[Editor’s Note: An edited version of this article first appeared on-line in EDA Weekly in November 2003.]

As I begin to assemble this weighty piece on this most complex and sensitive of subjects, it’s striking - and helpful as an ice breaker - to note that there are 7 jobs posted at this moment on the home page for EDAToolsCafe.com. All 7 jobs are with Mentor Graphics and all 7 jobs are in Hyderabad, India.

Opportunity or Obligation? Writing on the wall or Passing fancy? Cup half empty or Cup half full?

As with most things in life, it depends on where you’re sitting.

The widely proclaimed "jobless recovery" continues in the U.S., yet friends and family remain unemployed. And as state and national governments celebrate recent reports of a 7.2-percent growth in the U.S. economy for the 3rd quarter, job-loss statistics in the U.S. continue to mount at a blistering pace - over 171,000 jobs eliminated in October per reports (more than double the 76,500 jobs cut in September) and the highest number lost in a single month since October 2002.

Meanwhile, we’re seeing a plethora of reports in the American press attributing this economic-growth/job-loss dichotomy to the legions of jobs being outsourced to off-shore locations.

Is it true, and what do folks in and around EDA have to say about all of this? The EDA industry has a history of global software development and the EDA industry is selling into an increasingly global user community. It makes sense that people in this industry should have lots to say with regards to the national debate on outsourcing - and they do.

Following are a set of lengthy comments from a number of individuals. If you can manage it, read through to the end. In the process, I promise you’ll end up learning something. Or at least, you’ll end up sensing a nuance here that you might not have otherwise noticed.

[Editor’s Note: My initial intention was only to solicit responses from Mentor Graphics, Synopsys, and Cadence. Short of Mentor Graphics, that proved pretty difficult. Hence, I opened the conversation up to a wider panel of contributors. Thanks to Nanette Collins, Judy Erkanat, Cedric Iwashina, Ed Lee, Monica Marmie, Georgia Marzalek, Giovanni Rodriguez, Ry Schwark, and Jan Willis for their help with this project.]

Here are the questions that served as framework for the comments below. Most of the responses were made in conversations by phone, although several came by e-mail. All of the people I spoke with are associated with companies headquartered in Silicon Valley, short of one.

1 - Where are your R&D centers outside of the U.S.?

2 - How are those centers managed? From North America or by way of local management?

3 - What are the issues and pros & cons related to using R&D and development resources off-shore, when there appears to be a significant population of unemployed developers here in the U.S.?

4 - If it had not been for the economic downturn, would we have seen as much interest in developing off-shore R&D capability?

5 - Is the fact that many foreign-national engineers have been sent home in the last 3 years a factor in all of this?

6 - How does the emerging EDA user market in Asia affect your decision to aggressively pursue off-shore development capability?

7 - Are there national security issues related to the burgeoning EDA user community in Asia, Russia, etc.?

8 - Are there national security issues related to various announcements from the large EDA vendors regarding support for training centers in Russia and the PRC?

9 - If this is a global economy, why are American-based press reports sounding the alarm with regards to software/hardware design and IT infrastructure support/development being sent at such a rapid clip to India and other countries in that region?

10 - Is Silicon Valley going to be able to create a whole new set of needs and requirements that will continue to drive employment and prosperity in the North American high-tech sector?

Mentor Graphics Corp. - Walden Rhines, CEO and Chairman of the Board

"Mentor thinks that those who are off-shoring electronics jobs to save costs are misguided. Right now, unless things change dramatically, electronics is an innovation-driven business. You need the best talent to stay competitive, so you need to be where the talent pool is. The talent pool today can be found in many places, both in the U.S. and internationally, so we've been hiring in both the U.S. and internationally. In fact, when you factor in the costs of software, expensive high-end workstations and assorted expenses, salaries are not the majority of the costs of having an engineer on the team. And since salaries tend to balance over time, reduced salary is never enough of a reason to look elsewhere."

"We also believe that there are hidden costs associated with having a geographically distributed team. First of all, there are travel costs associated with transporting the people back and forth between development sites. Second, there are also language and cultural issues that arise from trying to work across geographical boundaries. Third, communications and time-zone lag can cause development to take longer or have more false starts because teams can't sit down in a room together and hash the design out. Again, the reduced salaries associated with doing R&D off-shore have to be balanced against these other costs."

