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 GrowthG-7 Countries, 1960 - 2002

Country1960

(Millions)2002

(Millions)

PercentChange

1960-2002

Canada 6.0 15.3 155.0%U.S. 65.8 136.5 107.4%Japan 43.4 62.7 44.5%Germany 25.7 36.0 40.1%France 18.3 24.3 32.8%U.K. 23.6 27.8 17.8%Italy 20.1 21.6 7.5%G-7 Total 202.9 324.2 59.8%

Current and Projected New JobsDue to IS Outsourcing, Selected Industries

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

Net New Jobs

2015201020052000

3500

3000

2500

2000

1500

1000

500

0

2.5

2.0

1.5

1.0

0.5

0.0

Thousands Percent

Number of Jobs (L)% of Total US Jobs (R)

Projected Offshoring of U.S. JobsCumulative Jobs Outsourced

Offshoring Services Market Size2001, US$ Billions

Canada3.7

Mexico0.5

Ireland8.3

Israel3.0

South Africa0.01

India7.7

Eastern Europe*0.4

Russia0.2

China1.1

Philippines0.3

Thailand0.05

Australia0.4

*Includes Poland, Romania, Hungary, and Czech Republic

Offshoring OpportunitiesAcross the Organization

Back office Customer Contact

Common Corporate Functions

Knowledge services & decision

analysisResearch &

Development

• Basic data entry

• Customer relations

• Finance and accounting

• Portfolio analysis• Content

development• Transaction management

• Telemarketing • Procurement • Risk management• New production

design

Increasingly complex transactions

Increasingly access to highly skilled labor pool

Industries at Risk to OutsourcingUnited States Employment

Industry2001(Q1)(Thou.)

2003(Q2)(Thou.)

Percent Change

2001-2003Manufacturing 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 OutsourcingCalifornia Employment

Industry2001(Q1)(Thou.)

2003 (Q2)(Thou.)

Percent Change

2001-2003Nonmanufacturing 12,759.2 12,904.6 1.1%Manufacturing 1,849.0 1,587.2 -14.2%All Nonfarm 14,608.2 14,491.8 -0.8%

Industries at Risk to OutsourcingUnited States Employment

Industry2001(Q1)(Thou.)

2003(Q2)(Thou.)

Percent Change2001-2003

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

Industries at Risk to OutsourcingCalifornia Employment

Industry2001(Q1)(Thou.)

2003 (Q2)(Thou.)

Percent Change

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

San JoseCaliforniaU.S.

16

15

14

13

12

11

10

Percent

Regions at Risk to OutsourcingPercent of Total Employment, 2002

U.S. Jobs Moving OffshorePercent of U.S. Jobs Lost by Offshoring, 2000 - 2015

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

% US Offshoring Jobs

2015201020052000

10

8

6

4

2

0

53

52

51

50

49

48

47

46

45

Percent Percent

Management Occupations (L)Office & Admin. Support Occupations (R)

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

Avg. Annual Wage = $82,790

Avg. Annual Wage = $28,260

Occupations that can be offshored,

11.5%

Occupations that cannot

be offshored,

88.5%

Majority of Jobs Cannot be OffshoredCalifornia, 2002

Includes employment in:• Office support (computer operators)• Business and financial support• Computer and math professionals• Paralegals and legal assistants• Diagnostic support services• Medical transcriptions

1.7 million

12.8 million

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

400

350

300

250

200

150

100

50

Thousands of Jobs

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

372,000

104,000

Computer ProgrammersAverage Salaries, 2003

Country Salary RangePercent to U.S.

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

Scientists & Engineers in R&DTop 10 Countries by Per Mil. Population, 2003

Rank Country NumberPer MillionPopulation

1 Japan 648,778 5,0952 Finland 26,378 5,0593 Sweden 40,534 4,5114 Singapore 19,737 4,1405 Norway 18,811 4,1126 U.S. 1,201,233 4,0997 Switzerland 26,762 3,5928 Russian Federation 501,621 3,4819 Denmark 18,816 3,47610 Australia 66,775 3,353

50 China 705,689 54572 India 167,414 157

High Technology ExportsTop 10 Countries

Rank CountryUS$

MillionsUS$ per Capita

1 U.S. 178,906 610.52 Japan 99,389 780.53 Germany 85,958 1,042.94 U.K. 67,416 1,118.65 France 67,191 1,112.06 Singapore 62,572 13,123.47 China 49,427 38.28 Malaysia 40,939 1,740.49 Korea (ROK) 40,427 831.910 Netherlands 38,960 2,387.50.029 Russian Federation 3,257 22.633 India 1,680 1.6

Employment by Foreign Firms in U.S.Top 10 States by Number of Employees, 2003

State

US SubsidiaryEmployment

(Thou.)

