sos2004_global_job_hunt

							Global Job Hunt: Threats and Opportunities in California

Polling Questions

Which industry is most affected by outsourcing in California ?
1. Telecommunications 2. Accounting and bookkeeping 3. Data processing and related services 4. Computers and related products 5. Apparel design and related services

To create jobs in California we need to ?
1. Discourage foreign outsourcing with regulation 2. Cut corporate income taxes 3. Job-creation tax credits 4. Provide incentives to attract new firms 5. Improve education and workforce training

How can California be more competitive in global trade?
1. Lower business costs 2. Better export/import assistance for small firms 3. More highly educated/skilled workforce 4. Better state infrastructure 5. More incentives to manufacturing sector

Long-term Employment Growth
G-7 Countries, 1960 - 2002
Country Canada U.S. Japan Germany France U.K. Italy G-7 Total Percent 1960 2002 Change (Millions) (Millions) 1960-2002 6.0 65.8 43.4 25.7 18.3 23.6 20.1 202.9 15.3 136.5 62.7 36.0 24.3 27.8 21.6 324.2 155.0% 107.4% 44.5% 40.1% 32.8% 17.8% 7.5% 59.8%

Current and Projected New Jobs
Due to IS Outsourcing, Selected Industries
Industry Group Natural Resources & Mining Construction Manufacturing Wholesale Trade Retail Trade Transportation & Utilities Publishing, Software & Comm Financial Services Professional & Business Services Education & Health Services Leisure, Hospitality & Other Svcs. Government Total Employment Net New Jobs 2003 2008 1,046 1,182 19,815 75,757 3,078 25,010 20,456 43,359 12,552 30,931 18,895 63,513 -24,860 -50,043 5,604 32,066 14,667 31,623 18,015 47,260 4,389 12,506 -3,393 4,203 90,264 317,367

Projected Offshoring of U.S. Jobs
Cumulative Jobs Outsourced
Thousands Percent Number of Jobs (L) % of Total US Jobs (R)

3500 3000 2500 2000 1500 1000 500 0

2.5 2.0 1.5 1.0 0.5 0.0

2000

2005

2010

2015

Offshoring Services Market Size
2001, US$ Billions
Canada 3.7 Eastern Europe* 0.4 Ireland 8.3 Israel 3.0 Mexico 0.5 India 7.7 Thailand 0.05 South Africa 0.01 Australia 0.4 China 1.1 Philippines 0.3 Russia 0.2

*Includes Poland, Romania, Hungary, and Czech Republic

Offshoring Opportunities
Across the Organization
Common Corporate Functions Knowledge services & decision analysis Research & Development

Back office

Customer Contact

Increasingly complex transactions Increasingly access to highly skilled labor pool • Basic data entry • Transaction management • Customer relations • Telemarketing • Finance and accounting • Procurement • Portfolio analysis • Risk management • Content development • New production design

Industries at Risk to Outsourcing
United States Employment
Percent 2001(Q1) 2003(Q2) Change Industry (Thou.) (Thou.) 2001-2003 Manufacturing 16,932.3 14,757.7 -12.8% Nonmanufacturing 114,141.3 115,757.7 1.4% All Nonfarm 131,073.0 130,515.3 -0.4%

Industries at Risk to Outsourcing
California Employment
Percent 2001(Q1) 2003 (Q2) Change (Thou.) (Thou.) 2001-2003 12,759.2 12,904.6 1.1% 1,849.0 1,587.2 -14.2% 14,608.2 14,491.8 -0.8%

Industry Nonmanufacturing Manufacturing All Nonfarm

Industries at Risk to Outsourcing
United States Employment
Industry Nonmanufacturing Sectors Software Publishers (except Internet) Internet Publishing and Broadcasting Telecommunications ISPs, Search Portals and Data Process Data Processing & Rel. Services Accounting, Bookkeeping & Payroll Payroll Services Computer Systems Design & Rel. Business Support Services Telephone Call Centers Telephone Answering Services Telemarketing Bureaus Manufacturing Sectors Computer and Electronic Products Semiconductors and Electronic Total At-Risk Industries 2001(Q1) 2003(Q2) Percent Change (Thou.) (Thou.) 2001-2003 276.1 50.6 1,323.4 516.0 320.9 976.3 158.9 1,341.2 784.4 406.2 54.8 351.4 1,862.1 308.7 6,853.9 247.9 33.7 1,138.9 433.2 292.2 875.7 124.6 1,148.1 746.2 363.2 50.9 312.3 1,415.9 237.9 5,791.8 -10.2% -33.4% -13.9% -16.0% -8.9% -10.3% -21.6% -14.4% -4.9% -10.6% -7.1% -11.1% -24.0% -22.9% -15.5%

