The end of cheap sourcing?

13 July 2010
Once, America’s west coast was the hotbed of free-market capitalism. High-tech software and hardware companies sprung up demanding access to foreign markets, during a period of carnivorous competition in the 1960s, 1970s and 1980s described in Only the Paranoid Survive by founder and former CEO of chip maker Intel, Andy Grove. Now Grove is concerned that, while the US innovates, the jobs go to the Far East and China. In an opinion piece for Bloomberg he points out that computer equipment manufacturer Foxconn, which has been the centre of controversy regarding employee suicides, is now larger than many of the US household names it supplies. “Foxconn employs more than 800,000 people, which is more than the combined worldwide head count of Apple, Dell, Microsoft, HP, Intel and Sony Corp,” he says. Grove goes on to detail concerns about offshoring production, seeming to admit he may get flak from hard-line capitalists. “If what I’m suggesting sounds protectionist, so be it.” It’s an intriguing argument from one of the tech industry’s founding fathers and it is well worth reading. It also comes at a time when Chinese workers are seeking higher pay and better working conditions – both of which raise costs. Meanwhile, the Chinese currency is being allowed to inflate, raising the price of imported goods. To paraphrase Churchill, it’s not the end, but the end of the beginning for cheap sourcing from China. Changing political and economic climates within China and the west will require global buyers to perform a tough balancing act.
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