State Labor Force

(Thou.)

Percent of Labor Force

California 713.5 17,569.9 4.1New York 480.8 9,294.1 5.2Texas 428.1 10,961.5 3.9Illinois 320.9 6,391.6 5.0Florida 303.3 8,301.5 3.7New Jersey 270.8 4,401.4 6.2Pennsylvania 267.1 6,212.7 4.3Michigan 244.2 5,071.2 4.8Georgia 243.8 4,395.9 5.5Ohio 242.2 5,871.9 4.1

2008*20021995

100

80

60

40

20

0

Percent

U.S.Asia**Other

Chip Design ProductionGlobal Share

*Projected

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

SoftwareSemiconductor

100

80

60

40

20

0

Percent

38%

33%

13%

11%

5%

29%

37%

9%

9%

16%

Bay AreaRest of U.S.IndiaChinaRest of the World

Research Jobs CreatedBay Area-Based Companies

Globally Distributed Production FunctionsHewlett Packard Printer

U.S. India

Hungary China Mexico

Taiwan

Local Local Local

R&D andDesign

ComponentManufacturing

Assembly andTesting

Distribution

Hourly Wages for Selected OccupationsU.S., California, Silicon Valley, and India, 2003

Occupation U.S CaliforniaSilicon Valley India

Telephone Operator $13.48 $14.55 $17.75 Under $1.00Health Record Techs $11.79 $13.11 $15.85 $1.50 - $2.00Payroll Clerk $14.22 $16.28 $21.02 $1.50 - $2.00Legal Assistant $17.15 $19.88 $24.78 $6.00 - $8.00Accountant $23.59 $25.95 $30.60 $6.00 - $15.00Financial Analyst $28.87 $31.65 $36.19 $6.00 - $15.00Programmer $29.49 $34.57 $40.31 $2.65 - $6.00

New cost baseProcess reengineering

Task reengineeringOffshoring location cost

Add management costAdd telecom cost

Factor cost savingsOriginal cost base

120

100

80

60

40

20

0

Index: original cost base in U.S. = 100

100 -65 to -65

+5 to +10+5 45 - 55 -5 to -7

-10 to -15

30 - 35

Offshoring Improves Performance Savings by Offshoring

Task/process migration Task-level improvement

Process-level improvement

45 - 55% Savings 30 - 40% Savings

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

Savings to US investors/customers $0.58Imports of US goods & services $0.05Transfer of profits by US providers $0.04

Potential Future Benefit

Value from US labor reemployed $0.45-0.47

Net Benefit to the U.S. $1.12-$1.14

Current Direct Benefit Retained

in the U.S.

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

Labor $0.10Profits retained in India $0.10

Suppliers $0.09Central Government $0.03State Government $0.01Net Benefit to India $0.33

Offshoring Sector

Taxes

20022001200019991998199719961995

1600

1400

1200

1000

800

600

400

200

0

US$ Millions

India – Offshoring Takes OffRevenues from Business-Process Offshoring in India

British Airways

GECitygroup

TransWorks

Convergys,Daksh,HSBC

HCL Technologies,Speedwing Int.,

Standard CharteredMultinational companies entry

to India

India – Outsourcing Jobs RiseIT & Other Service Jobs

20042003200220012000

600

500

400

300

200

100

0

Thousands

IT WorkersOther Service Workers

2004*2003200220012000

500

400

300

200

100

0

Index 2000 = 100

IT WorkersOther Service Workers

IT & Other Service Jobs in IndiaIndexed Growth, 2000 - 2004

*Estimated

IT ServicesRemote ITTechnologyDomestic Market

35

30

25

20

15

10

5

US$ Billions

Lower EstimateUpper Estimate

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

Exports

2002200019901980

100

80

60

40

20

0

Percent

AgricultureIndustryServices

India – More Services-OrientedIndia’s GDP by Sector

0201009998979695949392

3.5

3.0

2.5

2.0

1.5

1.0

0.5

1.2

1.0

0.8

0.6

0.4

0.2

0.0

US$ Billions Percent

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

India Is Buying More U.S. ServicesExports of Private U.S. Services to India, 1992 - 2002