Industries at Risk to Outsourcing
California Employment
Industry Nonmanufacturing Sectors Software Publishers (except Internet) Telecommunications ISPs, Search Portals and Data Process Data Processing & Rel. Services Accounting, Bookkeeping & Payroll Computer Systems Design & Rel. Business Support Services Manufacturing Sectors Computer and Electronic Products Semiconductors and Electronic Total At-Risk Industries Percent 2001(Q1) 2003 (Q2) Change (Thou.) (Thou.) 2001-2003 55.8 150.5 60.2 24.4 108.8 218.2 56.2 443.1 162.1 980.8 47.1 123.5 48.0 18.9 103.1 163.2 57.2 336.8 115.2 774.6 -15.6% -18.0% -20.2% -22.8% -5.2% -25.2% 1.7% -24.0% -29.0% -21.0%

Regions at Risk to Outsourcing
Percent of Total Employment, 2002
Percent

16 15 14 13 12 11 10 U.S. California San Jose

U.S. Jobs Moving Offshore
Percent of U.S. Jobs Lost by Offshoring, 2000 - 2015
Occupation Management Legal Occupations Computer & Mathematical Architecture & Engineering Business & Financial Operations Life, Physical, and Social Science Arts, Entertainment & Media Sales & Related Office & Adminstrative Support Annual Wage 2003 $82,790 $78,910 $63,240 $59,230 $55,500 $53,210 $42,620 $31,250 $28,260 % US Offshoring Jobs 2000 2005 2010 2015 0% 6% 7% 9% 2% 2% 2% 2% 26% 19% 17% 14% 3% 5% 5% 6% 11% 10% 10% 10% 0% 1% 1% 1% 1% 1% 1% 1% 4% 5% 6% 7% 53% 50% 50% 50%

Higher Wage Jobs Offshore Faster?
Percent of U.S. Jobs Lost by Offshoring, 2000 - 2015
Percent Percent

10
Avg. Annual Wage = $82,790

53 52

8 6
Avg. Annual Wage = $28,260

51 50 49 48 47
Management Occupations (L) 46 Office & Admin. Support Occupations (R)

4 2 0

2000

2005

2010

2015

45

Majority of Jobs Cannot be Offshored
California, 2002
Occupations that can be offshored, 11.5% 1.7 million
Includes employment in: • Office support (computer operators) • Business and financial support • Computer and math professionals • Paralegals and legal assistants • Diagnostic support services • Medical transcriptions

Occupations that cannot be offshored, 88.5% 12.8 million

IT Jobs Displaced in the U.S.
Including Jobs Lost & Not Created in 2000 - 2003
Thousands of Jobs

400 350 300 250 200 150 100

372,000

Total IT Jobs Lost Due to: •Recession •Dot-com Bubble Burst •Productivity Gains •Over-hiring in 1990s •Offshore ITO

IT Jobs Lost or not Created Due to Offshore ITO

104,000
50

Computer Programmers
Average Salaries, 2003
Country Poland & Hungary Russian Federation India Philippines Malaysia China Israel Ireland Canada U.S. Percent to U.S. Salary Range Equivalent Salary $4,800 - $8,000 6% - 13 % $5,000 - $7,500 6% - 13% $5,880 - $11,000 7% - 18% $6,564 8% - 11% $7,200 9% - 12% $8,952 11% - 15% $15,000 - $38,000 19% - 63% $23,000 - $34,000 29% - 57% $28,174 35% - 47% $60,000 - $80,000 100%

Scientists & Engineers in R&D
Top 10 Countries by Per Mil. Population, 2003
Rank 1 2 3 4 5 6 7 8 9 10 50 72 Country Number Japan 648,778 Finland 26,378 Sweden 40,534 Singapore 19,737 Norway 18,811 U.S. 1,201,233 Switzerland 26,762 Russian Federation 501,621 Denmark 18,816 Australia 66,775 China India 705,689 167,414 Per Million Population 5,095 5,059 4,511 4,140 4,112 4,099 3,592 3,481 3,476 3,353 545 157