"Now there can be circumstances where off-shore R&D can be beneficial, both to the company and to our employees. A while ago, we had an employee who wanted to return home to Pakistan. We worked with him after his return and he developed a team for us there, which is now contributing to our R&D. He’s happy and we’re benefiting from the efforts of the team."

"We also have R&D teams in India, Egypt, Japan, and Russia. However, none of these teams got up and running simply to save on labor costs associated with R&D in North America. Those teams are contributing to our efforts because they bring skills to the table that augment our efforts here, not in lieu of efforts here. Electronics really is a global market, and you have to be part of it."

"QualCore has a center in Hyderabad, India, with about 90 people, and we’ve got about 50 people here in North America in our Sunnyvale facility. The 90 people in India are mostly focused on digital design. Our staff here in the U.S. [concentrates on] sales and marketing, analog and mixed-signal design, IP development, and consulting."

"We have a local management structure in place in India, but at the end of the day they report to us here in Sunnyvale. We have a local VP of engineering in India and other local management. We have regular conference calls between India and California, and I go to Hyderabad every quarter. Sometimes we’ll bring staff from there over here for 2 or 3 months, depending on the project. Some projects can be transferred to India; other cannot. It’s decided on a project-by-project basis."

"The major issue is the cost structure - you do what you need to do to survive. Three years ago, people were outsourcing, but now economic conditions are tough. The companies need to show [concern with their bottom line]. What happened in manufacturing, is now happening in design services and software. But it’s not all due to the downturn because there has always been an interest in showing growth and profitability. Outsourcing was there before, but now it’s being highlighted. I wrote an article about it back in 1993 for ASIC & EDA Magazine called ‘Is Software Going the Way of Manufacturing?’ - this is not new."

"Today, people are cutting back on jobs because the economic conditions are tough - people are cutting back on local employees in North America and sending the work to where people are willing to do the job [for less]. There’s definitely a difference in cost - overall, a 3 or 4-to-1 differential in salaries between North America and India. An engineering salary here of $80,000 might be $15,000 there. But there are also costs associated with the management bandwidth required, [so it’s really not that simple]."

"[The growing user market in Asia means that] customers there would like to see local [support]. Vendors are certainly pursuing China and other places [as potential markets], although our customer base is mostly in the U.S. and Japan. Our business in Japan [is complex because of] the language issue. I would prefer to be able to have a local rep there, but I’m still needing someone to speak Japanese."

"Questions of national security depend on what kinds of chips are being designed with the tools. Tools only enable design. If I don’t have a good idea as to what to do with the tools, there’s really not too much of a security issue there."

"[From the standpoint of current press coverage], jobs were being outsourced back 3 years ago when the economy was hot, but nobody was slamming anybody. Now that jobs are going away, people need to slam something - and it’s an election year. It’s true that the economy is growing, but it’s that ‘jobless’ recovery. It’s not an issue of race or nationality. If I lost my job, I’d be complaining as well - no matter where the job went to."

"Silicon Valley will come up [with something] - they’ve always done that. The market knowledge is all here. The consumer market is here, although it’s growing in India and China as well. The Valley will always be innovative, always be creative. ICs became PCs, which became the Internet. Wireless and broadband may prove [to be the next killer app]. But large projects will continue to be done in multiple places, and people [in those places] with software and hardware expertise will continue to be used [if appropriate] from a cost and quality point of view."

"India’s a huge country with a billion people. Only 5 or 10 percent are in engineering, and they’re mostly in software. When I came to the U.S. 25 years ago, I never thought I could do that level of [sophisticated] software in India. Now if you look at Microsoft and Oracle, they are outsourcing there - [however], their marketing and branding continues to be here in the U.S. Consider that if you go to Macy’s, you’ll find [merchandise there] made in China - but it always has the Macy’s brand on it. It’s the same with us - our market is here. And it’s true, a lot of people from other countries still want to come work here, to get the experience of being here."

"We have an off-shore facility in Yereven, Armenia. We actually started working with them in 2001 - they had a small service company there - and then we realized that there was something to be developed there. We acquired the company and things are developing rapidly. We now have 40 people. They have a local manager there who’s in charge of the day-to-day management, but each crew on each project reports back to a project leader in California. [As with everything], you always get much faster turn-around on projects when you understand the local culture."