Top 10 U.S. Exporting StatesRanked by 2003 Value, US$ Billions, 2001 - 2003

Rank State 2001 2002 2003Change 2002-03

1 Texas 95.00 95.40 98.85 3.6%2 California 106.78 92.21 93.99 1.9%3 New York 42.17 36.98 39.18 6.0%4 Washington 34.93 34.63 34.17 -1.3%5 Michigan 32.37 33.78 32.94 -2.5%6 Ohio 27.09 27.72 29.76 7.4%7 Illinois 30.43 25.69 26.47 3.1%8 Florida 27.18 24.54 24.95 1.7%9 Massachusetts 17.49 16.71 18.66 11.7%10 Louisiana 16.59 17.57 18.39 4.7%

689.5 658.8 688.6 4.5%United States

040302010099

150

140

130

120

110

100

90

Index 1999Q1 = 100

CaliforniaUnited States

Exports - Indexed Growth1999 - 2004Q2

California ExportsTop 10 Countries by 2003 Value

Percent Share2002 2003 Change CA Exports

Rank Country (US$ Bil.) (US$ Bil.) 2002-03 20031 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%25.3 25.9 2.4% 27.5%92.2 94.0 1.9% 100.0%

All OthersCalifornia Total

California’s Top 10 ExportsBy Industry, 2003

Rank Industry

2003 Value

(US$ Bil.)

Share of CA Total Exports

Share of US Industry

Exports1 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%

200420032002200120001999

150

140

130

120

110

100

90

80

70

Index 1999Q1 = 100

CaliforniaUnited States

Exports - Computer Equipment1999 - 2004Q2

200420032002200120001999

130

120

110

100

90

80

70

60

50

Index 1999Q1 = 100

CaliforniaUnited States

Exports - Apparel Products1999 - 2004Q2

200420032002200120001999

170

160

150

140

130

120

110

100

90

Index 1999Q1 = 100

CaliforniaUnited States

Exports - Chemicals1999 - 2004Q2

20032002200120001999

8.5

8.0

7.5

7.0

6.5

6.0

5.5

5.0

4.5

US$ Thousands

CaliforniaUnited States

Exports Per WorkersCalifornia & U.S., 1999 - 2003

200420032002200120001999

40

38

36

34

32

30

28

26

24

Percent

CaliforniaUnited States

Exports to NAFTA Members*As Percent of Total Exports

*Canada and Mexico

200420032002200120001999

26

24

22

20

18

16

Percent

CaliforniaUnited States

Exports to European UnionAs Percent of Total Exports

200420032002200120001999

50

45

40

35

30

25

20

Percent

CaliforniaUnited States

Exports to Asia*As Percent of Total Exports

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

200420032002200120001999

160

140

120

100

80

60

40

Index 1999Q1 = 100

NAFTASouth AmericaE.U.AsiaAfrica

California Exports to the WorldIndexed Growth by Foreign Region, 1999 - 2004Q2

OHGAMIPANJFLILTXNYCA

140

120

100

80

60

40

20

800

700

600

500

400

300

200

US$ Billions Thousands

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

Foreign Direct Investment to U.S. StatesTop 10 States by Employment, 2001

0100999897969594939291

130

120

110

100

90

80

750

700

650

600

550

500

US$ Billions Thousands

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

Foreign Direct Investment to CaliforniaProperty, Plants & Equipment / Employment, 1991 - 2001

California’s Agricultural ExportsTop 10 Commodities by 2002 Value

Rank Country

2002 Value

(US$ Mil.)

Share of CA Agr. Exports

Percent Growth

2001-20021 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%3,549 66% 0.5%5,374 100% -0.8%

Top 10 TotalAll Total**

*Processed Tomatoes **50 principal commodities

India, 2%

Indonesia, 2%

Mexico, 6%China, 7%

Japan, 17%

E.U., 21%

Canada, 23%

Taiwan, 4%

Korea, 5%

Malaysia, 1%

California’s Agricultural Export MarketsTop 10 Destinations, 2002

0302

0100

9998

9796

9594

9392

9190

8988

8786

8584

83

350

300

250

200

150

100

50

0

US$ Billions

ExportsImports

U.S. Trade in ServicesExports and Imports, 1983 - 2003

Passenger Fares, 5.1%

Other Transport.,

10.4%

Royalties & License

Fees, 15.7%

Travel Services,

21.0%

Other Private Services,

43.5%

US Gov. Misc.