High Technology Exports
Top 10 Countries
Rank 1 2 3 4 5 6 7 8 9 10 29 33 Country U.S. Japan Germany U.K. France Singapore China Malaysia Korea (ROK) Netherlands Russian Federation India US$ Millions 178,906 99,389 85,958 67,416 67,191 62,572 49,427 40,939 40,427 38,960 3,257 1,680 US$ per Capita 610.5 780.5 1,042.9 1,118.6 1,112.0 13,123.4 38.2 1,740.4 831.9 2,387.5 0.0 22.6 1.6

Employment by Foreign Firms in U.S.
Top 10 States by Number of Employees, 2003
US Subsidiary State Labor Percent of Employment Force Labor State (Thou.) (Thou.) Force California 713.5 17,569.9 4.1 New York 480.8 9,294.1 5.2 Texas 428.1 10,961.5 3.9 Illinois 320.9 6,391.6 5.0 Florida 303.3 8,301.5 3.7 New Jersey 270.8 4,401.4 6.2 Pennsylvania 267.1 6,212.7 4.3 Michigan 244.2 5,071.2 4.8 Georgia 243.8 4,395.9 5.5 Ohio 242.2 5,871.9 4.1

Chip Design Production
Global Share
Percent

100 80 60 40 20 0
U.S. Asia** Other

1995

2002
*Projected

2008*

**Taiwan, Korea, India, China, Singapore, and Malaysia

Research Jobs Created
Bay Area-Based Companies
Percent

100 80 60

5% 11% 13% 16% 9% 9% 33% 37%

40 20 0
Bay Area Rest of U.S. India China Rest of the World

38%

29%

Semiconductor

Software

Globally Distributed Production Functions
Hewlett Packard Printer
R&D and Design U.S. India

Component Manufacturing Hungary Assembly and Testing Distribution Local

China

Mexico

Taiwan

Local

Local

Hourly Wages for Selected Occupations
U.S., California, Silicon Valley, and India, 2003
Silicon Occupation U.S California Valley India Telephone Operator $13.48 $14.55 $17.75 Under $1.00 Health Record Techs $11.79 $13.11 $15.85 $1.50 - $2.00 Payroll Clerk $14.22 $16.28 $21.02 $1.50 - $2.00 Legal Assistant $17.15 $19.88 $24.78 $6.00 - $8.00 Accountant $23.59 $25.95 $30.60 $6.00 - $15.00 Financial Analyst $28.87 $31.65 $36.19 $6.00 - $15.00 Programmer $29.49 $34.57 $40.31 $2.65 - $6.00

Offshoring Improves Performance
Savings by Offshoring
Index: original cost base in U.S. = 100

120 100 80 60
100

45 - 55% Savings

30 - 40% Savings

-65 to -65

+5 to +10

+5

45 - 55

-5 to -7 -10 to -15 30 - 35

40 20 0

Factor cost savings Add management cost Task reengineering New cost base Original cost base Add telecom cost Offshoring location cost Process reengineering

Task/process migration

Task-level Process-level improvement improvement

Offshoring’s Value to the U.S.
Benefit Per $1 of U.S. Spending Sent Offshoring, 2002

Current Direct Savings to US investors/customers $0.58 Benefit Retained Imports of US goods & services $0.05 in the U.S. Transfer of profits by US providers $0.04 Potential Future Value from US labor reemployed $0.45-0.47 Benefit Net Benefit to the U.S. $1.12-$1.14

Offshoring’s Value to India
Benefit Per $1 of U.S. Offshore Spending, 2002

Labor $0.10 Offshoring Sector Profits retained in India $0.10 Suppliers $0.09 Central Government $0.03 Taxes State Government $0.01 Net Benefit to India $0.33

India – Offshoring Takes Off
Revenues from Business-Process Offshoring in India
US$ Millions

1600 1400 1200 1000 800 600 400 200 0 1995 1996 1997 1998 1999 2000 2001 2002
GE British Airways

Multinational companies entry to India
Citygroup

HCL Technologies, Speedwing Int., Standard Chartered Convergys, Daksh, HSBC TransWorks

India – Outsourcing Jobs Rise
IT & Other Service Jobs
Thousands

600 500 400 300 200 100 0

IT Workers Other Service Workers

2000

2001

2002

2003

2004

IT & Other Service Jobs in India
Indexed Growth, 2000 - 2004
Index 2000 = 100

500 400 300 200 100 0

IT Workers Other Service Workers

2000

2001

2002

2003

2004*
*Estimated

India – The World’s Back Office?
India’s IT Industry in 2008
US$ Billions

35 30 25 20 15 10 5

Lower Estimate Upper Estimate

Exports

Domestic Market

Technology

Remote IT

IT Services

India – More Services-Oriented
India’s GDP by Sector
Percent

100 80 60 40 20 0

Agriculture Industry Services

1980

1990

2000

2002

India Is Buying More U.S. Services
Exports of Private U.S. Services to India, 1992 - 2002
US$ Billions Percent

