The Jobless Recovery Is "Understandable"


Scott Kriens is CEO and chairman of Juniper Networks (JNPR), the No. 2 maker of big networking routers used by phone companies and other carriers to move Internet traffic. Like market leader Cisco Systems (CSCO), Juniper has long used the Internet in its own operations to hold down expenses -- to efficiently work with the contract manufacturers that build its products and to streamline the daily dealings of its own employees with suppliers, customers, and each other.

The Sunnyvale (Calif.) company is on a roll, having increaed revenues 28% in 2003, to $701 million. But it has done so without adding many jobs. As of Dec. 31, Juniper employed 1,553 people, an increase of just 11 workers from the year before. BusinessWeek's Peter Burrows spoke with Kriens recently about what remains a strikingly jobless recovery and how long businesses can hold off before hiring new workers. Here are edited excerpts from their conversation:

Q: Where are the jobs? At this point in the economic recovery, shouldn't we be seeing more being created?

A: I would say that there's still "cautious optimism" out there. To me, what I think that means is that there's optimism about revenue growth -- and caution about spending [those revenues].

Q: But what about all the outsourcing of jobs? Isn't that part of the explanation, too?

A: Yes, this is happening at a time when the outsourcing thing is getting a lot of attention -- quite legitimately. But the issue is far more complex than the conclusion being drawn. If there were no offshoring taking place, we would still not have the big jobs recovery. We've all as a country suffered the consequence of spending that wasn't supported by sustained growth. People aren't going to forget that overnight, at the first sign of recovery.

Q: But certainly every job that goes overseas is a job an American doesn't get.

A: Of course. I'm not saying there wouldn't be more job growth. But if you removed offshoring altogether, there would still be a lag between economic growth and job growth. People are attributing all of [the concern about the lack of new jobs] to offshoring, when much of it's due to an understandable caution by corporations.

Q: Are you hiring?

A: We're hiring overseas, in several countries around the world, as well in Silicon Valley. I must say that Silicon Valley still represents the central nervous system of innovation. The fact that more jobs are moving offshore doesn't change that.

Q: So do you think we will begin to see jobs being created in the future, as companies harvest the productivity gains possible with technologies such as Juniper's?

A: We're clearly in phase three of the global economy. The first involved cheap labor, the second involved low-cost manufacturing, and now it's affecting white collar and some technical professionals. But the answer to this challenge is the same as the answer to the prior two phases: To move up the food chain. In other words, find new, more innovative, valuable jobs to do that can't be done by offshoring.

Q: Is Juniper outsourcing new kinds of jobs overseas?

A: We're now doing lots of software development overseas, including some entire projects. It used to be just test and bug-fixing and maintenance engineering. Now, there's so much competition and talent offshore that it's possible to do entire projects. But again, that doesn't replace the leverage available in the U.S. -- the capital structure, the risk willingness, the willingness by investors to reward effort as much as outcome. It's as much about the culture and the psychology and the financial aspects as it is about the pure technical skills. And that's not going to change any time soon.

Q: So what kind of jobs will be created, ultimately?

A: The next wave of impact will be in how we use technology. Today, we use about 10% of the potential of the network technologies that we deploy. Using the rest of it for improving our businesses and our lives is the next frontier. Jobs will always be created where the use [of a technology] takes place...remember that the U.S. is 12th in the world in broadband deployment on a per-capita basis. As long as we're developing broadband technologies and shipping them to 11 other countries before getting around to using them ourselves, it's not surprising that the jobs surrounding the use of that technology are elsewhere as well.

Q: Juniper has long farmed out production of its routers, but I understand the products are built in the U.S. [rather than by the Asian contract manufacturers that are doing more and more high-tech production.] Is that right?

A: They're manufactured in two places, actually: Wisonconsin and Canada. That's because we invented the technologies inside our products, they're not just chosen off the shelf. If we were doing commodity products, you can afford to ship it overseas [because companies there are familiar with commodity parts, but not Junipers' technologies]. So it's not that we just haven't gotten around to going offshore yet. We've studied it, and it doesn't make sense for us.


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