Services, 0.3%

Transfers under US Military

Contracts, 4.1%

U.S. Exports in ServicesBy Category, 2003

U.S. Exports in Services1999 and 2003

Category1999

(US$ Bil.)2003

(US$ Bil.)

PercentChange

1999-2002Other 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%

ChinaMexico

IndiaPhilippines

IndonesiaArgentina

FranceJapan

U.K.U.S.

1500

1000

500

0

-500

Thousands

Net Legal ImmigrationSelected Countries, Avg. Annual, 1995 - 2000

FranceItaly

JapanU.K.

U.S.Canada

AustriaAustralia

GermanyNew Zealand

700

600

500

400

300

200

100

0

Number of Foreign Workers

Inflow of Foreign WorkersPer 100,000 Residents

U.S. H-1B Visa Petitions ApprovedTop 10 Country of Birth, 2002

Country Total PercentIndia 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 ApprovedTop 5 Occupation Group, 2002

Country Total PercentComputer-Related 75,114 38.3%Architecture/Engineer/Survey 25,197 12.8%Administrative Specializations 21,103 10.8%Education 20,613 10.5%Medicine &Health 12,920 6.6%

Domestic Migrants LossesTop 10 States by Net Domestic Migration in 2000 - 2003

Rank State1991-1999 (Thous.)

2000-2003 (Thous.)

1 New York -1,836 -6732 California -2,152 -3063 Illinois -545 -2854 Ohio -162 -1295 New Jersey -365 -1126 Massachusetts -232 -1087 Michigan -194 -908 Louisiana -129 -899 Kansas -14 -4410 Pennsylvania -248 -44

Immigrant Magnet StatesTop 10 States by Net Immigration in 2000 - 2003

Rank State1991-1999 (Thous.)

2000-2003 (Thous.)

1 California 2,222 1,1342 New York 1,078 5303 Texas 700 5144 Florida 630 4195 Illinois 376 2586 New Jersey 369 2287 Georgia 104 1448 Arizona 104 1269 Massachusetts 143 12510 North Carolina 57 114

2000-20031990's1980's1970's1960's1950's1940's

3000

2000

1000

0

-1000

-2000

-3000

Thousands

Net Domestic MigrationNet Immigration

California’s Migration & ImmigrationHistorical Trend

2000-20031990's1980's1970's1960's1950's1940's

80

60

40

20

0

-20

-40

-60

Percent Growth

Net Domestic MigrationNet Immigration

California’s Population Growth RateBy Net Domestic Migration and Net Immigration

02010099989796959493929190

20

18

16

14

12

10

8

6

4

Thousands

India (L)China (R)

Legal Immigrants to CaliforniaFrom China & India, 1990 - 2002

03020100999897

2.2

2.0

1.8

1.6

1.4

1.2

1.0

70

60

50

40

30

20

US$ Billions US$ Billions

India (L)China (R)

California’s Imports from China & India1997 - 2003

California Employment-based ImmigrantsBy Country of Birth, 2002

Rank Country Number Percent1 India 5,716 27.92 China 2,857 13.93 Philippines 1,665 8.14 Mexico 1,633 8.05 Korea 996 4.96 Taiwan 753 3.77 U.K. 691 3.48 Canada 569 2.89 Japan 497 2.410 Iran 366 1.8

Bush vs. Kerry on Immigration2004 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 Reform2004 Presidential Election

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

Goal:

• End Tax Breaks that Encourage Companies to Move Jobs Overseas

• Close Abusive International Tax Loopholes

• Cut the Corporate Tax Rate by 5 Percent

Offshoring is Not New, Rather a Well Established Practice

Offshoring is Not New, Rather a Well Established PracticeOffshoring by Bay Area Semiconductor & Software Companies (2004)Offshoring by Bay Area Semiconductor & Software Companies (2004)

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

Using Offshore Resources

94%

Not Yet Offshoring3%

Exploring OffshoreStrategies

3%

Five Key Trends are Impacting Regions and Job Markets

Five Key Trends are Impacting Regions and Job Markets

• High productivity growth• Acceleration of offshoring• New markets

• Increased competition and access for workers

• Job mobility

Fundamental Shifts in Global Business Climate

DemographicChange

DemographicChange

BusinessDisintermediation

BusinessDisintermediation

Shift FromManufacturing

to Services

Shift FromManufacturing

to Services

TechnologyDriven

Productivity

TechnologyDriven

Productivity

GlobalizationGlobalization

Macro Trends Industry Trends Worker Trends

To Help Understand How the Job Profile is Changing We Identified Key Capabilities the Region is Competing On…

