Monday, April 11, 2005

Are Business Starting to Avoid China?

A couple of recent stories in the tech area have caught my eye:

1. Intel to open new plant in India
2. Nokia to open new plant in India
3. Motorola to open new R&D center in India
4. Elcoteq (cellphone manufacturer) to open new plant in India

Most of the stories state that booming Indian cellphone use is one of the reasons for the telecom plant openings. I can buy that - to a point. There are currently more cellphone users in the U.S. than India (for now), but not a single cellphone is manufactured here. Same is true of Europe, or even South America.

And Intel can make chips anywhere - it doesn't have to be near an end-market for any particular reason.

If you look at the factors companies look at for international manufacturing location: cost of labor, quality of labor, logistical issues, etc., India is almost as good as China. But I think there is one other item that is pushing executives over the brink towards India: political risk.

There isn't anyone with an IQ above room temperature who doesn't put the chances of a regional conflict involving China and Taiwan (probably dragging in the U.S.) above 50% in the next 20 years. And executives for the most part have IQs above room temperature. This consideration might be putting second thoughts in their mind about putting new plants in locations that would - at best - be closed for the duration of a conflict, and more likely confiscated by the Chinese government. If anything, executives will at least spread their risk and start putting new plants outside of China if they already have a certain amount of capacity already installed there.

China is getting the message, but it isn't going to change its political posturing. Instead it is reaching out to India for some sort of bizarre partnership. I don't think it's going to help dissuade companies from looking more seriously at other countries for plant locations.

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