Gates warns against reliance on outsourcing

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June 29, 2005 (IDG News Service) -- TOKYO -- Companies should not outsource their core business functions and staff, Microsoft Corp. Chairman and Chief Software Architect Bill Gates told a group of Japan's top businessmen today.
Gates, who was speaking at the Nippon Keidanren (Japan Business Federation), Japan's biggest and most influential business group, urged IT companies to beware of outsourcing too much to save costs and to keep their key engineering resources and intellectual property at home.
"If you rely too much on people in other companies and countries ... you are outsourcing your brains, where you are making all the innovation," he said.
The need to maintain a competitive edge by investing rather than cost-cutting was a theme that Gates returned to several times in an address to a group of leading Japanese IT and consumer industrialists that included Hajime Sasaki, chairman of NEC Corp., and Tadashi Okamura, chairman of Toshiba Corp., both of whom had front-row seats.
Too many U.S. companies were cutting their research and development budgets at a time when investment in these areas is needed to cope with an increasingly competitive global market economy, he said.
At a national level, both the U.S. and Japan need to train more and better engineers if their economies are to stay at the cutting edge of technological innovation, which would create value that helps support both countries' high standards of living, he said.
Gates cast the U.S. and Japan as competing in a global market economy that had grown from about 1 billion people 20 years ago to 4 billion people. In this expanded, increasingly competitive economy, India and China are training engineers who are driving their economies forward, yet Japan and the U.S. aren't keeping up, he said.
"The number of students in engineering and IT is going down. ... Staying ahead means setting a very high bar," Gates said.

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