3.5 3.0 2.5 2.0 1.5 1.0 0.5 92

Value (L) % of US Exports in Services (R)

1.2 1.0 0.8 0.6 0.4 0.2

93

94

95

96

97

98

99

00

01

02

0.0

Top 10 U.S. Exporting States
Ranked by 2003 Value, US$ Billions, 2001 - 2003
Rank State 2001 2002 2003 1 Texas 95.00 95.40 98.85 2 California 106.78 92.21 93.99 3 New York 42.17 36.98 39.18 4 Washington 34.93 34.63 34.17 5 Michigan 32.37 33.78 32.94 6 Ohio 27.09 27.72 29.76 7 Illinois 30.43 25.69 26.47 8 Florida 27.18 24.54 24.95 9 Massachusetts 17.49 16.71 18.66 10 Louisiana 16.59 17.57 18.39 United States 689.5 658.8 688.6 Change 2002-03 3.6% 1.9% 6.0% -1.3% -2.5% 7.4% 3.1% 1.7% 11.7% 4.7% 4.5%

Exports - Indexed Growth
1999 - 2004Q2
Index 1999Q1 = 100

150 140 130 120 110 100 90 99 00 01 02

California United States

03

04

California Exports
Top 10 Countries by 2003 Value
Percent Share 2002 2003 Change CA Exports Rank Country (US$ Bil.) (US$ Bil.) 2002-03 2003 1 Mexico 16.1 14.9 -7.5% 15.8% 2 Japan 11.1 11.8 5.8% 12.5% 3 Canada 10.1 11.2 11.5% 11.9% 4 China 4.5 5.5 21.9% 5.8% 5 Korea (ROK) 4.7 4.8 2.6% 5.1% 6 Taiwan 5.4 4.4 -17.6% 4.7% 7 U.K. 4.3 4.4 0.3% 4.6% 8 Hong Kong 3.7 4.2 13.4% 4.4% 9 Germany 3.5 3.6 2.3% 3.8% 10 Netherlands 3.6 3.4 -4.6% 3.6% All Others 25.3 25.9 2.4% 27.5% California Total 92.2 94.0 1.9% 100.0%

California’s Top 10 Exports
By Industry, 2003
2003 Share of Share of Value CA Total US Industry Rank Industry (US$ Bil.) Exports Exports 1 Computer & Electronic Products 36.71 39.1% 25.1% 2 Machinery Except Electrical 9.43 10.0% 13.0% 3 Transportation Equipment 8.64 9.2% 6.9% 4 Chemicals 5.96 6.3% 6.6% 5 Misc. Manufactured Commodities 4.88 5.2% 17.3% 6 Agricultural Products 4.78 5.1% 16.3% 7 Food And Kindred Products 4.17 4.4% 15.6% 8 Electrical Equipment & Components 2.94 3.1% 13.1% 9 Fabricated Metal Products 2.30 2.4% 12.1% 10 Plastics & Rubber Products 1.58 1.7% 9.9%

Exports - Computer Equipment
1999 - 2004Q2
Index 1999Q1 = 100

150 140 130 120 110 100 90 80 70 1999 2000 2001 2002

California United States

2003

2004

Exports - Apparel Products
1999 - 2004Q2
Index 1999Q1 = 100

130 120 110 100 90 80 70 60 50 1999 2000 2001 2002

California United States

2003

2004

Exports - Chemicals
1999 - 2004Q2
Index 1999Q1 = 100

170 160 150 140 130 120 110 100 90

California United States

1999

2000

2001

2002

2003

2004

Exports Per Workers
California & U.S., 1999 - 2003
US$ Thousands

8.5 8.0 7.5 7.0 6.5 6.0 5.5 5.0 4.5 1999 2000 2001 2002

California United States

2003

Exports to NAFTA Members*
As Percent of Total Exports
Percent

40 38 36 34 32 30 28 26 24 1999 2000 2001 2002

California United States

2003

2004

*Canada and Mexico

Exports to European Union
As Percent of Total Exports
Percent

26
California United States

24 22 20 18 16

1999

2000

2001

2002

2003

2004

Exports to Asia*
As Percent of Total Exports
Percent

50 45 40 35 30 25 20

California United States

1999

2000

2001

2002

2003

2004

*Japan, Taiwan, Korea, China, Hong Kong, Singapore, Malaysia, Thailand, Philippines, India

