Why Fluor Is Building Expertise Abroad

CEO Alan Boeckmann says its engineering and design pros in Manila gives it an edge that wins business -- and keeps Americans at work

The competitive advantage from having design facilities in Manila, New Delhi, and Poland mean more work for the home office, says Flour's CEO Engineering-design company Fluor (FLR ) employs more than 500 engineers in its plant in Manila. Housed in a shimmering new office tower 20 miles south of the city center, young men and women manipulate 3-D computer designs of a petroleum refinery being built thousands of miles from the Philippine capital, in Saudi Arabia. This team will ultimately render 50,000 separate design drawings for this project.

Fluor, which is headquartered in Aliso Viejo, Calif., is serious about making its offshore offices an integral part of the company, and nowhere is that more obvious than in Manila (see BW Cover Story, 2/3/03, "The New Global Job Shift"). Engineers there recently completed their first full factory design -- for Procter & Gamble (PG ) -- and more sophisticated projects are in the works. Also, Fluor is sponsoring 18 engineering students in the Philippines, and last year it trained three professors at Central Philippine University in a team program on detailed design execution.

Alan Boeckmann, chief executive officer of Fluor, recently spoke with BusinessWeek Asia Correspondent Frederik Balfour about how his company is capitalizing on skilled and inexpensive Filipino workers to build its global integration into a core competency. Edited excerpts of their conversation follow:

Q: How long have you been outsourcing to the Philippines?


This is not a back-office effort of outsourcing, but very much an integration of our engineering and design office for major capital plants. Ninety five percent of our more than 500 employees in the Philippines are engineers. People in our network offices [New Delhi and Gliwice, Poland] are doing the same work as in London, the Netherlands, and Spain.

Q: What was the reaction when you started moving jobs offshore?


Clearly when we started, this was seen as a threatening move to employees in the U.S. and Europe. But in the last four years, we have developed it into a core competitive advantage. And it has created benefits through cost savings of 10% to 15% that get passed on to the clients. When I spoke to employees in Houston just after we had finished our yearend statements, we had just signed to do four new projects and hired more people in Houston. When I was challenged in Houston about why we continue to move jobs to Manila, I said we wouldn't have won those new projects without Manila.

Q: What's your staffing level now?


We're at about the same level as four or five years ago. Without Manila, Delhi, and Poland, we'd have a lot fewer employees -- [and we wouldn't have] the competitiveness and profitability they bring. And if you go back three or four years, salaries have increased 3% to 6% a year in the U.S.

Q: How do you divide work between the U.S. and Manila?


Suppose we do a refinery. The conceptual design and layout is done in Houston or California or London. We integrate that work to do detailed design: layout of the foundations, steel, configuration of power and control schemes.

Technological advances make integration easier all the time. Before, we had to do design reviews in real time on conference calls with both sides using a set of drawings. Now we use Web-enabled meeting processes where we can share design and drawings in a dynamic sense.

Q: What do you look for in U.S. job candidates now?


We look at "people skills" now, whereas five years ago we focused [more] on the technical side of the equation. A second language like Spanish or Chinese is highly desirable, as is a willingness to travel.

Cultural sensitivity is very important. Different things drive people in different cultures. The Philippine culture is very team-oriented -- the employee doesn't like to stand out. They get nervous when you reward them as individuals, so rewards in Manila are more [about the group]. In India, it's the opposite.

Q: What are new U.S. hires doing?


Their starting point may be project management, cost engineering, and factory inspection instead of starting on the design board or design terminal.

Q: What work will migrate to the Philippines in the future?


Plans are already in place...for doing conceptual design for petrochemical and oil-and- gas facilities, with guidance from Europe and the U.S. We are nearing the point where total responsibility for design of a [oil-and- gas] facility can be housed in the Manila office.

We already did the full design in Manila for the Procter & Gamble [detergent factory] -- the first time the full design has been done in the Philippines. A straight-forward refinery or power plant -- we're a year or two away from doing that. Architecture work is done mainly in the U.S., [but] that's an area we could develop in Manila.

Q: How much do these workers make?


We tend to keep it private for competitive reasons. The salaries there are extremely competitive within the Philippines. We pay a pretty good premium.

Q: How prepared are Filipino graduates?


Front-end conceptual design requires a fair amount of direct, on-the-job, and industry experience in addition to a very solid academic background. They have to have the technical background, and this is not something taught in the course curriculum. For the design of our piping facilities [on the Saudi project] we have developed Philippine engineers who are world-class.

Q: What about China?


We are doing a fair amount in China. We have formed alliances with design institutes affiliated with the Ministry of Industry. We don't have our own engineering design facility -- we work through design institutes and are looking at opportunities for forming design companies or working with indigenous Chinese companies or with joint-venture partners.

Edited by Patricia O'Connell

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