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Tech Manufacturing Is a Disaster Waiting To Happen 224

Posted by timothy
from the to-be-fair-so-is-everything-else dept.
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."
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Tech Manufacturing Is a Disaster Waiting To Happen

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  • Floods (Score:5, Interesting)

    by Megane (129182) on Monday June 25, 2012 @08:08AM (#40437229) Homepage
    You forgot to mention floods, like what happened in Thailand last year, and could possibly happen again this year.
    • Re:Floods (Score:4, Insightful)

      by alphatel (1450715) * on Monday June 25, 2012 @08:13AM (#40437259)

      ... and could possibly happen again this year.

      OR will inevitably happen as long as there is a method for corporations to profit more from disaster than from manufacturing.

    • Re: (Score:3, Insightful)

      by Anonymous Coward

      Yes. Considering the timing and impact that had on storage pricing, it is surprisingly absent from the summary.

      • Re:Floods (Score:4, Interesting)

        by Skuto (171945) on Monday June 25, 2012 @08:16AM (#40437281) Homepage

        There's been quite some evidence mounting that most of the (continuing) price hike cannot be explained by the disaster itself.

        • Re:Floods (Score:5, Insightful)

          by AngryDeuce (2205124) on Monday June 25, 2012 @08:23AM (#40437343)
          You mean *gasp* it could have just been plain old fashioned greed and profiteering?!?! Well, knock me over with a feather!
          • by Mabhatter (126906)

            No, prices rose because of the shortage... But customers continues to PAY rather than waiting it out, so that means the price was too low.

            As the price of HDD went up, that left a gap for SDD to squeeze in. Most companies have horses in both races so they don't mind.

            More importantly, as profit margind start to build up, that opens the door for people to get in the game.

            In the case of the article, we need another few disasters to happen so that it's PROFITABLE to open computer hardware facilities elsewhere. T

        • Yeah, but it served as the excuse for the initial price hike.

        • by nedlohs (1335013)

          Of course not, that's how capitalism is supposed to work (doesn't mean it works in practice al the time of course).

          HDD prices are now higher providing an incentive for another player to enter the market with manufacturing outside that geographic area (or one of the existing players to bring up some manufacturing there).

          Higher prices make is economically feasible especially considering the payoff bonus of that region gets flooded again.

          • Re:Floods (Score:5, Funny)

            by SlippyToad (240532) on Monday June 25, 2012 @09:02AM (#40437657)

            Of course not, that's how capitalism is supposed to work

            Well, when someone gets capitalism working would you please let us know?

          • Re:Floods (Score:5, Insightful)

            by ivoras (455934) <ivoras&fer,hr> on Monday June 25, 2012 @09:21AM (#40437781) Homepage

            HDD prices are now higher providing an incentive for another player to enter the market with manufacturing outside that geographic area (or one of the existing players to bring up some manufacturing there).

            Higher prices make is economically feasible especially considering the payoff bonus of that region gets flooded again.

            ...except if you have external factors such as patents which effectively prohibit anyone truly new entering the industry ever again...

            • by medcalf (68293)
              Truly, but in that case it's no longer a free market. It is a market controlled by the government. Frequently, this is done via cartels, of which excessive patent/copyright protection and licensing requirements are but two examples among many causes.
          • Re: (Score:3, Insightful)

            by Anonymous Coward

            Of course not, that's how capitalism is supposed to work (doesn't mean it works in practice al the time of course).

            We are pretty good at knowing when capitalism is going to fail, but that doesn't stop many people from trying to make it work. Free Market is the new religion, barely understood but used as a trumpet to replace understanding.

            If the customer cannot delay purchase indefinitely, no free market is possible. This is why healthcare, electricity, food, and water often fail to react in a free market manner.

            If the customer cannot be fully informed of all the purchasing possibilities, no free market is possible. T

    • Stimulus (Score:5, Interesting)

      by sycodon (149926) on Monday June 25, 2012 @08:36AM (#40437445)

      If you absolutely HAD to spend billions in stimulus money, this situation would be perfect. Create a consortium with the major manufacturers and have the feds build a memory/hard drive/LCD plant(s) here in the states, absorbing all the capital costs (a pittance, compared to the over all stimulus bill).