"There are several ways of looking at the pros and cons of this. You can choose not to do [off-shore development] and be run over by your competitors - unless everyone agrees not to do it - or you can choose to do it. What is happening now [in the press], is that every time we’re coming out of a recession in the U.S., [this sort of thing gets coverage]. I’m not worried that we’ll return pretty fast to 100-percent employment in the U.S., but people need to have the flexibility to not expect to have the exact same job they had before. This whole process is the same as what we saw in the 1970’s and 1980’s, when other [types of] jobs went to Asia - it’s the normal process in high-tech. There’s always one layer that can be moved off-shore, while the next layer [of complexity] is worked on in the U.S."

"I don’t think the move off-shore is related to the downturn, because cost is not the only issue. You need to look at what you need to do and where you can optimize [that effort]. We’re not doing work in Armenia because it’s cheaper. There are a number of things that are enabled because of the center there, not just cost reduction. Everyone I talk to always thinks everything is about cost. But sometimes the cost advantage is not as high as you think because if you’re working with a remote design center, you have to fly people in and out all the time."

"None of this developed for us in Armenia because foreign-nationals were leaving the U.S. [Anyway], I don’t think in most cases that people were sent home - people want to go home because even though they earn less money there, they’re [often improving their] quality of life. They’re closer to their family and often they [simply] want to be in their homeland. It’s not [about] people being thrown out of the U.S."

"The affect of an emerging EDA user market in Asia is an interesting question. I think we all have to recognize that there are emerging markets where the prestige customer is not going to be in the U.S. Back 10 years ago, companies like NVIDIA and Sun - those were the markets that mattered. But now if you look at the place-and-route market, the business is currently going to India and China - fast forward and [you’ll see that] there’s where the place-and-route entrepreneurs are going to be. [Similarly], if you sell chipsets for TVs and 80 percent of them are being made in India and Turkey - it becomes a questions of where those customers want to buy their components. You would want to be very close to those customers to be able to know what they want to buy. If you’re providing services in the wireless market, Japan’s the place [you want to be]. They’ve gone so far ahead in wireless technology, they’re doing service that we wouldn’t dream of in the U.S. because we’d be dropping the connection every 5 minutes."

"You have to really analyze the situation in each economy, where your end market is, where you’re going to place your headquarters, your marketing and sales. Israel is an example of a country that, 15 or 20 years ago, was where India is today. Now Israel has it’s own design [infrastructure], it’s own marketing and venture capital [community], which is always the last step in the evolution of [of a high-tech] country. You’ve got a Cisco office in Israel talking to an IBM office in Israel, where they may not even be [interfacing] in the U.S."

"I don’t know that there are national security issues with respect to EDA. Certainly, however, I can tell you that EDAC is looking at technical solutions to address piracy issues. Right now, for instance, there’s a website in China that advertises tools from Mentor, Cadence, and Synopsys that are all available without keys. This is a serious economic issue in the end, if you’re selling 80 percent of your products in India and China."

"[As far as a global economy is concerned], there is the other side of the coin of globalization. We created globalization - it was built so that U.S. businesses could open new markets. The flip side, however, is that the people [in those markets] get education and become comparable to the talent in the U.S. So by definition, you’ll have globalization of the work force - and you’ll have a work force that has to be local, that has to touch the [local population] in one way or another. It’s just like in the automobile industry. Today the design of some GM cars is done in Europe and Japan. But BMW has a California design center. What’s critical for the work force [in all of this] is to be flexible, to be able to jump on the [latest] bandwagon rather than crying wolf [when problems arise]."

"[Silicon Valley] will continue to drive innovation. Look at the stuff being created now. There’s massive amounts of money from California VCs going into new start-ups. It’s what we do best, moving ahead into the next frontier. That doesn’t mean it won’t be painless - transformation isn’t always free of pain. But it’s no different than any other transformation. When it happens, people panic. In the end, however, there will be huge markets in China and India that will propel the economy much further than any recent downturn."

"Setting up training facilities overseas does not mean that national security is compromised. The things that they’re covering in those facilities are part of the standard curriculum for university engineering programs everywhere. It’s only because of the job situation today, that this is a sensitive issue. Off-shore development means you’ve got people working in every time zone, the compute bandwidth is 24x7, and the sun never sets on development. When this happens and companies can offer stable and rewarding employment, the world is a safer place."

"We have operations outside of Eindhoven in the Netherlands, in Beijing, China, in Bangalore, India, and are in the process of setting up an organization in Seoul in South Korea. Each of those centers has a local country manager. Magma is unique because, from early on, we’ve had off-shore operations in Eindhoven. From day one [as a company], we could not attract enough people [here in] Silicon Valley – the situation was forced on us, because we couldn’t get people here fast enough. Now our procedures are so well set-in that we can actually start an R&D lab and have Internet and infrastructure up and running within [a short period of time]."

