Nortel Beefs Up Offshore Development

Nortel Networks Corp. (NYSE/Toronto: NT) has confirmed it's increasing research and development efforts outside the U.S. and Canada, and some are worried that it could cost workers in North America their jobs.

Nortel has a long history of outsourcing development, particularly to India. The company has used contract laboratories there for the past 10 years to help develop switching, wireless, enterprise voice, call center applications, and wireline products. Now the company will be sending even more work overseas, though it won't say exactly how much more.

Meanwhile, sources speculate that this could be mean major shifts in development of some core voice and packet applications, CDMA wireless applications, and testing tools. At least one, who asked not to be named, says the move could hit Nortel workers in facilities based in Richardson, Texas; Calgary, British Columbia; and Ottawa, France, and Brazil.

Nortel officials say fears of a shift in strategy and possible job cuts are overblown.

“There has been a slight increase in India-based R&D,” says Ann Fuller, a spokeswoman for the company. “However, this is not indicative of a change in R&D philosophy or geographic focus, but merely reflective of Nortel Networks' global market presence and customer focus. Ottawa remains our primary R&D facility, supplemented by other strategic centers globally.”

Over the past three years the company has drastically reduced its headcount from roughly 96,000 employees in 2000 to about 36,000 today. The company eliminated about 1,100 jobs in the first half of 2003, according its 10-Q filed with the U.S. Securities and Exchange Commission (SEC).

On Nortel's last earnings call, Frank Dunn, the company’s CEO, told investors that headcount reductions were substantially completed (see Nortel Still Profitable in 2003). But the company is still paying for the downsizing. It still expects to take a $30 million to $40 million charge in the second half of the year for items related to work force reductions, including severance packages, according to the 10-Q.

“We expect headcount to remain stable,” says Tina Warren, another Nortel spokeswoman. “The additional charges are part of the previously announced cuts.”

Still, increasing R&D efforts outside North America strikes a bitter chord with many domestic workers, who fear their jobs could be eliminated and sent overseas.

The trend toward offshore development has been on the rise industrywide. Forrestor Research predicts that about 3.3 million jobs will move to foreign countries over the next 10 years. About 400,000 of these jobs will be in technology, says John McCarthy, group director of research for Forrestor, specializing in offshore activity.

“We’re seeing a lot of activity in industries that are in the most pain,” he says. "Clearly, that would include telecom companies.”

McCarthy adds that companies like Nortel, which have already dabbled in offshore development, will increasingly look to foreign countries as they attempt to cut costs. Factoring in overhead costs associated with doing business overseas, McCarthy says companies that outsource can often save as much as 30 to 40 percent per year on operational costs.

“Companies go through an evolution as they develop their offshore activity,” he says. “As they become more committed, they start doing more sophisticated product development and maintenance.”

Nortel's Fuller says the company R&D efforts, which totaled about $2.2 billion in 2002, will continue to include a combination of core, regional, and contract laboratories throughout the world. Core labs are responsible for the development of core technologies and platforms. These efforts are focused in Europe and North America. Ottawa is the hub for R&D and accounts for almost half of the company’s total R&D investment.

Nortel also says it will continue operating smaller labs, which are either owned or contracted, in various parts of the world, such as Australia, India, Ireland, Russia, Romania, Turkey, and Vietnam. These regional labs largely focus on product adaptations and applications of R&D to address specific customer and market needs and to shorten time to market.

— Marguerite Reardon, Senior Editor, Light Reading

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joe_average 12/4/2012 | 11:35:04 PM
re: Nortel Beefs Up Offshore Development So back around 1996, Nortel-RTP was outsourcing some S/W development work to a company in India. By all accounts, the effort was going reasonably well.

It was then discovered that the person in charge (was he an AVP, VP, Director?) had financial investments in the Indian company via a brother-in-law or some such connection. Nice.

You can imagine what happened next: Good-bye VP, good-bye outsourcing project.

Does anyone else remember this event and can supply more details? I found that series of events to be amazing! There should have been some prison time if I was in charge.
aust1648 12/4/2012 | 11:35:02 PM
re: Nortel Beefs Up Offshore Development If I remember right, the Director got fired and reappeared about 6 weeks later as a Director at a competitor up the street. In other words, nothing happened to him and he likely got a package to leave and a raise to join the other company.

diag_eng 12/4/2012 | 11:35:01 PM
re: Nortel Beefs Up Offshore Development Outsourcing the weaving of baseball gloves to Taiwan is one thing, but outsourcing R&D is another.

These companies will find soon enough that the black box these eecutives calls R&D actually has some value add other than implementing an MRD.

It takes cohesion between HW/SW and yes, Project Management to see a project from the whiteboard to the shipping dock. I'm not talking the sexy GUI's and Java Apps they have the Indians doing now - I'm talking embedded systems development.

When they ship embedded R&D offshore, then it's time to panic. Then it'll be time to learn how to weave a baseball glove.

Buy American, or it's bye America.


Nortel s_cks.
mu-law 12/4/2012 | 11:34:59 PM
re: Nortel Beefs Up Offshore Development Diag_eng seems to be a bigoted and blissfully ignorant relic of the 109k+ employee McTelecom jobs era...

