Is Andy Grove Right? Wrong? Both?

I don’t know about you, but I don’t like to think about unemployment while enjoying a vacation on the beach.  Yet, that’s what I awoke to on my first day off. “U.S. Jobs Picture Darkens” was the eye-level headline in The Wall Street Journal. The growth of 83,000 private sector jobs was not enough to offset the loss of 225,000 temporary census workers. The US unemployment rate is at 9.5%, with 14.6 million Americans out of work.

The theme of steady unemployment and a fragile economy filled the four newspapers that I read each day. The downbeat was so persistent that I started cutting articles out with the intention of writing about it this week. Unfortunately, I have no idea how to get more people back to work or right the U.S.S. Economy. 

The ideas were still lingering in my subconscious when I began reading the current issue of Bloomberg Businessweek. Just past the middle of the magazine was an article by former Intel CEO Andy Grove on “How to Make an American Job.”

Over the space of four pages, Grove detailed what was wrong with America today.  Not that it was any consolation to me, but he offered no real solutions beyond saying that the US needs “a job-centric economic theory—and job-centric political leadership,” and that the country should “rebuild our industrial commons.” The latter idea includes “a system of financial incentives: Levy a tax on the product of offshored labor. (If the result is a trade war, treat it like other wars—fight to win.)”

Three numbers stood out in his analysis. The first was that US computer companies currently employ 166,000 people in manufacturing jobs. He noted that that number was much higher before the first PC was created back in 1975. That’s probably true. In the nearly 30 years that I’ve been traveling to Silicon Valley, the only manufacturing I saw was for prototypes or some final assembly and test. Most of the “real” manufacturing had already gone off-shore.

What bothers him is that Asia employs 1.5 million workers in computer manufacturing. The implication seems to be that the US is outsourcing its future.

Finally, Grove compares the ratio of high tech manufacturing workers in China vs. the US. He cites 250,000 Foxconn people working on Apple products in southern China, as compared to Apple’s 25,000 people in the US.

Dr. Grove:  Would you like a cup of tea with your revisionist history?

While on my first trip west to see a prototype of the Apple Lisa in 1981, I quickly learned that success in high tech revolved around five pivot points:  innovation, cost, quality, volume, and speed.  This is a message not lost on Intel, which has relied on all of those points during its history. The company has also used layoffs and outsourcing to lower its costs.  In January 2009, Intel announced it would close 4 chip plants and lay off  up to 6,000 employees. This occurred after Dr. Grove had relinquished the top spot, but Intel’s website lists him as a senior advisor to the company.

While the cost of building a chip manufacturing plant means that there are few options for outsourcing production, Intel is bringing its expertise to a new plant in Dalian, China. According to a recent article in China Daily, the $2.5B,  plant will begin manufacturing chipsets before the end of this year. The newspaper said that total headcount will be 1,500, with 900 drawn from the local market. TradingMarkets.com claims the 300-mm wafer fabrication plant  will employee 4,000. .).

The Dalian site is Intel’s first wafer fab site in Asia, and eighth overall. The company has other manufacturing plants in Ireland, Israel, and the US.

Jobs may be topic #1 in the fall U.S. elections

If you are interested in reading Dr. Groves’ views, you might want to peruse some of the 351 comments on the magazine’s website, too. One bit of warning: the comments ranged from the well-informed, to the single-message sound-byters, to spammers. Those favoring “Grove for president” vastly outnumber those describing him in less favorable terms.

If you loaded all of the comments into a tag cloud, you would quickly see that the jobs issue is highly emotional and very complex.  The tags would include China, India, Japan, German manufacturing, 19^th Century England, H1-B visas, outsourcing, Reaganomics, Obama, regulations/OSHA/EPA, health care costs, zero corporate tax rates, import taxes, Tea Party, no minimum wage, living wages, tort reform, US education standards and curriculum, unions, R&D tax credits, capitalism, globalization, free markets, Fortress America, quarterly earnings, Wall Street, cheap oil, US debt, and ChinaMart (WalMart).

The Chinese are learning from Silicon Valley, too

One reader, Peter Sherman, may have underscored Dr. Groves’ point when he referenced an article in the July/August 2010 issue of MIT Technology Review, entitled "How China Became the World's Solar Leader.”  Here’s an excerpt from his post:

“In just 10 years, China's Suntech has captured 42% of the world's solar panel market, employing 12,000 Chinese workers. How ironic given silicon solar cell manufacturing processes are based on the semiconductor industry that Grove pioneered. Zhengrong Shi, CEO of Suntech, has done it by focusing on conventional solar cells and ruthlessly scaling to lower manufacturing costs (human labor, selective automation, used equipment). American industry could take a lesson from Shi's approach. As Shi says, 'The idea that solar energy will have to wait for a breakthrough to reach grid parity is crap.'  We're not talking about rocket science. We're talking basic engineering."

What do you think?

While no families or communities want to see good jobs disappear, it’s been happening in high tech manufacturing for 30 years. In their bids to become the market leader or sustain their advantage, companies continue to pursue higher volumes at lower costs in the shortest timeframes, and will use any resources available. 

Should high tech companies have held on to their manufacturing prowess? Is it a mistake to cede this to others? Likewise, are companies at a disadvantage now that they are outsourcing more IT functionality? Will we wake up to discover that we don’t have any in-house enterprise architects who can create faster/better processes and systems? Tell me what you think.

Comments

[Tony Heringer]

For the most part, I think this is a consequence of globalization. Grove references Thomas Friedman who opined quite a bit about this in The World Is Flat. While I didn't agree with some Friedman’s conclusions, I do think that as the rest of the world catches up to the U.S., we are going to feel the pain. So, we can either complain about that or innovate our way out of it.

I am disappointed that China, which has a lousy human rights record and environmental record, continues to get a pass on those two issues -- including two weeks of marketing from NBC during the summer Olympics. U.S. organizations and consumers, like myself, need a better social conscience in that regard. I want to do better job holding companies accountable with how they deliver goods and services.

In a global economy you can’t have it both ways – i.e. be Nationalist and Globalist. You are either in on globalization or out.. The jobs will move around the globe and the bottom line will continue to be the bottom line. But, I think we do have control on who we do business with and that could be a huge help as it would force a more level playing field. It could bring jobs back to the U.S. or at least help build a morally sound global economy. It could even open up opportunities for U.S. workers in global job markets where a country would compete for workers no matter where they live.

What’s preventing a U.S. worker from migrating to a better market or offering that service in some of the ways Friedman talks about in his book – assuming the conditions are favorable? But, when you have slave labor and no regard for the environment, you can save a lot of money. There is no incentive or market pressure to play fair. Government can get involved, but I think the consumers and business partners would have more sway.

[Penelope Quaife]

Very well-written post on unemployment and the economy. I think that one great way for companies to function more effectively and to grow is through supply-chain consultancy. One great company for this is WMS Consultants, which has an easy-to-navigate and informative website on the subject.