"I think that, typically, none of the additions that we have done have been at the cost of taking jobs here in the U.S. We’re different from every other EDA company – we’re not just sending this job or that job to India. Our guys in India are a very high-end team who can work on any core piece of our technology. That’s [the key consideration] in setting up our labs. When we come across a [talent pool] and can say, ‘Hey, this is a bunch of great people,’ [then we know it’s time to start something there]."

"In India, we came across several good people from Interra, so we built a team around them. Also, we had a bunch of professors on sabbatical here at Magma from a university in Eindhoven. I was joking with them and told them I’d fund a lab around them if they were ever interested. Two months later, one of the professors called me and said that if I was willing to fund them, they were ready. [All of this] is about growing an organization organically - it’s not about taking jobs away."

"There are some negatives. The biggest negative means that our senior vice presidents and I have to be up a lot longer to communicate across time zones. It puts a lot of additional work on management, there’s no doubt about that. But for a company like Magma, we really have no choice. We have to go with the cutting edge technology. If that happens to be in Timbuktu, we’ll do it in Timbuktu."

"The economic downturn has not been a driver for Magma. From the very beginning - since I’m originally from India - people have asked me why I didn’t set up a team in India. But labor costs are not a sufficient reason to do that. Yes, right now it’s an interesting reason that we’re adding more people in India, but in the case of the center at Eindhoven, for instance - now with the Euro being higher - cost savings are not a [motivation]."

"[Foreign-national] engineers returning home has [provided a talent pool] with proven capability. In India, for instance, as people went back with the type of expertise they received here in working in high-tech, they were able to provide a minimum layer of experience there for the teams. Our manager in India right now, Anand Anandkumar, was with Cadence before he was with us. Now he’s a very big driver for what we need to do there. He’s very energetic and that comes from his experience working here and knowing [what we’re trying to accomplish]. The 40-person team that [we have in place now in India] is a reflection of his skills."

"The emerging EDA user market in Asia absolutely affects our decision to pursue off-shore development. When places like China and India did not have user communities, all of the relationships with regards to users were [directed] from here and things were different. Having a Magma center in China now allows us to ask our people there to go [visit the customer directly] and to communicate back to R&D for any [needed help]. The de-centralization of software development is happening and, if our customers are doing chips elsewhere, [we need to be there]."

"[In addressing national security concerns], I’ll quote an old saying - A wise mind left untapped is more evil than a wise mind [challenged]. If we think that controlling education and limiting education for a group of people who are eager to learn is beneficial to national security, we should realize they’ll only become more of a problem [that way]."

"Where there are people working on chip design or working on EDA technology - we need to think in terms of training people, so that they can contribute more effectively. I commend Cadence and Synopsys for their efforts in this area. Magma [would like to be part of that], but we don’t have the bandwidth yet. [Nonetheless], I think it’s an essential part of focussing intelligent people in those countries on something that is positive."

"I heard this quote from a customer recently and now I repeat it to my own children. I tell them that when I needed a job, I came to North America. Now you should be learning the languages of India, because when you need a job you may have to go to India."

"Today our task is to come up with newer and newer applications in the U.S. Here in Silicon Valley, if we continue to need higher pay and higher wages [than in other economies], then we need to pursue applications that continue to be on the high-end of the scale."

"I think the main thing that drives R&D overseas is really cost - it’s a matter of development costs and it’s really a hybrid of costs and expertise. As you move into data generation and quality assurance, these are easier to outsource overseas, also the maintenance and evolution of the software. It’s true, you can get a lot of engineers in India, but it comes with management overhead. [For instance], if you outsource to Russia, you need management there that understands the culture. You need to avoid having management there that doesn’t understand the culture or the business practices of your overseas team – working across ethnic barriers doesn’t always go so well. And, it’s always been true that initial development continues to be very difficult to send overseas."

"The economic downturn has played a part in all of this, because otherwise we would have imported the [talent pool] into the U.S. - which is what we were doing before. But now in the downturn, we’re less interested in bringing people here. Although even during the upturn, we were interested in doing some jobs over there - data generation and quality assurance."

"There’s always a link between outsourcing and immigration - there’s less immigration in a downturn. When immigration is loose, there is much more latitude in whether you bring people to the U.S. or send the work off-shore. And meanwhile, in the U.S. economy, it’s very difficult to ever back down on salary [levels] - the salary and cost structures are locked in here."

