Mr. China Comes to America – James Fallows – The Atlantic
“Geography is history,” I was told in Shenzhen by Liam Casey, the Irish-born entrepreneur, now in his mid-40s, who founded PCH 16 years ago. (The name is a sentimental allusion to the Pacific Coast Highway in Southern California, where Casey had been living until his failure to get a green card forced him to leave. I’ll say it in every article: America’s greatest strategic advantage is its openness to an outsize share of the world’s talent, and one of its greatest self-inflicted weaknesses is needlessly turning that talent away.) Casey—whose company is headquartered in Ireland and employs some 4,000 people, mainly in China, and this year will handle electronic goods with a retail value of some $8 billion—still lives in the Sheraton Four Points Hotel in Shenzhen, as he did when I met him in 2006. Everywhere he goes, he takes three iPhones with him—one on a Chinese network, one Irish, one American—and I’ve seen him use all three at once. I am several inches taller than him, but I practically needed to run to keep up with his superfast walking pace. I took this as his way of reminding himself and everyone around him that modern business is all about speed.
Here is what Casey meant by “geography is history,” and how it affects the prospects for U.S. manufacturing:
For decades, the process of technology-enhanced globalization has been pushing manufacturing work steadily from richer countries to poorer ones. Casey has had a firsthand view of this transition. As he explained to me when I first met him, “supply chain” interactions like those between Apple and Foxconn, or other famous Western brand names and the tiny Chinese firms Casey lined up as subcontractors, brought benefits to all sides, but in a very particular way. Customers in rich countries got the benefit of cheaper products—an iPhone for $300, for instance, rather than $2,000 if it had been made at U.S. wages. Factory workers in China and elsewhere got their pay.
But the companies involved benefited very unevenly, according to what Casey has named the “smiley curve.” This idea has become so familiar in China that the government alludes to it in the current Five Year Plan. For anyone not familiar with it, the concept refers to the sequential stages in manufacturing a product, arrayed from left to right along a U‑shaped smile. They start on the left with the corporate brand (for instance, Apple), then the product idea (iPhone), then the industrial design, and on through the stages of manufacturing at the bottom of the curve—then shipment, retail, and service going up the other side. The profitability of each stage matches its elevation on the curve—which is why Chinese manufacturers, down at the bottom of the curve, get the smallest share. Globalization has thus far enriched Westerners on the high parts of the smiley curve—designers, shareholders, advertisers, other mainly white-collar professions—but has left out Western manufacturing workers.
A crucial and underappreciated step in this process, Casey and others explain, is the transition from the idea for a product to its physical incarnation, which can then be made and sold. There’s a direct analogy to the world of publishing. Even 10 years ago, having an idea for a book, a song, a political exposé or commentary, got you only so far. To spread your work or ideas beyond your immediate circle of friends required the involvement of a publishing organization. Unless you could persuade an editor, a broadcaster, or a publishing house to promulgate your views, few people would ever hear them. Writing was hard enough; “getting published” could be worse. But now, blogging software and social media of all sorts have eliminated that barrier. Publishing organizations can still provide authority and a megaphone. But more ideas from more people are now being heard by more people.
How does this apply to manufacturing? Blogging software and related technologies have made it easier for entrepreneurs in the realm of ideas to expose their products to a worldwide market test. Three-dimensional printing and related technologies are making it easier for entrepreneurs interested in making physical goods to expose their products to the worldwide market. America has more than its fair share of such potential innovators, thanks to immigration, our still-strong university and public research centers, and the financial and cultural underpinning of a start-up culture. The terrain is shifting in a way that should draw more entrepreneurs to manufacturing and let more of their ideas succeed. This should in turn foster more manufacturing work within the United States than was feasible a few years ago. Companies with the right connections to foreign suppliers and foreign markets will grow even faster.