      The consortium would run the plant(s) and probably be competitive with overseas plants because they won't have the burden of the initial capital costs.

      Of course, details, details, details but this approach would make sense in many industries.

      • Re:Stimulus (Score:5, Interesting)

        by CastrTroy (595695) on Monday June 25, 2012 @09:05AM (#40437679) Homepage
        Yeah, but that kind of gets everyone else in a huff, and complaining about free trade and stuff. The American's were boycotting Canadian lumber because the Canadian rules are different. Because the logging companies didn't have to pay (more than an administrative fee) to log the land, whereas in the US, they auction off the logging rights to the highest bidder. If you start government-subsidizing large parts of your industry, then other countries might not like this. Granted the US would probably be able to sell a lot of tech products within it's own borders, but dumping a ton of money into industry can be against trade negotiations with other countries.
        • by dbIII (701233) on Monday June 25, 2012 @10:02AM (#40438181)

          If you start government-subsidizing large parts of your industry

          Like sugar, steel and automotive manufacturing for instance? The "start" happened a while ago, and each of those industries I've mentioned have suffered or caused problems that are directly due to them being protected. Uncompetitive steel prices moved manufacturing offshore, a protected car industry produced almost unsellable crap even when overseas branches of the same companies were making quality designs and local sugar priced itself out of the market so the USA got twice as fat on corn syrup as it would have on sugar.
          It's not just about getting others upset. It's about shooting yourself in the foot.

          • by sycodon (149926)

            I don't think you can strictly call it government subsidies.

            One way to look at it would be to get rid of government road blocks...permits, studies, applications, etc. All the crap you have to go through to build a large manufacturing plant.

            You could also make an argument that government policy has raised the cost of U.S. labor. This would actually be a negative subsidy.

            So if you offset the burdens imposed by the government, is that a subsidy?

          • by GodfatherofSoul (174979) on Monday June 25, 2012 @10:56AM (#40438785)

            Libertarian nonsense. When you remove the trade protections, that is what causes your manufacturing base to move overseas. We can't possibly compete with a company in Asia that's willing to forgo environmental rights, worker rights, and human rights. Now, if you think sweatshop conditions are simply "good business" if you can find some saps desperate enough to endanger their lives and health for peanuts, then you are correct.

        • by sycodon (149926)

          As I said...Details.

          But how is the low wages due to lack of labor laws and such differ from the lower cost due to no capital costs to deal with. Both are the result of government policy.

          Plus, it could be argued that this kind of action is strategic in nature, to guarantee the ability to continue to manufacture products essential to the economy. Throw in self defense if you want.

          But I'd much rather have this policy discussion rather than frittering away billion and billions (apologies to Carl Sagan) on finan

        • Re:Stimulus (Score:5, Interesting)

          by boristdog (133725) on Monday June 25, 2012 @10:16AM (#40438301)

          Yeah, but that kind of gets everyone else in a huff, and complaining about free trade and stuff

          I'm sure if Obama does it the republicans will conveniently forget that Reagan did the same thing. I used to work for a tech consortium that was formed under Reagan's aegis, and I'm a member of another. But if it's done now, it will be socialism.

          Where I worked we even had a whole division that sent someone to Japan every month to buy samples of all the latest electronic gew-gaws. Then we'd tear them apart. And let me tell you, if you think any gadget or feature is "new" in the USA, I can guarantee they've had it in Japan for 5 years. I laughed my ass off when everyone was saying how "new" and "revolutionary" the Iphone was. I had seen similar phones for years from Japan.

        • by Mashiki (184564)

          The American's were boycotting Canadian lumber because the Canadian rules are different. Because the logging companies didn't have to pay (more than an administrative fee) to log the land, whereas in the US, they auction off the logging rights to the highest bidder.