"I also think that [with regards to the] cost and knowledge of doing software development, the barrier has been significantly lessened over the last 3 years. Linux and open source means that the rest of the world has greater ease in the development of software. You can now get more cost efficiency developing overseas, without necessarily needing the level of expertise that we had to have in the past. That’s going to have a potential long-term negative impact on U.S. software development."

"However, the U.S. is going to continue to be the place for high value-add development and we’re still being asked to keep ahead of the rest of the world. We still make the creative products, although we’re allowing people in other places to do the manufacturing. Perhaps software development is moving off-shore like manufacturing, but the creative [piece] will still be in the U.S."

"I think people are potentially trying to link the downturn with the exporting of jobs. People are afraid for their jobs and that has to do a lot with this [current] line of press coverage. It’s sort of interesting, however, to see that in the Venture Capital community, a lot of VCs want to see a software plan that includes some percentage of development being taken oversees - sometimes as much as 40%. On the other hand, the VCs won’t fund a company that’s started overseas. That’s a pretty interesting situation."

"People are always reactionary. Companies really have to hire a mixture of people in the U.S. They have to [remember to] hire some junior people. If you hire everybody with top-notch experience, you’re going to have the situation that we have these days, where everybody in EDA - myself included - is a lot older. We need to bring in young undergrads from Berkeley or Stanford or Cornell or wherever to [revitalize] the industry."

"I think there has to be some general thought given to the entire educational system, as far as what information is being taught to whom. If you teach everyone to make an atom bomb, eventually everyone will make one. There has to be some degree of safeguard in the exporting of knowledge, as well as in the process of people coming to the U.S. and getting access to certain pieces of knowledge. There’s always been some degree of control, but are we letting things get out of control in software development? I’m not convinced of that."

"People knowing how to develop EDA software is not really affecting national security. Chips don’t hurt people. It’s the things that chips control that hurt people. The rest of the world knows as much as we do about chip development at this point, so I’m not convinced there’s really a barrier one way or another with respect to that kind of knowledge."

"Silicon Valley is a machine. The question isn’t - what were they focusing on today or last year? The real question is - what is the machine going to focus on next? New industries are driven by venture capital and innovation - it’s no different today than it was in the early 1990’s. But the boom has spoiled everybody. [We’ve forgotten that] building a company is hard work. Selling is hard work. Meeting the customer’s needs is hard work. Everybody forgot what it was like before the boom. Now it’s back to basics."

"We incorporated in Bangalore, India, having been repeatedly approached by our American customers to offer ‘India pricing.’ Administrative functions and local regulatory compliance is managed by local management. Engineering management is part local, and part seamlessly managed through our secure server-based Customer Project Access System, CPAS, for managing multi-site engineering team scenarios in the U.S."

"[Regarding pros & cons, etc. related to off-shore outsourcing], we are service providers, and these are our customer’s decisions. The interesting points to note are the following: The massive staffing gap of 1999-2000 happened largely in entry level ranks. These [jobs were] filled through hiring local developers and by engaging foreign temporary workers. The latter was the result of relatively low enrollment by local U.S. students in university engineering programs. For some reason, our kids here in the U.S. like the arts and humanities. The economic downturn caused massive layoffs, both at the entry level and at middle and senior engineering management levels. [Subsequently], many foreign workers went home."

"Entry level and grunt [work] - semi-trivial coding and verification - seems to be on an inexorable path to outsourcing to cost-effective areas abroad. Jobs related to determining functionality, innovating to achieve them, product/module architecture, and inter-module interaction will continue to be in the U.S. for non-commodity and commodity high-end products. [Meanwhile], an economic upturn has the potential to absorb middle and senior engineering management back in [to the work force]. [However], I think we are past the point where it can absorb entry level workers in the numbers [we saw in the late 1990’s]. This, fortunately, is in line with moving towards achieving dynamic equilibrium of U.S. university output. However, the massive influx of foreign temporary workers is history."

"[The economic downturn probably did spur interest in off-shore R&D, because without it], there would not have been such an eagle eye on costs. However if you look at [my earlier statements], it is clear that this is moving towards economic stability, rather than any runway economic downward spiral. All change, however, causes anguish for an unfortunate few, those who end up paying a high personal price for the common good."