California Exports to the World
Indexed Growth by Foreign Region, 1999 - 2004Q2
Index 1999Q1 = 100

160 140 120 100 80 60 40 1999 2000 2001 2002

NAFTA South America E.U. Asia Africa

2003

2004

Foreign Direct Investment to U.S. States
Top 10 States by Employment, 2001
US$ Billions Thousands Property, Plant & Equipment (L) Employment (R)

140 120 100 80 60 40 20 CA NY TX IL FL

800 700 600 500 400 300

NJ

PA

MI

GA

OH

200

Foreign Direct Investment to California
Property, Plants & Equipment / Employment, 1991 - 2001
US$ Billions Thousands

130
Property, Plant & Equipment (L) Employment (R)

750 700 650 600 550 500

120 110 100 90 80

91

92

93

94

95

96

97

98

99

00

01

California’s Agricultural Exports
Top 10 Commodities by 2002 Value
2002 Share of Percent Value CA Agr. Growth Rank Country (US$ Mil.) Exports 2001-2002 1 Almonds 829.0 15% 20.9% 2 Cotton 513.5 10% -14.8% 3 Wine 485.7 9% 2.3% 4 Table Grapes 367.3 7% -6.9% 5 Oranges 303.0 6% 1.8% 6 Dairy 300.9 6% -11.1% 7 Tomatoes* 215.4 4% 1.7% 8 Walnuts 183.9 3% 2.7% 9 Rice 183.0 3% 10.0% 10 Beef & Products 167.7 3% 8.3% Top 10 Total 3,549 66% 0.5% All Total** 5,374 100% -0.8%
*Processed Tomatoes **50 principal commodities

California’s Agricultural Export Markets
Top 10 Destinations, 2002
China, 7% Mexico, 6% Korea, 5% Taiwan, 4% Japan, 17% Indonesia, 2% India, 2% Malaysia, 1% E.U., 21% Canada, 23%

U.S. Trade in Services
Exports and Imports, 1983 - 2003
US$ Billions

350 300 250 200 150 100 50 0 83 84

Exports Imports

86 85 87

88 89

90 91

92 93

94 95

96 97

98 99

00 01

02 03

U.S. Exports in Services
By Category, 2003
Royalties & License Fees, 15.7% Other Transport., 10.4% Passenger Fares, 5.1%

Transfers under US Military Contracts, 4.1% US Gov. Misc. Services, 0.3%

Travel Services, 21.0% Other Private Services, 43.5%

U.S. Exports in Services
1999 and 2003
Percent 1999 2003 Change Category (US$ Bil.) (US$ Bil.) 1999-2002 Other private services 98.2 133.8 36.3% Royalties & license fees 36.9 48.2 30.7% Other transportation 26.9 31.8 18.3% US Government Misc. Services 0.9 0.8 -8.5% Travel services 74.7 64.5 -13.7% Passenger fares 19.8 15.7 -20.7% Transfer under US Military 15.8 12.5 -21.0% Total Exports in Services 273.2 307.4 12.5%

Net Legal Immigration
Selected Countries, Avg. Annual, 1995 - 2000
Thousands

1500

1000

500

0

-500
U.S.

U.K.

France Indonesia India China Japan Argentina Philippines Mexico

Inflow of Foreign Workers
Per 100,000 Residents
Number of Foreign Workers

700 600 500 400 300 200 100
Germany Austria U.S. New Zealand Australia Canada

0

Japan U.K. Italy

France

U.S. H-1B Visa Petitions Approved
Top 10 Country of Birth, 2002 Country Total Percent India 64,980 33.0% China 18,841 9.6% Canada 11,760 6.0% Philippines 9,295 4.7% U.K. 7,171 3.6% Korea 5,941 3.0% Japan 4,937 2.5% Taiwan 4,025 2.0% Pakistan 3,810 1.9% Columbia 3,320 1.7%

U.S. H-1B Visa Petitions Approved
Top 5 Occupation Group, 2002
Country Computer-Related Architecture/Engineer/Survey Administrative Specializations Education Medicine &Health Total Percent 75,114 38.3% 25,197 12.8% 21,103 10.8% 20,613 10.5% 12,920 6.6%