          That's not really true in Canada. Logging companies have to return logged areas to their natural state when they're finished logging the land per the law. Which can be expensive depending on the area. This also applies to things like oil/tar sands mining, lime(for concrete) and other things.

          But just remember, NAFTA is not free trade. It's fair trade, if it was free trade. We'd see what we see between states and provinces. No damn busy bodies getting their panties in a knot over wood being shipped acro

    • Re:Floods (Score:5, Informative)

      by Zero__Kelvin (151819) on Monday June 25, 2012 @09:18AM (#40437751) Homepage
      Floods were not forgotten. You simply didn't follow the link [slashdot.org]. In fact you could have just hovered over it, and you would have seen that the word flooding is the first word in the article the link points to.
    • Re:Floods (Score:5, Funny)

      by wisty (1335733) on Monday June 25, 2012 @09:54AM (#40438091)

      You forgot to mention floods, like what happened in Thailand last year, and could possibly happen again this year.

      But ... if you're outsourcing it shouldn't matter, because you don't carry the risk anymore. It all comes from the cloud, and you can instantly switch to another supplier.

      (Obligatory xkcd comic - http://xkcd.com/908/ [xkcd.com])

    • by citizenr (871508)

      You forgot to mention floods, like what happened in Thailand last year, and could possibly happen again this year.

      That flood was GREAT for business. Both WD and Seagate got record profits out of it.

  • Problem is less of South East Asia, and more w/ China. When China's bubble bursts - and it's a 'when', not 'if', everybody in the world who shovelled their manufacturing there b'cos it is cheap are going to have a major meltdown in their hands.

    B/w that and the jobs situation everywhere else, equilibrium will be achieved b/w what companies can afford, and what employees need.

    • by khallow (566160)

      When China's bubble bursts - and it's a 'when', not 'if', everybody in the world who shovelled their manufacturing there b'cos it is cheap are going to have a major meltdown in their hands.

      That's not necessarily so. A recession would mean cheaper capital and labor which is an advantage for export oriented businesses. A meltdown due to the Chinese government going crazy and/or klepto could drop those businesses in their tracks.

  • Globalisation (Score:2, Insightful)

    by Anonymous Coward
    Not just technology, this is more a phenomenon of globalisation if you ask me. The consumer is willing to save 3.2% on something at a macroeconomics level in spite of it's own industries because the apparent value on diversity in the supply chain and having local within-jurisdiction industry is practically zero. I'd love for someone to show me otherwise though as it's depressing.
  • "Disaster" (Score:4, Interesting)

    by ciderbrew (1860166) on Monday June 25, 2012 @08:23AM (#40437341)
    People not being able to get the latest TV / MP3 / phone / iwhatever isn't a disaster. It would be bad for business and I can see how the resulting unemployment will be awful for those people; but they'll have lost more than that locally should this happen. So apart from the Disaster that causes the "disaster" I don't think I'll worry too much.
    I recall something about putting all eggs in one basket being a bad thing.
    • Re:"Disaster" (Score:4, Insightful)

      by betterunixthanunix (980855) on Monday June 25, 2012 @08:31AM (#40437395)

      People not being able to get the latest TV / MP3 / phone / iwhatever isn't a disaster

      This. Right now, tech manufacturing is feeding the demand to do things like upgrade computers and phones every 18 months. We need to get used to the idea that the existence of a faster CPU with more cores does not imply a need to have one.

    • Fun fact: Healthcare, government, infrastructure, power, water, etc all rely to some degree on these technologies. If a local disaster wipes them out for any serious length of time, the effects will trickle globally in very bad ways.

      • by DarkOx (621550)

        Fair enough but it isnt as if an individuals or an industry for that matter needs change that rapidly. Wants and perhaps efficiencies do but not needs. There is 0 things I can think of need'ing to do with my PC that was not possible with my first PC AT. There are lots of multi-media type stuff I 'like' to do but nothing I 'need' that could not be effected with that old AT.