To Help Understand How the Job Profile is Changing We Identified Key Capabilities the Region is Competing On…

1. Mass production2. Back-office operations3. Product and process

enhancement

1. Entrepreneurship/new business creation

2. Research in advanced technologies

3. Concept and market development

4. Cross-disciplinary research5. Global integrated

management

Competitive Bay Area Capabilities

Challenged Bay Area Capabilities

1.5

1.6

1.7

1.8

1.9

2.0

2.1

2.2

2.3

2.4

2.5

2 2.5 3 3.5 4 4.5 5 5.5 6 6.5 7

Semiconductor and

Semiconductor Equipment

Manufacturing

Computer and Communications

Hardware ManufacturingSoftware

Biomedical

Pay

roll

Con

cent

rati

on R

atio

: %

of P

ayro

ll/%

of E

mpl

oym

ent

Bay Area Employment Concentration Relative to the US

…And Looked at the Region’s Position in Emerging Technologies…And Looked at the Region’s Position in Emerging Technologies

Industry Cluster ConcentrationIndustry Cluster Concentration

Other US Biotech firms

= 657

Bay Area Biotech Firm Concentration, (2004)Bay Area Biotech Firm Concentration, (2004)

Bay Area Biotech firms

= 800

Bay Area Nanotech FirmConcentration, (2004)Bay Area Nanotech FirmConcentration, (2004)

7%5%

4% 4% 4%

9%

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 BusinessesBased on Its Capabilities and Lead in New Technologies the Region will Generate Jobs in Innovation and New Businesses

Global Integrated Management

Entrepreneurship/ New Business Creation

Research in Advanced Technologies

Cross-disciplinary Research

Product and Process Enhancement

Mass Production

Back Office Operations

Sustain/ Manage

Scale/Grow

Business

Startup/Businesslaunch

Idea Generation/ Conceptualization

Concept and Market Development

Large Semi and SW Companies Still Plan to Hire Locally

Large Semi and SW Companies Still Plan to Hire Locally

Bay Area

Other US

Rest of World

18%

39%

43%

Total Employment Distribution (2004)Total Employment Distribution (2004)

Bay Area

Other US

Rest of World

27%

38%

35%

Job ListingsDistribution (2004)

Job ListingsDistribution (2004)

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 Prospects Remain Strong in the Bay Area…

Research Job Listing for Large Bay Area Based EmployersResearch Job Listing for Large Bay Area Based Employers

38%

33%33%

13%13%

11%11%5%5%

29%

37%37%

9%9%9%9%

16%16%

Bay Area

Rest of US

Rest of the World

IndiaChina

• 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

Semiconductor Software

…However, Even in the R&D Value Chain Some Select Activities Are Migrating Offshore

…However, Even in the R&D Value Chain Some Select Activities Are Migrating Offshore

Research and Development Value ChainResearch and Development Value Chain

Concept Development

Requirements Definition

Design Validation

Prototypingand Product Development

Applied Research

Basic Research

= Expect to be increasingly offshored or outsourced

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

Keep In Mind, Offshoring is Also Creating New Types of Occupations

Remote project management capabilities are in high demand and can command a 25% premium

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.

Global Integrated Management Position ? Adobe Sample New Job Listing

Overall, Expect Bay Area Jobs to Change Based on The Competitive Position of the Region’s Capabilities

Overall, Expect Bay Area Jobs to Change Based on The Competitive Position of the Region’s Capabilities