Domestic Migrants Losses
Top 10 States by Net Domestic Migration in 2000 - 2003
1991-1999 Rank State (Thous.) 1 New York -1,836 2 California -2,152 3 Illinois -545 4 Ohio -162 5 New Jersey -365 6 Massachusetts -232 7 Michigan -194 8 Louisiana -129 9 Kansas -14 10 Pennsylvania -248 2000-2003 (Thous.) -673 -306 -285 -129 -112 -108 -90 -89 -44 -44

Immigrant Magnet States
Top 10 States by Net Immigration in 2000 - 2003
1991-1999 Rank State (Thous.) 1 California 2,222 2 New York 1,078 3 Texas 700 4 Florida 630 5 Illinois 376 6 New Jersey 369 7 Georgia 104 8 Arizona 104 9 Massachusetts 143 10 North Carolina 57 2000-2003 (Thous.) 1,134 530 514 419 258 228 144 126 125 114

California’s Migration & Immigration
Historical Trend
Thousands

3000 2000 1000 0 -1000 -2000 -3000
1940's

Net Domestic Migration Net Immigration 1950's 1960's 1970's 1980's 1990's 2000-2003

California’s Population Growth Rate
By Net Domestic Migration and Net Immigration
Percent Growth

80 60 40 20 0 -20 -40 -60
Net Domestic Migration Net Immigration 1940's 1950's 1960's 1970's

1980's

1990's 2000-2003

Legal Immigrants to California
From China & India, 1990 - 2002
Thousands

20 18 16 14 12 10 8 6 4 90

India (L) China (R)

91

92

93

94

95

96

97

98

99

00

01

02

California’s Imports from China & India
1997 - 2003
US$ Billions US$ Billions India (L) China (R)

2.2 2.0 1.8

70 60 50

1.6 40 1.4 1.2 1.0 97 98 99 00 01 02 03 30 20

California Employment-based Immigrants
By Country of Birth, 2002 Rank Country Number Percent 1 India 5,716 27.9 2 China 2,857 13.9 3 Philippines 1,665 8.1 4 Mexico 1,633 8.0 5 Korea 996 4.9 6 Taiwan 753 3.7 7 U.K. 691 3.4 8 Canada 569 2.8 9 Japan 497 2.4 10 Iran 366 1.8

Bush vs. Kerry on Immigration
2004 Presidential Election
Bush: (1) Proposes granting legal status to illegal workers. (2) Plan would give temporary legal status for highly skilled foreign workers & farm labor. (3) Opposes giving illegal immigrants an “automatic path to citizenship.” Kerry: (1) People who have been in the U.S. at least five years, paid taxes and “stayed out of trouble ought to be able to translate into an American citizen immediately.” (2) Reward students who study hard and play by the rules

Kerry’s International Tax Reform
Goal:

2004 Presidential Election

• End Tax Breaks that Encourage Companies to Move Jobs Overseas • Close Abusive International Tax Loopholes • Cut the Corporate Tax Rate by 5 Percent Actions: • Fundamental Reforms America’s International Tax System • Eliminates Tax Breaks for Companies that Create Jobs Overseas • Using the Approximately $12 billions in Annual Savings to Cut the Corporate Tax Rate

Offshoring is Not New, Rather a Well Established Practice
Offshoring by Bay Area Semiconductor & Software Companies (2004)
Exploring Offshore Strategies 3% Not Yet Offshoring 3%

Using Offshore Resources 94%

Comparatively, 66% of U.S. companies were using offshore resources in 2003

Five Key Trends are Impacting Regions and Job Markets
Macro Trends Industry Trends Worker Trends Shift From Shift From Manufacturing Manufacturing to Services to Services

Globalization Globalization Technology Technology Driven Driven Productivity Productivity

Demographic Demographic Change Change

Business Business Disintermediation Disintermediation

Fundamental Shifts in Global Business Climate • Increased competition and access for workers • Job mobility • High productivity growth • Acceleration of offshoring • New markets

To Help Understand How the Job Profile is Changing We Identified Key Capabilities the Region is Competing On…
Competitive Bay Area Capabilities 1. Entrepreneurship/new business creation 2. Research in advanced technologies 3. Concept and market development 4. Cross-disciplinary research 5. Global integrated management Challenged Bay Area Capabilities 1. Mass production 2. Back-office operations 3. Product and process enhancement

…And Looked at the Region’s Position in Emerging Technologies
Bay Area Biotech Firm Concentration, (2004)

