A global marketplace requires a global workshop

Eastman Kodak, the one-time film giant and inventor of the digital camera recently humbled into bankruptcy protection, was a victim of its own foolish policy of outsourcing key operations far from its factory floor in the United States, says Willy Shih, a professor of management practice at Harvard Business School.

SCMP, February 21

Ben Rich, the man who presided over the Lockheed 'Skunk Works' when it invented stealth technology for the US Air Force, was once told that his expertise as an aerodynamicist might not be enough for executive rank and that he should spend a few months at Harvard Business School. He did. When he got back, his mentor, Kelly Johnson, a muscle-bound hod carrier who then became one of America's most brilliant aircraft designers, said, 'Well?'

Ben Rich said nothing in reply but picked up a piece of paper and wrote the following equation: 2/3 HBS = BS.

I think he was wrong there. I would have made it nine-tenths at least and Professor Shih's comments only confirm my assessment.

Has he been absent from the world for the last 50 years? No one is able any longer to stop outsourcing of key operations in manufacturing. We have not only a global marketplace today, but a global workplace. Anyone who tries to dam technology behind national borders will soon find it dried up or only sustainable with massive subsidies.

Eastman Kodak failed because it had no breakthrough ideas in cameras after its rival Polaroid came up with the revolutionary SX-70 in the early 1970s, and because Kodachrome film fell victim to digital photography.

Kodak also did not have enough good friends in the US Congress or the White House to keep it propped up and it could never be rated too big to fail as General Motors was (and should not have been).

Go back 150 years or so to the industrial revolution in Britain. The achievements of engineers like James Watt, Robert Stevenson, Joseph Paxton and Marc Isambard Brunel are still celebrated as entirely British although Brunel was actually French.

Go back a little more than 100 years to the industrial emergence of the United States and names like Westinghouse, Ford, Rockefeller and DuPont remain quintessentially American (although these last two were again French in origin).

Try the 1960s in Japan and what was not Japanese inside a Sony or Matsushita product was not very much. The same was true of South Korea in the 1990s. Samsung is Korean and we all know it.

But it is no longer true of China. The components of the iPad come from all over the world and although the finished product bears the tag 'made in China', less than 5 per cent of the retail price is attributable to work done in China. We don't think of it as a Chinese product. We think of it as an Apple product.

It is in many ways China's misfortune that things have gone the way they have in consumer goods manufacturing. Scratch your head and name one Chinese brand known around the world - as Sony is known in Dogdung, Nebraska or Apple is known in Chienmerde, Bourgogne.

There are none, at least not yet, and it has taken a long time for any to emerge. This is what happens when technology transfers are accepted practice, when money crosses borders as easily as the noonday sun, when worldwide communications have become instant and shipping costs insignificant. It makes everything one global workshop. It also separates brand names from the location of brand manufacture.

America has nothing to grouse about here and should ignore Professor Shih. It still controls the big brands. Most goods exported from China come from foreign invested companies and their owners keep most of the money as well as take the products. They use China as a limitless source of underpaid labour, and what the brand owners don't keep the American consumer gets as ultra-low-priced consumer goods.

Just imagine what would happen if the US Congress were to heed Professor Shih and require all key manufacturing operations of products sold in the US to be US-based. It would first of all get wildcat strikes in every workplace as staff rebelled against the low wages paid in manufacturing. Or it would get consumer demonstrations in every shopping mall at the stellar retail prices required if they were paid union wages. Quality would be shoddy, availability restricted, everything would be worse. This would be a serious retrograde step.

No, there is more than two-thirds BS to HBS.