"To a service provider, [the emerging EDA user market in Asia] translates into increased availability of trained personnel and vendors’ support. In my opinion, there are no more or less [national security issues here] than those posed by the proliferation of any other technology. It is perhaps even safer, since the end result of use of EDA - whether it’s the ASIC or the FPGA platform the netlist goes into - might be easier to track than several other forms of technological end-results."

"The [current concern voiced by the press] is a big-picture/small window situation. America, like all developed nations, is experiencing increasingly sophisticated ‘gentrification.’ Chances are extremely high that just as software/hardware design and IT are migrating, much more sophisticated intellectual capital (brains) will migrate in the opposite direction. This will be true in the Arts, as well as in the sophisticated core technology of the future, enabling America to maintain and further its technological lead. Is the American press making noise about the export of agricultural, automotive, chemical and plastics technology jobs? Yet, these were the technology darlings of yesteryears."

"[Will Silicon Valley continue to drive employment and prosperity in the North American high-tech sector?] If I take the question literally, then my answer is No. Needs and requirements will be driven primarily from developing nations in Asia in the short term, and Africa in the long term (long = 50 years). These regions will be able to maintain the high GDP growth rate necessary to fuel demand. Whether ‘Silicon’ Valley or a ‘Nanotech Ravine’ or ‘Biotech Glenn’ will provide the technology, is something I’m not willing to venture a guess on."

"We have R&D facilities in Santa Clara and Taiwan. They each have local managers and director-level people who report back to the VP level at headquarters. Essentially today, going off-shore is a cost issue. Everybody’s trying to save on costs, particularly in manufacturing. Of course, now we’re talking about software development going off-shore where having one [employee] here is like hiring four or five elsewhere in the world. [Although] another issue is talent. You can find local people [off-shore] with good talent and skills - EDA companies always tend to hire for the skill levels."

"The economic downturn and the exodus of foreign-nationals does have something to do with all of this. If engineers lose their jobs and feel they can’t pursue their careers here, they’re tempted to go back home to continue working. Also, sharing their experience from here [in the work place back home] earns them respect. But there’s no doubt, the economic situation has accelerated the exodus of engineers."

"When people come here and work in Silicon Valley, some are comfortable and make this their permanent home. Others perhaps have some nostalgia for the country where they come from. When they encounter hardships here, they tend to go home because they feel more comfortable with their life and friends and family there. Certainly those factors influence the return of engineers. In China, I hear that there are a lot of returning students who are attracted to go back to Shanghai or Beijing [or other places]. I hear that in India [the situation] is similar."

"Now both China and India have big design companies investing in those areas. When you have a mushrooming of design houses, EDA vendors say, ‘Hey, there’s an opportunity to build markets there.’ I know that Cadence and Synopsys have pretty sizeable facilities in China, and now Cadence has a large center in India. These are [the kinds of] resources that are being built up in those countries."

"Personally, I don’t think there are national security issues here. EDA vendors are selling the tools, but it’s the designers that are [creating] the content. It’s true that if the tools [were to] fall into defense-oriented organizations or be used for weapons or aerospace applications, it could be a cause for concern. But mostly today, these designers are designing consumer products."

"I was born in on the Mainland in China, but I grew up in Taiwan and came here 30 years ago. Ever since then, I’ve worked here. Today, the Mainland is catching up - it may be like Taiwan was just 5 or 10 years ago. From a high-tech aspect, the [culture in Asia] is not that different from elsewhere, [although] the way that people work together and the way they motivate their workers is different. [In every country] now, however, it’s all about a global market - competition is global. Every region is trying to come up with products that can be sold worldwide."

"[Right now], we’re thinking about America losing people and jobs and manufacturing capability to the developing world. But many Japanese and European companies are also investing in Asia and India. It’s a global phenomenon - it’s not just Americans who are being affected or hurt by the process."

"Certainly investments in the [developing] regions will get you more resources, but from a creativity point of view Silicon Valley is still the best place in the world. [It’s true] we have work to do to improve our economic conditions and the environment here to keep people coming. But if we didn’t have this current economic difficulty, there would be fewer people willing to return home. The reality is that for now, however, the other side has become more attractive. If we can improve [the situation here], I believe we’ll see the exodus of talented people [diminished]."

"Manufacturing efficiency, lower costs, and vertically integrated economies may satisfy the developing world with cheaper products. But for us to stay prosperous and successful, we need to push the envelope and come up with more high-end products, come up with new generations of products. Silicon Valley will remain the center of worldwide talent in high-tech. People will continue to come here and continue to generate both opportunity and business success. I still believe California and Silicon Valley are still the best high-tech havens for all bright and talented people everywhere."