Industry Cluster Concentration
Payroll Concentration Ratio: % of Payroll/% of Employment
2.5 2.4 2.3 2.2 2.1 2.0 1.9 1.8 1.7 1.6 1.5
2 2.5 3 3.5 4 4.5 5 5.5 6 6.5 7

Other US Bay Area Biotech firms Biotech firms = 657 = 800

Software

Computer and Communications Hardware Manufacturing

Bay Area Nanotech Firm Concentration, (2004)

Biomedical

Semiconductor and Semiconductor Equipment Manufacturing

Bay Area Employment Concentration Relative to the US

9% 7% 5% 4% 4% 4%

Bay Area

Germany

Japan

Canada

Switzerland

UK

Based on Its Capabilities and Lead in New Technologies the Region will Generate Jobs in Innovation and New Businesses
Idea Generation/ Conceptualization Startup/ Business launch Scale/ Grow Business Sustain/ Manage

Entrepreneurship/ New Business Creation Research in Advanced Technologies Cross-disciplinary Research Concept and Market Development Global Integrated Management Product and Process Enhancement Mass Production Back Office Operations

Large Semi and SW Companies Still Plan to Hire Locally
Total Employment Distribution (2004)
Rest of World

Job Listings Distribution (2004)
Rest of World

43%

35%

Other US

Other US
39%

38%

Bay Area

18%

Bay Area

27%

Based on Job Postings, 1 in 4 future hires are targeted for the Bay Area

Research Job Prospects Remain Strong in the Bay Area…
Research Job Listing for Large Bay Area Based Employers
• Bay Area is center for cross-disciplinary and advanced research • Most small companies keep research in Bay Area • Medium and large companies keep the bulk of their innovation in the region Rest of the World 5% 11% China 13% India Rest of US
33% 16% 9% 9% 37%

Bay Area

38%

29%

Semiconductor Software

…However, Even in the R&D Value Chain Some Select Activities Are Migrating Offshore
Research and Development Value Chain
= Expect to be increasingly offshored or outsourced

Basic Research

Concept Requirements Design Applied Validation Research Development Definition

Prototyping and Product Development

For research jobs across the local Semiconductor and Software industry, positive job creation is expected

Keep In Mind, Offshoring is Also Creating New Types of Occupations
Global Integrated Management Position ? Adobe Sample New Job Listing

Advanced Technology Group (ATG) Engineering Manager •Based in San Jose, CA and will manage the Digital Imaging Technology Group in India. •The group consists of Senior Computer Scientists who will focus on advanced technology R&D in the Digital Imaging Market. •Will prioritize research activities, evangelizing technologies developed to product groups, plan the transfer of technology, and coordinate research activities within the US technology group.
Remote project management capabilities are in high demand and can command a 25% premium

Overall, Expect Bay Area Jobs to Change Based on The Competitive Position of the Region’s Capabilities
Sample Occupations Aligned with Leading Capabilities • Venture capitalists, lawyers entrepreneurs • IT, biotech and nanotech R&D professionals • Architects, systems level software engineers • Select engineering including electrical, mechanical and electronics • Strategic managers in sales and marketing • Product marketing managers • Managers of global teams and assets (headquarters, product development, IT, HR, etc.) Sample Occupations Aligned with Weaker Capabilities • High tech manufacturing and assembly (except high-end) • Office support (e.g., data entry clerks, etc.) • Business and financial support (e.g., processing staff) • IT support specialists • IT administrators • Legal assistants • Statistical analysts • Entry-level computer and software engineers • Quality assurance and test engineers • Product and process engineers

However, net job creation is expected for the Bay Area Economy

Key Takeaways
n n n

Offshoring is not new, but rather a well established business practice Global trends are impacting regions and job markets The regional job profile is complex and requires understanding the business capabilities that drive it The Bay Area’s competitive capabilities and leadership in emerging technologies position it well for innovation and new business creation Overall, expect continued change in types of jobs, but net job creation to the Bay Area economy Policy direction should focus on: • Sustaining the region’s competitive capabilities • Addressing needs of the supporting business environment • Encouraging business leaders to “share the load” of job transitions

n

n

n

The Economics of Offshoring Are Compelling
45-55% saving 100 30-40% savings on offshore cost base

6060-65 45-55 5-10 5 5 -7 1010-15 30-35

Original cost base

Factor cost savings

Additional Additional Offshore telecom manage- location cost ment cost cost Task/process migration

