Slide 36 (graphic) Returnees - Why did they originally come to the U.S.? Average rating of factors contributing to decision to migrate to the U.S. Slide 37 (graphic) Returnees - Reasons for returning Average response values for questions regarding reasons for returning to home country Slide 38 (graphic) Returnees: Is the grass really greener back home? Average response values comparing social situation in home country and in United States Slide 39 (graphic) Returnees: Professional comparisons Slide 40 Returnees to India and China Average age of Indians - 30, Chinese - 33 Indians - 65.6% masters, 12.1% PhD's. Chinese 51% masters, 40.8% PhD's...primarily in management/STEM 26.9% Indians, 34% Chinese were U.S. perm. residents/ citizens Indian senior management positions increased from 10.2% in the U.S. to 44.1% in India and Chinese increased from 9.3% in the U.S. to 36.3% in China More than half plan to start businesses in home countries Slide 41 (graphic) Foreign Students in the U.S. For how many years would you like to stay in the U.S. after graduation? Slide 42 (graphic) Foreign Students: Where is the future? Best days of home country's economy behind or ahead? Slide 43 Entrepreneurship Research Based on 3 projects: Survey of 652 CEO's/CTO's of 502 tech companies Interviews with 144 Immigrant tech company founders Detailed survey of 549+ founders of companies in 12 high-growth industries Common Myths: Tech entrepreneurs: unmarried, rich, college-dropouts obsessed with making money Ivy-league education provides huge advantage Venture Capital prerequisite for economic growth Slide 44 (graphic) Tech entrepreneurs: Not young Slide 45 (graphic) Married with children Marital Status Slide 46 (graphic) Entrepreneurs: Not from rich families Slide 47 (graphic) Tech entrepreneurs: Not college dropouts Slide 48 (graphic) Even better educated than their parents Slide 49 (graphic) Pretty smart in high school, but drank too much in college Slide 50 (graphic) Education counts...not necessarily ivy-league What makes the difference is higher education: not the degree or school. Slide 51 (graphic) Entrepreneurs: Highly experienced Slide 52 (graphic) Entrepreneurship wasn't necessarily in the genes or pre-planned Which Members of Your Family Started a Business Before You Did? How interested were you in becoming an entrepreneur while you were completing your higher education? Slide 53 (graphic) Reasons for becoming an entrepreneur Slide 54 (graphic) Some States more fertile for entrepreneurs Slide 55 (graphic) Bootstrapping is the norm - not VC First business started Slide 56 (graphic) Success factors 1= Not at all important, 5 = Extremely important Slide 57 (graphic) Obstacles faced by entrepreneurs 1= Not at all a challenge, 5 = Extremely big challenge Slide 58 (graphic) What stops others from becoming entrepreneurs? Slide 59 Conclusion: What does the U.S. need to do? Learn from the former disciple: focus on moving workforce up the ladder rather than graduating more Bring and keep the worlds best and brightest Make our investments in research more effective Foster entrepreneurship at its source - the workforce Understand globalization and create new business models which leverage innovation abroad Compete on American strengths -- In other words, let's do what we do better Slide 60 More information at: www.GlobalizationResearch.com