"Our center in Noida, India, is the largest Cadence center outside of North America. We also have centers in Beijing, China, in Hsinchu, Taiwan, in Sophia Antipolis, France, in Dublin, Ireland, in Livingston, Scotland - and coming up in Q1 2004, we’ll have a center in Moscow. We previously had a presence in Moscow through a partner, but now we’ll have a direct presence there."

"The questions of how these centers are managed is related to a larger question of how we function as an R&D organization. Our goal is to work as one extended R&D team, linked very tightly with business and R&D teams in the U.S. However, without strong local leadership in each of our centers, we couldn’t make [the thing] work. So, the answer is that the centers are handled both out of San Jose and by local management."

"From the current economic point of view, it’s unfortunate that the unemployment rates are higher than any of us would like to see them, but from Cadence’s point of view, we’ve had off-shore R&D for many, many years - long before there was a recession in the U.S. economy. We opened our facility in India in 1987. We’ve had our centers in Europe since the early 1990’s. The reason we have had these centers off-shore is, I think, the correct strategy of trying to de-risk our dependence on a single talent pool."

"It’s been apparent for many years that we’re going to be a global economy. Our customers have been globalizing, and as they’re creating support centers elsewhere in the world, so we have needed to be where our customers are. Also, having R&D centers in a variety of time zones means that we’re able to give much higher levels of responsiveness to our customers’ needs, really a 24x7 set-up. These are the reasons that have driven us to set up our R&D centers off-shore."

"From Cadence’s point of view, the fact that many foreign-national engineers have been sent home in the last 3 years has not been a factor in any of this. Although, we are definitely seeing a trend where a lot of Indian and Chinese [nationals] are returning to India and China - some because of work force reductions here in the U.S. and their visa status forcing them to go back - but many are returning for personal or family reasons, as well. They’re also returning [to pursue] growing opportunities in those geographies. This is a trend we’re observing and it positions us well."

"In India, for instance, as people go back and look at their various options, Cadence is definitely on the radar. We’ve been there for a long time - we have almost 450 people in our operations in India - and we’ve just been rated the Number 1 employer in the Indian market in the high-tech sector. When people look at returning to India, we rank pretty high on their choices. We’re observing a trend where more and more people are returning to their home countries, and we’re in a position to attract that talent pool."

"The emerging EDA user market in Asia is definitely one of the drivers affecting Cadence’s decision to pursue off-shore development capability [today]. Of course, there are a lot of local EDA customers, a growing market, in those geographies that all need some level of engagement with Cadence. But we’re seeing some of our largest global customers also setting up R&D or development centers in those geographies. It’s a big advantage to them to have Cadence right next door, able to support their efforts."

"I don’t think there are national security issues related to the growing EDA user communities in Asia and Russia. It’s not just linked to EDA, but more to what kind of design they’re doing in those geographies - whether it’s military or aerospace, consumer electronics, or other [areas]. For example, we know that Russia had a pretty vibrant electronics community in the old Soviet days. There’s still a pretty good depth of EDA talent there. And as we all know, they had been pretty competitive in both the space and aerospace industries back then. Now the dynamics are changing. Going forward, there won’t be a [distinct] Russian EDA industry or a [distinct] Chinese EDA industry. There will be a global EDA industry. I don’t see any harm there - it’s no better and no worse than it was 10 years ago."

"With regards to national security issues and Cadence’s recent announcements of support for training centers in the PRC - for example, with the new Institute that we just inaugurated in China last month, we’re really providing training on the use of Cadence tools. The U.S. has export control laws that provide some [level of] protection for where and to [whom] we sell our tools. I don’t see a direct link [with security concerns] here."

"[The questions regarding a global economy versus the American press sounding the alarm about jobs being sent off-shore] is a speculative question. It’s hard to say what’s going on. There are special interest groups lobbying with regards to the impact of all of this as the current economic slow down has resulted in [work force reductions]. We all know people - friends or family - who have been impacted by these reductions. There are people lobbying on behalf of the interest of these groups. Perhaps those are the reasons [for the additional press coverage]."

"Silicon Valley alone won’t be able to create [the stimulus to drive employment and prosperity in the North American high-tech sector]. The American economy is much broader and deeper than that - the other parts of the country will have to participate. Although, Silicon Valley does have a culture of innovation, risk taking, and an entrepreneurial nature that will keep the vibrancy here. The dynamics will change, but the vibrancy will remain. I don’t think we should read too much into the doom and gloom [in the recent press reports]."