Task reengineering Task-level improvements

Process reengineering Processlevel improvements

New cost base

California Has More Costly Labor, Energy, Tax Costs Than Neighboring & Manufacturing States*
Index 100 = U.S. average (2002)
Total index California Michigan New York Pennsylvania Washington Illinois Nevada Ohio Arizona Texas Utah Oregon North Carolina Unit labor cost** Energy cost Tax burden

117.0 113.2 105.9 103.4 103.1 103.0 102.2 101.8 99.9 97.1 94.3 91.0 89.7

109.1 116.7 97.8 103.8 107.5 104.5 100.9 101.2 99.6 99.0 96.8 91.1 89.9 102.6

160.9

110.0 103.3 126.8 91.9 107.8 95.0 93.1 110.5 97.9 82.5 108.7 106.4 92.8

132.5 109.3 78.0 101.2 115.0 99.1 102.4 96.8 72.6 80.1 86.4

* Top 8 manufacturing states and 5 neighboring states ** Measured as labor wages per unit output

The Real Economics of Offshoring
1.45-1.47 $1.00 0.67 0.45-0.47

0.33
$1 previously spent in U.S., now offshored to India . . . . . . delivers value to India ...

. . . brings savings and returns to U.S. . . .

. . . creates new value from reemploying U.S. labor* ...

. . . and makes the global pie that much bigger

• Taxes ($0.04) • Revenues
($0.20)

• Cost savings
($0.58) • Goods/ services sold ($0.05) • Profits from Indian ventures ($0.04)

• Local suppliers
($0.09)

* Estimate based on historical U.S. reemployment trends

U.S. Economy Generates Net Additional Value From Every Dollar of Spend Offshored
Value potential to the U.S. from $1 of spend offshored to India Dollars; 2002
Further value creation potential through • Increased global competitiveness of U.S. business • Multiplier effect of increased national savings

1.12-1.14

0.45-0.47

0.58

0.67 0.05 0.04

Savings accrued to U.S. investors and/or customers

Import of U.S. goods and services by providers in India

Transfer of profits by U.S. providers in low-wage country to parent

Total direct benefit retained in the U.S.

Value from U.S. labor reemployed** (conservative estimate)

Potential for total value creation in the U.S. economy (conservative estimate)

Current direct benefit*

Potential future benefit

* Estimated based on historical reemployment trends from job loss through trade in the U.S.

Job Creation Will Outpace Offshoring By A Wide Margin
Employment, 2000-2010, Millions
22

-2 Services jobs offshored

Net new jobs created

Foundations of the Offensive
Skilled workforce Financial capital

Technology access

Physical Infrastructure

Tax and regulatory

Quality of life

The California Power Crisis Will Cost The State More Than $56 Billion By 2013
US$ Billions (2000 dollars)
24.8
Including the economic impact of consumer and business confidence and the 2000 blackouts, the actual cost to the state is even higher

56.3

4.3 3.9 10.8 5.8 6.8
PG&E Bankruptcy SCE Bankruptcy 2001 power costs 2002 power costs 2003 power costs California DWR long term contract obligations (2004-2013)**

CPUC Bankruptcy settlements

California DWR power procurement costs incurred*
* CA DWR costs shown are current are through December 2003 and include energy and capacity costs only and do not include bond charges, reserves, administrative and other costs ** Contract costs are estimates as of September 2004 and may vary based on natural gas prices, contract utilization and future contract renegotiations

The Risk of Future Shortages is High
Projected California state operating reserve margin*, Percent

BAEF ESTIMATE Demand 1 in 2 year

• 750 MW of new capacity will be
needed before 2006 to maintain a 7% operating reserve under a 1-in-5 case** • Given the lead time for new construction, permitting and demand side management needs to begin today
6.5 5.8 3.8 2.7 5.4

1 in 5 year

9.9 8.7 6.9

7% target = Stage One emergency level

5% target = Stage Two emergency level

August 2005

August 2006

August 2007

August 2008

* Operating reserve margin calculated as (Available Supply – Peak Demand)/(Peak Demand) ** As much as 2,000 MW would be required to maintain a planning reserve margin of 15% for the 1-in-5 case, which would equate to a 1-in-2 operating reserve of 12.1% and a 1-in-5 operating reserve of 9.1%

Doctor’s Degrees Conferred
United States
Percent

100 80 60 40 20 0

1976-1977 2000-2001

Black White Hispanic

Asian

Non-Resident Alien American Indian