In Part 1, I discussed how the embrace of ‘free trade’ economic theory has become a form of intellectual malware leading to the widespread practice of offshore manufacturing of PCs, smartphones, tablets, servers, routers and the ‘internet of things’ by U.S. tech superpower executive management.
Additionally, as the U.S. high tech industry’s manufacturing ecosystem has declined, shedding millions of jobs, China has grown to enjoy a natural monopoly in contract manufacturing, locking in our leading tech superpowers to manufacturing dependency and a loss of innovation dNA, according to former Intel CEO Andy Grove. Boards of directors of U.S. tech superpowers would be wise to take steps to break this Chinese natural monopoly by revitalizing U.S.-based manufacturing, i.e. strategic sourcing for all categories of cloud devices.
In Part 2, continued below, I drill down on why continued dependence on China will become a major brand stumbling block for U.S. tech superpowers like Apple, Microsoft, Google, Cisco, Motorola, Dell and others.
2. Brand China is becoming a net negative with obscenely bad reputation equity.
At long last, as a result of Chinese-produced defective child’s toys, toxic fish, dangerous tires, and a long list of other things too numerous to mention, American consumers are getting wise to the fact that while ‘cheap’ sounds good, cheap and poison and dangerous may warrant a a second look at Brand China.
For example, in the high tech industry, Apple’s iPhone 4 ‘antenna-gate’ issue was “Made in China” by Apple’s prime contractor, FoxConn. FoxConn was forced to rapidly retool with expensive purchases of new equipment in order to fix the problem and enable Apple to regain some of the brand equity it lost in this incident. Clearly, getting it right the first time is not part of the Chinese offshoring value system.
But bad toys, bad fish, bad tires and bad iPhones are just the beginning of why U.S. high tech boards of directors would be wise to begin breaking the Chinese natural monopoly on high tech contract manufacturing and return to U.S.-based strategic sourcing. China’s arms buildup and its lack of military transparency along side it’s pre-disposition to be the capitol of global cyber-warfare just make it plain old ‘stuck on stupid’ for U.S. tech executives and their boards of directors to keep building their strategic products in China.
But it gets worse. China has historically used the withholding of its rare earth minerals as a strategic weapon against the West and Japan. By using a natural monopoly of a natural resource as a political weapon, China has telegraphed that it is the new high tech industry OPEC, and has no qualms about holding U.S. companies hostage. I think this is kind of what Don Corleone had in mind in the Godfather when he declared “I’ll make them an offer they can’t refuse.” Our Department of Defense is already looking at ways to break this dependency but it isn’t expected to happen any time soon.
But wait a minute you say. Rare earth minerals are not iPhones or iPads or PCs and you refuse to believe that China would do the same thing to U.S. high tech companies if they, i.e. China, wanted to capture a particular advantage? On what basis? The inherent morality of the Communist Party?
Well in that case let me remind you about TienAnMen Square in which the Party of Mao went even further, using tanks to crush the resistance of their own citizens engaged in peaceful protest.
Oh I forgot. You hadn’t heard about that because China blocks TienAnMen on their internet. What they haven’t been able to block is the fact that some of the young women who work in FoxConn’s factories end up committing suicide from overwork and stress, and that this came back to bite Steve Jobs in the butt, as this video demonstrates.
Maybe high tech supply chain execs ought to factor these points into their next 5-year plan to build the next generation of cloud devices in China. As we say in TechExodus, Offshoring our Future is Economic Suicide.
In Part 3, I’ll go into the role played by U.S. carriers like AT&T in fostering our dependence on Chinese offshoring.
Joseph E. Bentzel is the founder of TechExodus.Org, and is the author of the book “Asymmetric Marketing”.