Anyone with credible management level experience in the computer or telecoms equipment sector (after about 1985) would be aware of the following:

1. Taiwan is presently THE premiere destination for offshore HW engineering and sophisticated CM. This is where one sends their 1.2/1.8v core 492pin BGA designs after they exceed "prototype" quantities in the US.

2. Consumer electronics and most commodity electonic components / subsystems currently sold are produced in Malaysia, Phillipines, Mexico, or elsewhere, where labor is more affordable. These guys do all of the 3.3 & 5V, through-hole designs, IC packaging, etc.

3. Baseball gloves and the bulk of other non technical goods we buy in America come from China, or elsewhere in the Pacific Rim, S. America, etc.

4. Unfortunately, I pay for what I get, but I don't necessarily get what I pay for when I hire for an engineering job in Boston, Dallas, or SJ.

IFF that weren't the case, I wouldn't be faced with the decision to send more and more sophisticated embedded SW projects to Bangalore, in an effort to keep my company alive for those that are left.

The presumption that US workers are entitled to jobs at technology multinationals is arrogant. Just as vendors are forced to be competitive, so must engineering talent.

One's choices are to become complacent and see his standard of living deteriorate to that of his global counterparts, or get off his butt and move his skills up the value chain.

For his own sake, I'd suggest diag_eng take some courses on Hindi or Mandarin...
chip0145 12/4/2012 | 11:34:59 PM
re: Nortel Beefs Up Offshore Development This is the chickenshit way out.Why don't we send everything to China and India..we will soon be trying to grow rice and curry on the prairies.Yes these countries need telecommunications to develope their economies, but why at our expense.Nortel is left with a bunch of ducks that follow each other to the next pond.There is no backbone left.Quack, Quack, etc.

How do we change this situation?The North American Telcos and MSOs wont spend money and when a new idea is presented to them, they pass out in the meeting....literally their eyes roll back into their heads.Have I got your attention?

This does not work.All seems to be overrulled by technology supplied by Alcatel and the patronage appointments that have been posted recently.
stephenpcooke 12/4/2012 | 11:34:58 PM
re: Nortel Beefs Up Offshore Development There has been much talk lately about protectionist policies in the US; from steel production (US policy is illegal according to the WTO), softwood lumber from Canada (illegal according to NAFTA), and now H1-B's (yet again...is this the third or fourth time in the last 10 years?). It seems that the US has forgotten what made it great: its cultural and economic diversity.

Looking at the trends in telecom today, the only really growing markets are in the far east (India and China). The North American market has fallen off a precipice, seems to be caught on a ledge perhaps, and may fall yet again.

The point is that there are no real equipment/technology buyers that are buying. Yipes is toast on the EtherNet side, the RBOCs haven't had the cash to pay their unions let alone installing new technology, and the barriers to entry are now so high that there are no conceivable new players that will show up. Price erosion of telecom services has hit all time highs to the point that most services that generated enormous revenue 10 years ago are now almost free. VOIP, though nice for consumers, further erodes bottom lines on those companies still using OSMINE for their OSSes.

If there is to be innovation and profit in the technology sector it will have to be in support of a viable market. Today there really isn't one in North America or Europe.

There are more people in India than in all of North America and Europe combined and something like 4% or less have phone service of some sort. There are a lot of brilliant people there, many of whom have been through the school of hard knocks over here. Labor is cheaper there by about a factor of ten and the level of education is comparable in the upper stratas.

The current cultural and economic climate would suggest that the better place to invest is India over China but that may change. The point is that there simply isn't enough cash in the right places in the Western economy to make a difference right now.

If anyone is really serious about a long term career in telecom, courses in Hindi or Mandarin would make a lot of sense.
rtfm 12/4/2012 | 11:34:54 PM
re: Nortel Beefs Up Offshore Development One interesting distinction is that most technical work (or government, business, etc.) in India is actually done in English, despite that being the language of only some 5% of the population. In China (and Japan and numerous east asian countries), higher (technical) education remains in the native language. Perhaps Indians have the British to thank for their software proficiency (in part).


previous post -
"If anyone is really serious about a long term career in telecom, courses in Hindi or Mandarin would make a lot of sense."
dodo 12/4/2012 | 11:34:50 PM
re: Nortel Beefs Up Offshore Development Mach/Joe

This started before these two became prominent and started their empire during Roth's watch.

Folks in Ottawa were told to review work that came back overnight, debug/test them and send them back without asking questions. If I can recall well, it was in 93/94. At the same time we were outsourcing work also to Israel.
Machavelli 12/4/2012 | 11:34:50 PM
re: Nortel Beefs Up Offshore Development Joe,

I remember the event and the initiative was supposed to generate a hugh cost savings for Nortel. It didn't. While the Indians involved were highly skilled in SW development, their lack of Telecom and testing knowledge doomed the effort to failure.

Would the individual who spearheaded the effort be Anil Khatod or Clarence Chandran, by chance ?

Many high ranking individuals of Indian origin at Nortel have disappeared recently under mysterious circumstances in the last 3 years.

allidia 12/4/2012 | 11:34:49 PM
re: Nortel Beefs Up Offshore Development Save American Jobs. This is the only way to do it.
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