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Tech Manufacturing Is a Disaster Waiting To Happen
Hugh Pickens writes "Peter Cochrane writes that since globalization took hold, geographic diversity has become distorted along with the resilience of supply so we now have a concentration of limited sourcing and manufacture in the supply chain in just one geographic region, south-east Asia, amounting to a major disaster just waiting to happen. 'Examples of a growing supply-chain brittleness include manufacturers temporarily denuded of LCD screens, memory chips and batteries by fires, a tsunami, and industrial problems,' writes Cochrane. 'With only a few plants located in south-east Asia, we are running the gauntlet of man-made and natural disasters.' Today, PCs, laptops, tablets and smartphones are produced by just 10 dominant contract manufacturers, spearheaded by Foxconn of Taiwan — which manufactures for Apple, Dell, HP, Acer, Sony, Nokia, Intel, Cisco, Nintendo and Amazon among others. The bad news is that many of the 10 big players in the IT field are not making good profits, so economic pressure could result in the 10 becoming seven."
You forgot to mention floods, like what happened in Thailand last year, and could possibly happen again this year.
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This is precisely why my company does R&D and Manufacturing in the same location - right here in South Carolina. If we have a manufacturing problem, I can take a walk to the other side of the building from my office in R&D and help them fix it - right now.
No waiting for a convenient time for a world-wide conference call where nothing gets done and my instructions are misunderstood by someone who doesn't speak much English.
It's all coming back to this, now. My previous employer did the globalization experiment and realized it is a miserable failure. But, they couldn't abandon it because of the "religion" of globalization. Guys who graduated Harvard Business School with a Masters in Excel Spreadsheets infect the boards of large companies and insist that globalization results in higher profits, and it doesn't.
We make so much money it's almost disgusting. I have a pretty much unlimited budget for lab equipment and investigatory activities, and we engineer some pretty awesome stuff as a result of having the time and money. The 15 hours/week I _don't_ spend on frustrating conference calls with Asia is time well-spent inventing Cool Stuff(TM).
China is ALREADY full-blown klepto. They have a major deep-seated cultural problems where their only morality is getting rich, no matter how much damage they cause or how many people they hurt.
See a recent article on the Bronte Capital blog, "The Macroeconomics of Chinese Kleptocracy".
http://brontecapital.blogspot.co.uk/2012/06/macroeconomics-of-chinese-kleptocracy.html
To be fair, it's no worse than our own feral and out-of-control overclass here in the West.
It's almost an irrelevant question as the real reasoning behind it means that a CEO can put more money in his/her pocket. The entire decision process is about how much money they can get their fat greedy paws on RIGHT NOW. The fact that it could all fall down tomorrow doesn't come into the equation. This is yet another corporate culture problem.
Well said and accurate.
Further examples are becoming painfully obvious by observing--
- The term of many CEOs, and other executives, particularly hi-tech
- The so called "golden parachutes" that many receive
- The fixation with stock market values to the point that they have more to do with the weather than the financial health of a company
The incentive structure for executives is tied to stock prices today, the theory being that:
- A financially healthy and well run company has an appreciating stock price
- Stocks are longer term investments, so it creates an incentive to build a long term profitable company
But we've got the whole thing distorted now...