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Tech Manufacturing Is a Disaster Waiting To Happen 224

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, 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.

  • "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.
  • One Location (Score:5, Interesting)

    by EmagGeek ( 574360 ) <(gterich) (at) (> 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).

  • Re:China (Score:5, Interesting)

    by benjfowler ( 239527 ) on Monday June 25, 2012 @08:32AM (#40437405)

    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". []

    To be fair, it's no worse than our own feral and out-of-control overclass here in the West.

  • 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.

  • by Anonymous Coward on Monday June 25, 2012 @08:40AM (#40437473)

    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...

  • 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 bws111 ( 1216812 ) on Monday June 25, 2012 @09:47AM (#40438015)

    It is pointless to just look at those decades. Between the Great Depression and WWII, there were 15 years where nobody bought anything. By the end of WWII there was a huge pent-up demand for things. Add in all of the people now wanting to start a family, and you have even more demand for housing, cars, furnishings, clothing, appliances, etc. Now add in the fact that people were coming back from the war with money, and people were willing to give cheap credit, and you have a huge manufacturing boom.

    However, a lot of the seeds of a future downturn were sowed during that time. For instance, steelworkers, angry that their wages were frozen by the government during WWII, even though the company made a ton of money, staged a lengthy strike to force the companies to give them their due. While in the short term they were successful, in the long term they failed miserably. The long strike forced customers of the steel companies to get steel from elsewhere (like Asia), and they found that while the quality was not very good, it was incredibly cheap. As time went on, the price of steel manufactured in the US kept going up (due to the contracts that ended the strike), and the Asians got better at making steel. As a result, all of the customers switched to Asian steel, and the US steel companies either ceased to exist altogether, or are only a small fraction of what they used to be.

    Lastly, things like environmental laws (which did not exist until the 1970s) have a huge impact. In the US, when an electronics manufacturer pollutes the groundwater, they are made to clean it up, and a huge cost. No so everywhere else in the world.

  • Re:Floods (Score:5, Interesting)

    by wisty ( 1335733 ) on Monday June 25, 2012 @09:58AM (#40438127)

    People who work in risk reduction joke about man-made natural disasters.

    The 2008 Sichuan earthquake was natural, but the quality of buildings may have contributed to the death toll. Katrina was natural, but the government response was pathetic (perhaps in a neo-liberal attempt to show how useless governments are). Anything climate change related would be both natural, and man-made.

  • 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 dbIII ( 701233 ) on Monday June 25, 2012 @10:19AM (#40438343)

    The long strike forced customers of the steel companies to get steel from elsewhere

    Oddly enough in a post above (about protectionism) I pointed to protectionism as being the reason US steel companies were so complacent and failed to compete - it's the textbook case for that - but here I see you using it to blame those greasy working class people or something!
    I suggest you look into the barriers to importation of steel into the United States so that you can learn that your above anecdote is nothing but partisan bullshit. Call me whatever names you like in return - I'm one of those nasty foreign people that was making steel that the company I worked for wanted to export to the USA in the early 1990s but couldn't.

In English, every word can be verbed. Would that it were so in our programming languages.