San Francisco, Calif. -- Offshoring is just one of many global forces impacting job creation and destruction in the Bay Area and cannot be viewed in isolation from the key trends enabling it, such as globalization, technology-driven improvements in productivity and business disintermediation. Efforts to prevent offshoring will not be successful and are likely to come at considerable economic cost, according to a new study released today.
Sponsored by Joint Venture: Silicon Valley Network, the Bay Area Economic Forum and the Stanford Project on Regions of Innovation and Entrepreneurship, the study was conducted by the global management consulting firm A.T. Kearney.
The study analyzed global trends, regional capabilities and the Bay Area job market, and is the first in-depth regional study to address the impact of offshoring and other key trends on jobs. Findings from the study were based on 120 interviews, analysis of 9,000 job listings and other primary and secondary research.
The Bay Area already has more experience with globalization and offshoring than other parts of the U.S., the study reports. Bay Area manufacturers earn almost 60 percent of their revenues in overseas markets. Analysis done as part of the study revealed 94 percent of companies in the semiconductor and semiconductor equipment manufacturing and software clusters -- two driving sectors in the Bay Area in terms of employment and payroll contribution – are already using offshore resources.
This does not mean all jobs are going offshore. The study also found one-in-four job postings for large companies in those sectors in April 2004 was for positions in the Bay Area.
"The research makes clear that global trends will force continued creation and destruction of jobs in the Bay Area,” says Sean Randolph, President & 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."
The study calls for policymakers to maintain strong support for basic research, invest in education to ensure a competitive local workforce and to address vulnerabilities in the regional business environment including housing, transportation and business regulations that hinder local job creation. Business leaders need to support transition programs and consider investment in local employee development to meet their future job needs.
The study found the Bay Area is losing ground to other regions in the U.S. and overseas in three competitive capabilities: mass production, back-office (transactional) operations and product and process enhancement. The competitive erosion in the latter is new. It appears that the Bay Area is rapidly losing out to other regions in occupations associated with engineering focused on cost reduction, fine-tuning processes and expanding product
features. These engineering jobs, along with manufacturing and administration-related occupations, are expected to decline as the skills required for those functions are sourced more cost effectively in other regions of the United States and abroad.
The study also identified five competitive capabilities that investors and business leaders believe are key strengths of the Bay Area. In addition to three capabilities traditionally linked to the region (entrepreneurship/new business creation, research in advanced technologies and bringing new concepts to market), the analysis pointed to two other competitive capabilities not always in the spotlight:
- Cross-disciplinary research -- coordinating and integrating advanced learning across industries and scientific disciplines;
- Global integrated management -- managing and coordinating globally distributed business functions and networks.
Jobs aligned with these five regional strengths, such as high-level research, strategic marketing and global business and headquarter management activities, are expected to experience solid growth.
"The findings confirm that the region should continue to attract talent and foster innovation, start-up activity and job creation, as technology companies are launched and commercialized," says Russell Hancock, President and CEO of Joint Venture: Silicon Valley Network.
The Bay Area's strengths make the region a leader in job creation in early stages of the business lifecycle, but its weaknesses lead to job growth outside the region in the later stages. As a result, the study says, the Bay Area will continue to incubate and develop new businesses, a process that has historically been the core growth engine for the local job market.
"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," says John Ciacchella, Vice President with A.T. Kearney. "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."
The Bay Area also is well positioned in the industries likely to spawn new technology start-ups, according to the study's job market analysis and interviews. Beyond its leading role in information technology, the Bay Area has the highest concentration of biotechnology firms in the country and more nanotechnology firms than all countries except Germany.
"How jobs in a region are affected by global trends depends on the competitiveness of the region's capabilities," said Marguerite Gong Hancock, Associate Director of SPRIE. "Despite a rise in the capabilities of other entrepreneurial regions globally, the Bay Area continues to lead in many of the capabilities considered most necessary for innovation and new business creation."