US companies continue to look overseas for tech talent

New research report says software and IT expertise is coming from innovation hubs abroad.

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A shortage of human capital in the US in the fields of software and IT is driving US multinational companies to establish and expand new "innovation hubs" abroad, according to researchers at Carnegie Mellon University (CMU) and Georgetown University.

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The researchers in a new report said the US is experiencing constraints on the supply of technology skills, which limit the possibilities for US-based multinational companies to be innovative.

This comes within the context of a general trend toward research and development (R&D) globalization that has been underway for years, the researchers said. One of the distinguishing features of the R&D globalization phenomenon is its concentration within the software/IT domain. The increase in foreign R&D has been largely concentrated within software- and IT-intensive multinationals, and new R&D destinations are also more software- and IT-intensive multinationals than traditional R&D destinations, the study said.

"US firms are doing more R&D abroad, and they are doing dramatically more R&D in emerging markets like China, India, and Israel," said Lee Branstetter, professor of economics and public policy at Carnegie Mellon's Heinz College of Information Systems and Public Policy, who led the study.

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"A significant component of this shift is driven by the need for firms to attract and retain a sufficient number of software and IT engineers -- there are not enough in the US," Branstetter said. On the other hand, large numbers of high-quality engineers can be found in places such as China and India.

What's the impact of all this on corporate IT? "The development of new IT products and services is constrained by the limited number of software/IT engineers available in the US, so work is moving overseas where the accessible talent is," Branstetter said. "If firms were able to bring more foreign engineers into the US, it is likely they would expand activity here, too."

The analysis documents three key issues: The growing globalization of R&D, the increasing importance of software and IT to organizations' innovation, and the rise of the new R&D hubs and the differences in the types of activity done at these hubs.

The researchers said these are closely related issues, and the shift toward increasing reliance on software and IT for innovation will continue to push global corporations abroad in search of scarce talent.

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"Our findings have important implications for policymakers," the report said. "First and foremost, they suggest that there is a constraint on the supply of IT and software human capital in the US, and that these human resource constraints are limiting the invention possibilities for US-based multinational firms, even in the domains where innovative activity and technological opportunity seem to be at the highest levels."

In addition to calling for more sourcing of expertise from abroad through "an open immigration regime for highly skilled workers" to help ease the constraint, the researchers suggest education policies would help expand the supply of US IT and software workers.

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