02-25-2004, 04:38 AM
<b>Outsourcing controversy gets some VC input</b>
By Matt Marshall
Mercury News
Venture capitalists are finally starting to weigh in on the outsourcing controversy, with Silicon Valley's Vinod Khosla firing the opening salvo.
He and others are responding to the rising rhetoric of Democratic presidential candidates John Kerry and John Edwards, and others playing on voters' fears.
Edwards wants to rewrite the North American Free-Trade Agreement (NAFTA). Massachusetts Senator Kerry decries the ``Benedict Arnold CEOs'' who send jobs out of the country.
The media joined in the chorus, with CNN commentator Lou Dobbs crossing the line into advocacy last week, blasting free trade for having ``mindlessly led us to this point'' of ``exporting our wealth at an alarming rate.''
Calling for protectionist policies is an easy way to win votes in an election year but could be poisonous in the long-run: The U.S. economy depends on, and has benefited from, free trade. Silicon Valley's success in particular has been built on the free flow of investment, ideas and expertise. We have exported cutting edge technology products to other parts of the world and drastically reduced the costs of manufacturing those products with the input of labor all over the world.
Worried about retaliation
Venture capitalists are concerned that foreign countries could retaliate against protectionist measures by the United States and erect their own barriers to U.S. imports and investment.
Khosla, one of area's most successful capitalists with Kleiner Perkins Caufield & Byers, carries a lot of weight.
Speaking in Bangalore, a center of India's outsourcing boom, Khosla told Reuters that India should use the World Trade Organization to make sure that outsourcing falls under global rules about free trade. ``The WTO is about free trade,'' he said. ``It's important that some of these things that are important to us be part of those agreements.''
Khosla did agree with a proposal introduced Feb 12. by Senate Minority leader Tom Daschle to minimize the negative effects. The proposed law requires U.S. companies to give a 90-day notice when outsourcing jobs. It's ``a very good idea because it allows people who are affected in the United States to make alternative plans,'' Khosla said.
Khosla's comments follow a visit by U.S. Trade Representative Robert Zoellick to India last week, where Indian officials told Zoellick that a U.S. backlash against outsourcing could hamper Indian support for agreements on free trade.
90 percent savings
Tony Sun, venture capitalist with Venrock, agrees with Khosla. Given the politically charged nature of the debate, Sun says he wants to be careful about what he says. He sides, he says, with Alan Greenspan, who on Friday warned that protectionist cures could cause more harm than good if foreigners retaliate.
Sun continues: ``Protectionism is not good for the country in the long term, it has never been good, no matter how expedient in the short term.'' Sun believes U.S. workers should train for higher value-added jobs, especially in sectors that are difficult to outsource. Biotech is one such area, because of the deep expertise needed. ``We need to get away from the mindset that we can coast on our innovation,'' Sun says.
Sun has seen the writing on the wall. He invested in a San Jose company, Anda Networks, that claims to have reduced costs by about 90 percent by shifting employees to Wuhan, China. Anda provides Internet access to companies.
According to Chief Executive Charles Kenmore, Anda paid an average $125,000 to its 22 valley electrical engineers three years ago. That included benefits, and each worker had an average five years telecommunications experience.
Since then, Anda has let go all but eight of its employees here, and hired 60 engineers in China -- each paid an average $17,000, with similar education, but with more relevant experience -- seven years on average.
Their base salary is $13,500. Kenmore said part of the savings comes from hiring directly, and not contracting with an outsourcing firm. ``This model holds promise,'' says Kenmore.
By Matt Marshall
Mercury News
Venture capitalists are finally starting to weigh in on the outsourcing controversy, with Silicon Valley's Vinod Khosla firing the opening salvo.
He and others are responding to the rising rhetoric of Democratic presidential candidates John Kerry and John Edwards, and others playing on voters' fears.
Edwards wants to rewrite the North American Free-Trade Agreement (NAFTA). Massachusetts Senator Kerry decries the ``Benedict Arnold CEOs'' who send jobs out of the country.
The media joined in the chorus, with CNN commentator Lou Dobbs crossing the line into advocacy last week, blasting free trade for having ``mindlessly led us to this point'' of ``exporting our wealth at an alarming rate.''
Calling for protectionist policies is an easy way to win votes in an election year but could be poisonous in the long-run: The U.S. economy depends on, and has benefited from, free trade. Silicon Valley's success in particular has been built on the free flow of investment, ideas and expertise. We have exported cutting edge technology products to other parts of the world and drastically reduced the costs of manufacturing those products with the input of labor all over the world.
Worried about retaliation
Venture capitalists are concerned that foreign countries could retaliate against protectionist measures by the United States and erect their own barriers to U.S. imports and investment.
Khosla, one of area's most successful capitalists with Kleiner Perkins Caufield & Byers, carries a lot of weight.
Speaking in Bangalore, a center of India's outsourcing boom, Khosla told Reuters that India should use the World Trade Organization to make sure that outsourcing falls under global rules about free trade. ``The WTO is about free trade,'' he said. ``It's important that some of these things that are important to us be part of those agreements.''
Khosla did agree with a proposal introduced Feb 12. by Senate Minority leader Tom Daschle to minimize the negative effects. The proposed law requires U.S. companies to give a 90-day notice when outsourcing jobs. It's ``a very good idea because it allows people who are affected in the United States to make alternative plans,'' Khosla said.
Khosla's comments follow a visit by U.S. Trade Representative Robert Zoellick to India last week, where Indian officials told Zoellick that a U.S. backlash against outsourcing could hamper Indian support for agreements on free trade.
90 percent savings
Tony Sun, venture capitalist with Venrock, agrees with Khosla. Given the politically charged nature of the debate, Sun says he wants to be careful about what he says. He sides, he says, with Alan Greenspan, who on Friday warned that protectionist cures could cause more harm than good if foreigners retaliate.
Sun continues: ``Protectionism is not good for the country in the long term, it has never been good, no matter how expedient in the short term.'' Sun believes U.S. workers should train for higher value-added jobs, especially in sectors that are difficult to outsource. Biotech is one such area, because of the deep expertise needed. ``We need to get away from the mindset that we can coast on our innovation,'' Sun says.
Sun has seen the writing on the wall. He invested in a San Jose company, Anda Networks, that claims to have reduced costs by about 90 percent by shifting employees to Wuhan, China. Anda provides Internet access to companies.
According to Chief Executive Charles Kenmore, Anda paid an average $125,000 to its 22 valley electrical engineers three years ago. That included benefits, and each worker had an average five years telecommunications experience.
Since then, Anda has let go all but eight of its employees here, and hired 60 engineers in China -- each paid an average $17,000, with similar education, but with more relevant experience -- seven years on average.
Their base salary is $13,500. Kenmore said part of the savings comes from hiring directly, and not contracting with an outsourcing firm. ``This model holds promise,'' says Kenmore.