The Editor's Page -- Dangers Lurk In Global Value Chain

So you still think it doesn't matter whether manufacturing is done in the U.S. or is outsourced to another country? Perhaps you're not convinced that our increased dependence on other countries for production means that foreign policy is important to you, the leaders of the U.S.' largest manufacturing companies? You should know that other manufacturing executives are getting a bit worried about the confluence of these two issues, specifically about the increasing importance of China to our nation's information-technology industry. The two come together in a way that reveals the risks of global value-chain management. On May 29 The New York Times described the executives' concerns, with none other than the influential Andrew S. Grove, chairman of Intel Corp., weighing in. The report details the migration of Taiwan's personal-computer and information-technology manufacturing industries to China, which places the U.S. in "an odd position: Its main supplier of PCs and other information technology, or IT, gear, will be its main strategic adversary." Citing statistics from the Institute for Information Industries in Taiwan, the report says, "Taiwan already makes the bulk of components like disk drives and power adaptors in Chinese factories [while] eight out of 10 Taiwanese scanners and nearly half the monitors are assembled on the mainland." More advanced technologies will inevitably follow, according to Taiwanese officials. Quotes attributed to Morris Chang, the chairman of Taiwan Semiconductor Mfg. Co. Ltd., describe the doomsday scenario that no one really believes will come about: the possibility that China could simply stop shipping IT products to the U.S., bringing a large part of the industry to its knees. Grove is quoted urging a more measured caution: "Unintentionally, or due to lack of awareness, one could start a chain of events that could lead to disruption." It's no secret that China and Taiwan relations are delicate, and that the U.S. role in relations between the two countries was recently complicated when President George W. Bush promised to defend Taiwan from a Chinese attack. So what does this mean for manufacturers? It has implications for management decision-making on at least three levels, each of which deserves more discussion: