American businesses are increasingly moving their research and development operations to India and China. Debates rage in the United States about whether this will lead to

greater prosperity or threaten the country’s global economic leadership. There are few facts in the debate, yet business and political leaders appear to be reaching consensus on how to respond to the rise of India and China: have more American children study math and science, and graduate more engineers and scientists.

This remedy's most common justification is the supposed statistic that China and India between them graduate twelve times the numbers of engineers the United States does. Business executives such as Microsoft chairman Bill Gates say that they have no choice but to move their research and development operations abroad because a deficient US education system has resulted in a severe shortfall of engineers.

The Global Engineering and Entrepreneurship project team at Duke University has been researching this topic. We found that the graduation statistics in common use were misleading, as they were based on faulty comparisons. Our interviews with the executives of technology and engineering companies engaged in outsourcing research and development (R&D) to India and China revealed that their primary motivation in moving operations abroad was not a shortage of engineers but rather lower cost and the proximity of growth markets. Furthermore, we found that there were serious issues with the quality of engineering education in China and India.

Yet India is racing ahead to become a global hub for advanced R&D in several industries. In trying to understand how India is achieving this feat, we learned that the Indian private sector has found a way to overcome deficiencies in its education system through innovative programs of workforce training and development. These have transformed workers with a weak educational foundation into R&D specialists.

Our conclusion is that the United States needs to respond to globalization by learning from India and upgrading its workforce.

Engineering education

Various articles in the popular media, speeches by policy makers, and reports to Congress have stated that the U.S. graduates roughly 70,000 engineers annually, while China graduates 600,000 and India 350,000. Even the National Academies and the US Department of Education have cited these numbers.

But no one has compared apples with apples. In China, the word “engineer” does not translate well into different dialects and has no standard definition. An "engineer" could, for example, be a motor mechanic or a technician. Chinese graduation numbers included all degrees related to information technology and to specialized fields such as shipbuilding. They also included two- and three-year degrees, making them equivalent to US associate degrees. Nearly half of China’s reported engineering degrees fell into this category. The Indian definition of “engineer” was equivalent to the US one, but included information-technology and computer-science degrees. When we counted on a more consistent basis, we found that in 2004, the United States and India each graduated approximately 140,000 engineers, and China graduated 360,000. Chinese graduation rates have, however, been increasing dramatically since 1999.

We found a similar trend in Masters and PhD graduation. China was rapidly graduating more Masters and PhDs in engineering. In 2005, it graduated 63,514 Masters and 9427 PhDs in engineering, exceeding corresponding US numbers: 53,549 and 7,720, respectively. India’s graduation numbers were unimpressive: 18,439 Masters and fewer than 1,000 PhDs in engineering. In fact, India wasn’t graduating enough PhDs to meet the growing staff requirements of its universities.

We also found that China's increasing numbers came at the cost of quality: enrollments are increasing at all but the top universities without corresponding increases in faculty and infrastructure.

The growth in India’s graduation rates was coming largely from private educational institutions, the quality of which varied significantly: some provided good-quality education; the majority, however, did not.

Sending R&D abroad

Our interviews with 78 senior executives of US corporations involved in outsourcing engineering work revealed that India and China were their top destinations for R&D work, with Mexico in third place. The data these companies provided — on time to fill open positions, signup bonuses, and acceptance rates of job offers for engineering — showed no indication of a tightening job market. In other words, they were not experiencing shortages of engineers in the United States. The reasons they named for going offshore concerned salary and personnel savings, overhead-cost savings, 24x7 continuous-development cycles, access to new markets, and proximity to growing markets. These companies reported that American engineers produced work of better or equal quality and were at least as productive as their Indian and Chinese counterparts. Moreover, American engineers had advantages in education, cultural understanding, communications, and their understanding of markets. But Indian and Chinese engineers worked harder and cost significantly less.

When asked about current work being assigned overseas, nearly half of the companies we interviewed said they would hire engineers regardless of education level and would train them. Bachelor’s degrees in engineering weren’t mandatory prerequisites.

The vast majority of companies stated their intent to continue to outsource — and their expectation to outsource higher-level research and development to these countries. They indicated that for these advanced R&D jobs, they preferred Masters and PhD degree holders.

Our conclusion, based on these interviews and on engineering graduation data, was that though India may have enjoyed advantages in lower-end IT outsourcing, it was ill-equipped to benefit from the next wave of globalization, in which higher-end R&D and innovation would increasingly go offshore. It appeared that the country best positioned to become a global hub for R&D was China.

Next wave of globalization

In 2007–2008, we made several trips to India and China and met with the executives of dozens of multinational and domestic Indian companies, reviewing their R&D projects and operations. We learned that despite its low rates of postgraduate science and engineering graduation, India is rapidly becoming a global hub for R&D, with a momentum and scale similar to those it accomplished in IT services.

In the aerospace industry, Indian companies are designing the interiors of luxury jets, in-flight entertainment systems, collision-control / navigation-control systems, fuel-inverting controls, and other key components of jetliners for American and European corporations. In pharmaceuticals, Indian scientists are discovering drugs and performing clinical research for nearly all of the largest multinational drug companies. In the automotive industry, Indian engineers are helping to design bodies, dashboards, and power trains for Detroit vehicle manufacturers — and soon may develop entirely outsourced passenger cars. In telecom and computer networking, Indians are developing next-generation solutions for tomorrow’s intelligent cities. Indian companies are also developing innovative solutions for the Indian marketplace, such as the $2,500 car produced by Tata.