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

• 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 Leading Capabilities

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

Key TakeawaysKey Takeaways

n Offshoring is not new, but rather a well established business practice

n Global trends are impacting regions and job markets

n The regional job profile is complex and requires understanding the business capabilities that drive it

n The Bay Area’s competitive capabilities and leadership in emerging technologies position it well for innovation and new business creation

n Overall, expect continued change in types of jobs, but net job creation to the Bay Area economy

n 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 Offshoring is not new, but rather a well established business practice

n Global trends are impacting regions and job markets

n The regional job profile is complex and requires understanding the business capabilities that drive it

n The Bay Area’s competitive capabilities and leadership in emerging technologies position it well for innovation and new business creation

n Overall, expect continued change in types of jobs, but net job creation to the Bay Area economy

n 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

The Economics of OffshoringAre Compelling

The Economics of OffshoringAre Compelling

Original cost base

Factor cost savings

Additional telecom cost

Additional manage-ment cost

Offshore location cost

Task reengi-neering

Process reengi-neering

New cost base

Task/process migration Task-level improve-ments

Process-level improve-ments

45-55% saving 30-40% savings on offshore cost base

100

6060--6565

55--1010 5545-55

55--771010--1515 30-35

California Has More Costly Labor, Energy, Tax Costs Than Neighboring & Manufacturing States*California Has More Costly Labor, Energy, Tax

Costs Than Neighboring & Manufacturing States*Index 100 = U.S. average (2002)

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

102.2

101.8

99.9

97.1

94.3

91.0

89.7

103.0

103.1

103.4

105.9

113.2

117.0California

Michigan

New York

Pennsylvania

Washington

Illinois

Nevada

Ohio

Arizona

Texas

Utah

Oregon

North Carolina

Total index

100.9

101.2

99.6

99.0

96.8

91.1

89.9

104.5

107.5

103.8

97.8

116.7

109.1

Unit labor cost**

115.0

99.1

102.4

96.8

72.6

80.1

86.4

101.2

78.0

109.3

132.5

102.6

160.9

Energy cost

93.1

110.5

97.9

82.5

108.7

106.4

92.8

95.0

107.8

91.9

126.8

103.3

110.0

Tax burden

0.33

* Estimate based on historical U.S. reemployment trends

The Real Economics of OffshoringThe Real Economics of Offshoring

• Taxes ($0.04)• Revenues

($0.20)• Local suppliers

($0.09)

. . . deliversvalue to India . . .

0.67

• Cost savings ($0.58)

• Goods/ services sold ($0.05)

• Profits from Indian ventures ($0.04)

. . . brings savings and returnsto U.S. . . .

1.45-1.47

. . . and makes the global pie that much bigger

0.45-0.47

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

$1 previouslyspent in U.S.,now offshored to India . . .

$1.00

0.45-0.47

0.05 0.040.58

1.12-1.14

0.67

U.S. Economy Generates Net Additional Value From Every Dollar of Spend Offshored

U.S. Economy Generates Net Additional Value From Every Dollar of Spend Offshored

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 countryto parent

Value potential to the U.S. from $1 of spend offshored to IndiaDollars; 2002

Total direct benefit retained in the U.S.

Value from U.S. labor reemployed** (conserva-tive 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.

Further value creation potential through• Increased global competitiveness of U.S.

business • Multiplier effect of increased national

savings

Further value creation potential through• Increased global competitiveness of U.S.

business • Multiplier effect of increased national

savings

Job Creation Will Outpace OffshoringBy A Wide Margin

Job Creation Will Outpace OffshoringBy A Wide Margin

22

-2

Employment, 2000-2010, Millions

Services jobs offshored

Net new jobs created

Financial capital

Physical Infrastructure

Quality of life

Tax and regulatory

Technology access

Skilled workforce

Foundations of the OffensiveFoundations of the Offensive

The California Power Crisis Will Cost The State More Than $56 Billion By 2013

The California Power Crisis Will Cost The State More Than $56 Billion By 2013

5.8

3.94.3

24.8

56.3

6.8

10.8

US$ Billions (2000 dollars)

* 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

PG&E Bankruptcy

SCE Bankruptcy

California DWR power procurement costs incurred*

CPUC Bankruptcy settlements

California DWR long term contract obligations (2004-2013)**

2003 power costs

2002 power costs

2001 power costs

Including the economic impact of consumer and business confidence and

the 2000 blackouts, the actual cost to the state is

even higher

9.9

8.7

6.5

5.45.8

3.8

2.7

6.9

The Risk of Future Shortages is High

* 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%

1 in 5 year

1 in 2 year

BAEF ESTIMATE

7% target = Stage One emergency level

• 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

August 2005 August 2006 August 2007 August 2008

Projected California state operating reserve margin*, Percent

5% target = Stage Two emergency level

Demand

Doctor’s Degrees ConferredUnited States

Non-Resident AlienAmerican Indian

AsianHispanic

BlackWhite

100

80

60

40

20

0

Percent

1976-19772000-2001