Here is an interesting story in today's New York Times -- Asian Computer Makers Move Into Riskier Ventures:
As the article notes, this view depends on a division of labor concept rooted in the industrial Tayloristic/Fordist model. There are thinkers and there are doers, so the theory goes. And the two can be separated. On the global level, this means there are some countries that manufacture and there are some countries that do research and design. It is just the natural order of things.
That view suffers from two fatal flaws. First, there is no reason to believe that countries who have been the low cost manufacturing sites want to remain that way. This lesson was driven home to me 25 years ago when I was doing a small study of manufacturing in Singapore. It was clear from my discussions of plant managers and policymakers that they were headed in to higher-value added - so much so that the plant managers were already complaining that all their engineers wanted to switch from manufacturing to chip design.
Second, the links between parts of the value chain are stronger than most believe. The lesson was also driven home over 25 years ago when I was doing a study on high-tech plant locations. I started off the study asking what turned out to be a naive question: why did you put your plant here. Wrong question I was told. The real question, they replied, is where am I going to put my second plant. Because, they said, it is self evident that my first plant needs to be next to my research facilities. Many of us have been concerned that this linkage works the other way as well: research facilities will find that they need to be near the key manufacturing plants.
That concern is grounded in a study of the migration of the laptop industry to China and Taiwan (see earlier posting). First production moves. Then activities related to production, such as testing, move. Then activities higher up the process but still related to production, like prototyping, move. Then activities related to those activities, like design, move. And then activities related to those activities, like R&D, move.
Of course, the shift doesn't necessarily follow this linear progression. In some case, R&D has shifted because of growing resources (talent, facilities, funding) in other nations. But the linkages between various parts of the production process are becoming tighter as the business models move away from mass production to customized solutions.
Yet the old idea of "we as thinkers" and "them as builders" persists. As Keynes warned us, those whisperings of old dead thinkers still remain.
For years, the process remained relatively static: PC makers like Hewlett-Packard and Apple, with well-staffed research labs and design departments, would dream up their next product and then hire a Chinese or Taiwanese fabricator to manufacture the largest number of units at the lowest possible cost.My only question is why anyone would be surprised by this. We have seen the trend of countries moving up the value-added ladder for years -- decades. Yet, through out the past few decades, there has been a myopic view of the structural change of the global economy. That myopia is summarized in the article as well:
But lately, this traditional division of labor has been upended. Many of those Asian companies have moved well beyond manufacturing to seize greater control over the look and feel of tomorrow's personal computers, smartphones and even Web sites.
The investment arms of large Taiwanese and Chinese manufacturers have created an investment network in Silicon Valley operating under the radar that pumps money into a variety of chip, software and services companies to gain the latest technology. As a result, some Asian manufacturers have proved more willing than entrenched Silicon Valley venture capitalists to back some risky endeavors.
As manufacturing of electronics in the United States began moving offshore decades ago, some feared the American economy would suffer. But the American companies, as well as economists and policy makers, said that as long as the high-value jobs like research and design remained in the United States, there was little danger.Wrong, wrong,wrong wrong!
As the article notes, this view depends on a division of labor concept rooted in the industrial Tayloristic/Fordist model. There are thinkers and there are doers, so the theory goes. And the two can be separated. On the global level, this means there are some countries that manufacture and there are some countries that do research and design. It is just the natural order of things.
That view suffers from two fatal flaws. First, there is no reason to believe that countries who have been the low cost manufacturing sites want to remain that way. This lesson was driven home to me 25 years ago when I was doing a small study of manufacturing in Singapore. It was clear from my discussions of plant managers and policymakers that they were headed in to higher-value added - so much so that the plant managers were already complaining that all their engineers wanted to switch from manufacturing to chip design.
Second, the links between parts of the value chain are stronger than most believe. The lesson was also driven home over 25 years ago when I was doing a study on high-tech plant locations. I started off the study asking what turned out to be a naive question: why did you put your plant here. Wrong question I was told. The real question, they replied, is where am I going to put my second plant. Because, they said, it is self evident that my first plant needs to be next to my research facilities. Many of us have been concerned that this linkage works the other way as well: research facilities will find that they need to be near the key manufacturing plants.
That concern is grounded in a study of the migration of the laptop industry to China and Taiwan (see earlier posting). First production moves. Then activities related to production, such as testing, move. Then activities higher up the process but still related to production, like prototyping, move. Then activities related to those activities, like design, move. And then activities related to those activities, like R&D, move.
Of course, the shift doesn't necessarily follow this linear progression. In some case, R&D has shifted because of growing resources (talent, facilities, funding) in other nations. But the linkages between various parts of the production process are becoming tighter as the business models move away from mass production to customized solutions.
Yet the old idea of "we as thinkers" and "them as builders" persists. As Keynes warned us, those whisperings of old dead thinkers still remain.
Leave a comment