The Splinternet of high tech manufacturing and components

Last week, in my column for Forbes, I wrote about how the Internet is splintering around geographical and in some cases, political lines.

I pointed out that countries like Russia, China, and others want to contain what can and cannot be accessed in their countries. They are trying to restrict the Internet in the name of nationalism or cybersecurity, although much of their moves seem to have more to do with censorship.

In the title of this article, I stated that this produces a “Splintered Internet”, which is the proper way to describe what is happening. I had wanted to use a word that is becoming a term that is emerging known as “Splinternet” to describe a splintered Internet that can also be expanded to mean high tech manufacturing.

As I have written in the past, due to the kind of work I have done over the years, which includes working directly with PC manufacturers in Asia, I closely follow the supply chain and manufacturing of tech.

And dramatic changes are going on in high tech manufacturing that, by all accounts, are splintering into a China vs. other regions of the world when it comes to how tech products are being made and produced.

For the last two decades, much of high tech manufacturing has been was done in China.

China has made most of the tech products used in the US and much of the world today. However, the political tension between the US and China, along with significant tariff issues, has tech companies trying to move as much manufacturing out of China as possible.

Indeed, most of Dell’s PC manufacturing and assembly has shifted to Viet Nam. While they still get some parts from China, they assemble and ship all PC’s from Viet Nam now. By the middle of 2021, most of their parts will come from other areas outside of China, with almost all manufacturing shifting to Viet Nam and none done in China.

HP is moving manufacturing out of China too and doing more in Taiwan, Malaysia, and other regions of the world, placing less reliance on China.

Even Lenovo, a Chinese company, has started to put more emphasis on their manufacturing plants outside of China, especially the one in Mexico, but is in a more difficult position to decouple from their manufacturing facilities there completely.

Foxconn, who makes Apple’s iPhones, also sees the writing on the wall and is now aggressively moving away from China and setting up new plants in India and looking to expand to other areas of South East Asia and even Mexico. Foxconn Chairman Young Li has said that China’s “days as the world’s factory are done.” He goes on to say that “No matter if it’s India, Southeast Asia or the Americas, there will be a manufacturing ecosystem in each,”

Compal has reopened one large PC manufacturing facility in Viet Nam, with a second and even larger factory set to come online early next year.

The US is also cracking down on some companies in China and limiting their access to US-based processors. This week, the Commerce Department tightened the restrictions on Huawei’s access to chips, and if they can do it for Huawei, they can do it to others too.

But there is one misnomer in this manufacturing “Splinternet” model that keeps coming up, and that is that the US could become another region for high tech manufacturing. In talking with two ODM’s, neither of them has plans for putting any factory in the US.

Even the one Foxconn has been working on in Michigan is in question. The breakdown has been caused by a lot of political and local government haggling. (I predict that this deal will fall apart entirely, and Foxconn will find a way to get out of it soon.)

Of the manufacturing plants that do exist in the US, like Apple’s iMac factory in Austin, it is mostly a low volume robotic facility that does not have a lot of workers doing the actual assembly.

That would be the big issue with any US manufacturing of high tech goods, even if they did land on US soil. The cost of labor in the US is just too high, given the price of most tech products sold, and instead, any factory built in the US would mostly be driven by robotic automation.

The idea that US manufacturing of high tech goods could bring back jobs in large numbers is a pipe dream. The shift of a considerable amount of manufacturing out of China is a big deal and problem for US tech companies. Besides scrambling to find new places to have their products made, they will need to develop an entirely new supply chain of components that can be created outside of China. And that may include rare earth materials that mostly come from China now.

While US tech companies are not panicking, moving in this direction during a pandemic is very difficult. In the past, companies would send staff to source components and run them through on-site testing equipment in companies labs, mostly in Asia. Most of this is having to be done today by video conferencing when it comes to actual component sourcing.

While this takes time, the pendulum has swung away from China being, as Foxconn Chairman Li has said, “The Factory for the World,” and we will see other regions developing new high tech manufacturing centers picking up the slack. Unfortunately, the US will not be part of a new global tech manufacturing world.

Published by

Tim Bajarin

Tim Bajarin is the President of Creative Strategies, Inc. He is recognized as one of the leading industry consultants, analysts and futurists covering the field of personal computers and consumer technology. Mr. Bajarin has been with Creative Strategies since 1981 and has served as a consultant to most of the leading hardware and software vendors in the industry including IBM, Apple, Xerox, Compaq, Dell, AT&T, Microsoft, Polaroid, Lotus, Epson, Toshiba and numerous others.

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