"The U.S. is still the leader of the high-tech industry and the world economy. The most leading-edge [developments] are still happening in America. All of the key players - Cadence and our customers - continue to lead the frontier in technology and the bulk of it is still happening in the U.S. There are other areas - biotech and nanotechnology - that are pushing the envelope all the time, and the majority [of that work] is going on here. It’s as we’ve seen in the past with the manufacturing sector, for various reasons other parts of the global economy are able to participate, but the U.S. economy always finds a way to stay ahead of the curve."

"We don’t have any off-shore facilities, but anecdotally from a purely economic standpoint - sending work off-shore is supposed to mean that for every head you can hire here, you have 5 or 6 working over there. The pros are that for the same amount of money, you get more people. The counter argument is that generally these people are not as productive as someone who’s really skilled in the art here, nor are they as senior - they’re mostly lower level people just out of university. Four there versus one here doesn’t mean four times as much work."

"Then there’s the distance issue - it’s not so much about how the code is written, but it’s the [challenge of] sharing the common mission and goal, making sure we’re all on the same page. It’s hard to do that on the Internet and it has to be factored into the cost of doing things off-shore."

"The unemployment situation here? I’ll make an obvious observation, if somewhat philosophical - things in the world tend to move. I remember as a kid when people used to say, ‘Oh, made in Japan? That means it’s cheap and shoddy.’ Well, guess what. Because of all the manufacturing that went to Japan, the standard of living was raised. Now you’d be out of your mind to do manufacturing in Japan. It’s one of the most expensive places in the world to live. Work going to India today is going to raise the standard of living there, the cost of hiring an engineer there will go up, and over the course of a decade or two, it will be as expensive there as anywhere else. Then [the momentum] will move to China, or to a country we haven’t thought of yet. It’s a cycle we go through - we find an emerging work force, frankly, we exploit it, and find people to work there who don’t have the standard of living we have here. It comes around full circle."

"For the people who are unemployed here? I really don’t have an answer. Managers are trying to make decisions about hiring a software engineer here who comes with loaded costs of $250,000 per year versus a guy in India for $3000 a month. The manager says, ‘Why hire one here, when I can hire more there?’ But the whole social aspect of all of this is a tough thing to figure out."

"We’re seeing a lot of Indian entrepreneurs moving back to India and taking advantage of the situation there to invest in India. If you take the Internet, in a certain way, it’s been the equalizer that’s made things move a lot faster."

"[Emerging markets today in Asia and elsewhere] influence decisions in a big way. With the growing of these work forces in India and China, you’ve got big multi-national companies migrating significant amounts of design activity other there. Now, if I’m going to put people over there, I’m going to want support over there, and I’ll want to sell over there. In the market in China, there’s a tremendous amount of money being poured into the EDA infrastructure. I know all the big players in EDA have opened up operations over there. If they can work out the business issues, the management issues, and the copyright issues [they’re doing the right thing]. There are now hundreds of design shops all over China - the market is evolving very, very quickly."

"I’m not too worried about the national security implications. I come back to the Internet - even if there’s not a training center there, the information is available everywhere that you’ve got an Internet connection. It’s the political issues that are much larger than the technology issues."

"[Perhaps the American press is covering the story because] people want to have their cake and eat it to. This is a global economy now. I’ve been arguing this point for years. Back when I was setting prices at Magma, I put a stop [to the practice] of putting differing pricing models on products being sold to different countries. It was ridiculous and goes back to the Internet. How are we going to maintain this artificial [pricing] separation, when somebody in Japan can see what somebody in England is paying for the same product."

"Yeah, everybody wants to cut costs, but that cuts jobs here. Now it’s incumbent upon us to go to the next level of innovation or technology - to put those people here to work on the next generation of technology. There are a lot of smart people here and I think there are so many things that haven’t been uncovered yet, ideas that haven’t been considered. We’re not down and out here, and nobody should count Silicon Valley out. There’s just a continuous stream of ideas and innovation here. True, it’s been a couple of tough years, but things are definitely starting to look better - which is good new for all of us."

[Editor’s Note: As this goes to press, published reports peg the increased headcount on the national payrolls at 126,000 for this past month.]

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Peggy Aycinena owns and operates EDA Confidential. She can be reached at peggy@aycinena.com

Copyright (c) 2004, Peggy Aycinena. All rights reserved.