I'm writing this column from a 747 on the way to Shanghai for a business meeting. I've been visiting Asia for more than 20 years, ever since I started developing cameras in Japan for Polaroid and then notebooks in Taiwan for Apple. But the progress occurring in China's technology sector is beyond anything I could have anticipated.
Shanghai in particular has undergone huge changes, with hundreds of new skyscrapers going up each year that, unfortunately, have spawned an increase in pollution. But nowhere is the city's progress more significant in the technology area than in notebook computers.
Notebooks are one of the most complex consumer products to design and build. There's continuing market pressure to make them smaller and lighter, packing more parts into less space, while being rugged enough to endure the rigors of travel.
Yet beginning about 10 years ago, a half-dozen of the world's largest computer notebook manufacturers, all Taiwanese companies, began relocating to Shanghai, even though it was far behind Taiwan in technology.
Now, if you follow the politics between the two countries, you know there's been an ongoing war of words for years. China doesn't recognize Taiwan as an independent country and wants to bring it back into its fold as it has done with Hong Kong. In fact, there are no direct flights allowed between Taipei and Shanghai. What would otherwise be an hour-and-a-half flight takes nearly a day because of the need to fly through Hong Kong or Macau.
Why did these companies move to China?
Shanghai, with its huge supply of well-educated factory workers, enabled about a $20 savings on each notebook. In addition, Shanghai provided tax and land incentives, and new engineering graduates to fill its research and development centers.
The companies invested tens of billions of dollars to build huge campuses, with groups of buildings larger and more modern than most factory complexes anywhere else in the world. Some even built dormitories, movie theaters, restaurants and gymnasiums for their employees. They also asked their Taiwanese suppliers to set up nearby factories to avoid shipping delays and warehousing. Then Japanese suppliers built factories nearby to supply LCD screens and other components, creating this huge notebook infrastructure.
Inside the air-conditioned factories are thousands of feet of conveyer belts stretching as far as the eye can see. The belts rise in several locations, delivering freshly made notebooks to overhead tracks for testing to weed out failures.
All told, about 40 million notebooks were built in the Shanghai region last year, representing more than 75 percent of the world's production.
Today, few of the notebook brands such as HP, Dell, Gateway, Sony, Acer et cetera design their own products other than the appearance. It's all outsourced to these manufacturers.
New ways have been found to save more money by changing how the products are built. The conventional way of making products is to build a large volume of identical units and ship them by sea to customers' warehouses around the world. That, however, ties up millions of dollars in inventory and makes it difficult to phase out a model quickly because the product pipeline is so long.
Some manufacturers now build to order and ship directly to the end customer. Here's how it works: The customer orders a computer from the brand company, configured exactly as he wants. The order goes directly to the factory in Shanghai and into its computer system, where it's scheduled to be built based on the availability of parts.
Each computer being assembled on the line is built to a specific order. One might have a 120 GB hard drive, 2 GB of memory and Windows Vista Business, while the unit next to it has an 80 GB drive, 1 GB memory and Windows XP.
Once the computer is built and tested, it's packaged and sent via FedEx or another shipper directly to the customer, often arriving just a couple of days after the order is placed.
With these practices, the average selling price of a notebook has gone from about $2,000 in 1998 to $900 today.
This example shows borders no longer mean much when it comes to technology. Common economic interests drive countries to work more closely together. So while the words continue to fly between Taiwanese and Chinese politicians, they each know how dependent they are on one another, and how dependent both are on U.S. companies to market the products to the rest of the world.
(c) San Diego Transcript