|Economic and political leaders in Asia met in Pudong this week to discuss stimulus programs due to the continued decline of their markets in the U.S. and Canada and discussed ways to reinvigorate the consumer and business economies.
Sound like a farfetched article? Not if you look at the mega trends:
- The WTO stated that "by 2004 China would pass the US in terms of inward investment". That's their own cash, ladies and gentlemen, invested in their own businesses, not relying on western investments.
- WTO stated, "By 2040 China will be the worlds largest economy".
- Estimates by both SAI and isuppli state that by the year 2004, 70% of the electronics industry manufacturing capacity will be in Asia.
- China produces ten math and sciences majors for every one from the US.
- India produces five computer sciences majors for every one in the US.
- When high tech goes the way of other American industries like textiles, die making and machining etc, this will not only mean a loss of the manufacturing prowess, which executives seem not to care about, but also jobs, which politician used to and should care about.
- Though there are disputes on China and India economic growth, the range of is between 4%-7%, the U.S. economy only grew by .2%, in 2002. And last quarter, debates between economists argued whether the US economy actually contracted.
- While high tech headcount, like software developers declines in the US, in India headcount grew at about 8%.
- India's software development costs are one third of the US. So, your best software firms and major system integration houses have major development centers or have headquartered in cities like Bangalore, now.
- And the Chinese, understanding the drivers of international trade behavior, have shifted English education from Hong Kong to Shanghai. Think about that impact! Hong Kong, a province with a more universal outlook and dubious loyalties within the PRC, will ultimately not be the center of commerce for China.
We could go on, and we will in this column. The US press, especially television, does an extremely poor service to the average American in understanding the issues. They still view China as a bunch of pajama wearing mini-Mao's, devoid of business savvy. And view India with cows obstructing traffic and street urchins. If you look at, say, Shenzhen's progress, it boggles the mind to see the speed, growth and wealth that has been achieved in just a short while. Set up as a free economic zone by Deng Xiaoping in 1980, Shenzhen started with 30,000 people. Today it is a rich buzzing high tech city of 8,000,000 and growing daily. One of the wealthiest cities in the world it boasts new, high tech manufacturing, ultra-modern hotels, medical and pharmaceutical development, textile and apparel, chemical and plastics development and manufacturing. It's lower prices, proximity to and ease of transport to and from Hong Kong could ultimately shift the consumer shopping frenzy from Hong Kong to this mainland haven of free trade.
The Mad Dash to China Continues Despite SARS
Living in denial has been given an assist lately by the recent outbreak of SARS in Asia. Lots of debate persists about SARS and how it will slow down Asia expansion. So we decided to get an Asian perspective. One of our great men about town-actually, the world-is YY Chang, CIO of Compal. Compal is one of the leading Asian high tech firms that has learned its supply chain lessons well and continues to expand globally.
We recently talked to Mr. YY Chang, CIO of Compal in Taipei, about how high tech firms are coping with SARS. "Right now, it is overwhelming especially in Hong Kong, Peking, Kongdong, and Taipei. Optimistic estimates say that it will extend one month more and pessimistic estimation says that it will last 6 more months. To cope we are focused on how to build a contingent supply chain-both for plants, process, vendors and systems, and are rethinking the central vs. distributed manufacturing model. This distributed model will become a common practice in the future".
So SARS will not change the course of history? Says YY Chang, "China will become the worldwide manufacturing center in the 21st century! Some people feel contrary or conservative because of this current situation, but most people believe this goal will not change, though it will slowdown a while in this year. However, building our contingent supply chain will make us a much stronger competitor in the long run, as well". So, to us at ChainLink, this sounds like the Chinese old adage, 'in danger is opportunity'.
Cost Containment Enhances India Tech Centers
One of the largest English speaking populations in the world is actually in India. They have a larger English speaking college educated population than the U.S. Not only does India boasts a highly educated populace, but is becoming the destination site for business processes outsourcing. Paperwork, back-up and recovery systems, hotlines, services such as remote diagnostics and debugging, as well as software development all have major footholds in India. And financial service-both accounting and advisory services; all these capabilities are growing, providing global firms round the clock, round the world service at a favorable price point.
Government Policy Intervention Needed
So while Washington snores, thinking US corporate profits means a healthy economy, the consumer wealth will evaporate and well paying jobs migrate east.
The US is still the leader in innovation; we mostly still have the best schools and the worlds best and brightest students attend. But will those best and brightest come from Missouri or Bangalore? Just when the challenge is greatest, our government deficits are siphoning spending away from education. Are we witnessing history repeating itself, as civilizations cede dominance to the next culture?
Creating an Optimistic Vision
This is the new reality of globalization-an era of multi market wealth. We should learn to be global citizens and take our place in a cooperative trading world. Creating an optimistic vision, we see the emergence of wealthy economic zones, called Economic Centers of Expertise (ECEs). ECEs that will emerge, in which nation states might have some lead include: biotech, medical research; semiconductor, nano technologies, and other advanced device research; architecture and building; manufacturing; transportation management; financial management; energy management and development. Economic zones were created and thrived in the past due to comparative advantage . ECE will thrive by creating advantage through consortia of government, education and business-and by the will of the people. ECEs are enabled by the educated populace and most importantly by technology. Look at Silicon Valley or the financial markets of London or Wall Street or Swiss Banking. These ECEs were not about natural resources. (Although one could argue, New York harbour was a gateway to the New World, so naturally financial markets thrived there.) Excellent universities exist in these environs and produce earnest enterprising spirits who are willing to take risks. So beyond forecasting technologies death, it is merely going through a transition-new concepts, new processes will be enabled.
We send the challenge to government to focus on ECE strategies to stimulate wealth creation in their countries. This message is also for President Fox of Mexico. Or this message can go to governors of states or provinces who are buried under the sole focus on budget cutting. You can change the course of history by programs that understand the talents and aspirations of your citizens. You can support infrastructure projects that, for example, connect your citizens to the wired (or wireless) world. After all, in the US our transcontinental railroad, our phone system and our highways-all enablers of our wealth-were fundamentally government projects-no one thought they were 'left wing'. Rather than the banner of empty tax cuts, the enablement of ECE can make something lasting happen!
Stayed tuned in Parallax View for further discussions of ECEs, and the business and policy approaches to master the global supply chain.