The Chinese Competitive Threat

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The Chinese Competitive Threat

The number of people employed in the U.S. making computer components is 166,000, the fewest since the days before the personal computer was invented.  By comparison, in Asia, about 1.5 million people are making those components or managing the people who do so. 

Hon Hai Precision Industry in China is the biggest of those manufacturers, with revenues of $62 billion in 2009.  That makes it larger than Microsoft, Intel, or Apple.  Also known as Foxconn, the company has 800,000 employees.  Combine Apple, Dell, Microsoft, Hewlett-Packard, Intel, and Sony, and you get about the same number of workers. 

The components that Foxconn makes go into products from Dell, HP, Nokia, Microsoft (for the Xbox 360), Intel, and Apple, just to name a few.  In the U.S., Apple has just a tenth of the number of employees who are building iMacs, iPads and iPhones in China:  25,000 vs. 250,000.  The same is true for many other tech companies. 

As Andy Grove, the legendary co-founder of Intel, explains in BusinessWeek,1 things used to be different.  Back in 1968, Intel had its start making memory chips.  The company went public in 1970 and by 1980 was a billion-dollar company with 13,000 employees in the United States.  Parallel to that, companies like Sun Microsystems, Cisco, and Netscape were also getting their starts.  And the region where they had their headquarters came to be known as Silicon Valley.  Jobs were plentiful. 

During that time, pay and benefits continued to rise.  Meanwhile, China began trading with the world, and manufacturing began moving overseas, where labor was cheap.  Although this added more money to the bottom line of companies like Intel, it also devastated the job market in Silicon Valley.  This is one reason that people worry that China is heading to superpower status.

Today, unemployment in Silicon Valley and the Bay Area is running above the national average at 9.7 percent.  Yet, at the same time, American technology companies have been hiring hordes of new people for years in Asia.  Grove argues that simply assuming that creating lots of new start-ups will improve the employment picture is misguided. 

Why?  Because high-tech start-ups in the United States no longer scale up U.S. operations after their latest clever invention is tested.  More typically, they start out in American garages — and they then scale up in Asia.

As reported recently in The Atlantic,2 not only jobs but innovation is being taken off shore by American-based multinationals...

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