        People would be able to get by just fine with the tech they have for years. When things start failing they most likely could still be

    • by Kjella (173770)

      Yup, in case of a real disaster how many old usable computers and TVs could we find lying around? I could probably have a dozen crappy old cell phones in a day if I just asked around the office if they got any lying around. It's starting to get fewer and fewer companies but most companies are at least a little bit geographically distributed.

  • This could probably be chalked up as being deliberate, judging by the standards of our current power structures. When everything collapses, the rich and powerful will find ways to concentrate and extend their power even further. While not having to starve while the rest of the population does, of course. I mean, it is a reasonable possibility that some current wars are fought to fuel the military industrial complex, so an economic collapse to gain power seems plausible to me.
    • by jd (1658)

      A marginally more realistic, but just as paranoid scenario: If everything's made in one region, there's essentially one gateway and therefore anyone interested in rigging the market value need turn but a single tap.

      Alternative: If everything's made in one place, with few-to-no fab plants elsewhere, then one region has ALL the expertise and experience. The lack of alternatives mean that the manufacturers can dictate R&D and the future direction of the markets. Once skills elsewhere have rusted sufficient

  • One Location (Score:5, Interesting)

    by EmagGeek (574360) <gterich@aoMONETl.com minus painter> on Monday June 25, 2012 @08:26AM (#40437367) Journal

    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).

    • by PPH (736903)

      Until you want to sell into the Chinese (or Indian, or whatever) markets. They will require that you move some of your engineering and manufacturing to one of their local manufacturers.

      Turn this around and see if that would work here: WalMart, if you want to sell products in the USA, you'll have to do some of your manufacturing here. Actually, this does occur in the auto industry. Toyota, BMW and others build vehicles for the US market in the US. But this was done to get around protectionism originally int

  • Willingness to pay (Score:5, Insightful)

    by Jazari (2006634) on Monday June 25, 2012 @08:28AM (#40437373)
    Redundancy costs money. So the real question is: "Are customers (consumers) willing to pay?"
    Or perhaps a better idea is: You will pay either way. Chose: (1) Pay money now for redundancy and a guarantee of supply; or (2) "Pay" later through the unavailability of products.
  • by aisnota (98420) on Monday June 25, 2012 @09:29AM (#40437865) Homepage

    The Marianas Trench [wikipedia.org] is just east of Shanghai along with Taiwan plus even Japan.

    Pacific Rim countries are going to be continuously in the threat corridor of Tsunami risk [wikipedia.org] area because of that trench and many others from Chile [wikipedia.org] to the Aleutians [wikipedia.org] at the northern edge near Alaska and Siberia.

    Walmart actually though is the first company that such a Tsunami hit reaches the stock price. More than high technology, the trade curtailment from the one port most likely to sustain or protected is Hong Kong. But that port alone cannot handle the volume of China. Nor can we assume that it will be totally protected by such an event despite the natural level or protection being higher than most world ports.

    The port of New York is also another one of concern with La Palma [wikipedia.org] off the west African coast potentially creating a 30 meter wave that would inundate the United States east coast is a geologically proven. [wikipedia.org]

  • Stuff like that is happening already. Look at hard drives.

  • China wants Taiwan back. If they chose to invade Taiwan what exactly could we do about it? Iran type embargo? It'd collapse our economy worse than the great depression. We are totally dependent on China for not just tech products but everything from food and clothing to furniture. It'd be hard for them to make a grab for all of southeast Asia because they need us as well but they are in a position to make certain grabs and we'd have to keep our mouths shut or at the most symbolically rattle some sabers.
    • by MaWeiTao (908546)

      There's no reason whatsoever for China to invade Taiwan. The only scenario in which I'd see that happening is if China were to collapse economically and the government were desperately trying to rally the people behind a cause. But Taiwan and China are too economically dependent on each other for any of this to come to pass outside of a nightmare scenario.

      I don't see the US having the will to defend Taiwan, but they probably would be forced to. By the time it got to that point, however, we would have long

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