US high-tech manufacturing base erosion breaks 'chain of experience'

Silicon Valley veteran Andy Grove: in abandoning 'commodity' manufacturing, the US tech industry may be giving away the whole store.
Written by Joe McKendrick, Contributing Writer

By relying on offshore manufacturing, we may be losing the cornerstone of our innovation. That's the view of Andy Grove, former chairman and currently senior adviser to Intel, who recently voiced great concerns about the competitiveness of the US high-technology industry.

As Grove put it:

"Not only did we lose an untold number of jobs, we broke the chain of experience that is so important in technological evolution. ....abandoning today’s 'commodity' manufacturing can lock you out of tomorrow’s emerging industry."

Grove says as a result of de-emphasizing manufacturing, the US is no longer the foundation of the high-tech industry. "Simply put, the U.S. has become wildly inefficient at creating American tech jobs," he writes. Plus, US-based plants are not well-positioned for scaling, or being able to rapidly expand production as demand grows.

Grove observes that manufacturing employment in the U.S. computer industry now stands at about about 166,000 -- which is actually lower than it was in the mid-1970s, when the personal computer industry was born. By contrast, high-tech manufacturers in Asia employ 1.5 million workers. Foxconn alone employs 800,000 people -- "more than the combined worldwide head count of Apple, Dell, Microsoft, Hewlett-Packard Co., Intel and Sony Corp."

The cost of job creation has increased dramatically, Grove points out. Grove observes that the cost of creating jobs for many Silicon Valley companies grew from a few thousand dollars per position in the early years to $100,000 per job today. He says the cost has gone up so much due to companies hiring fewer employees.

The issue isn't confined to the computer industry, either -- Grove points to the alternative energy industry as an example of jobs gone overseas. "US employment in the making of photovoltaic films and panels is perhaps 10,000 -- just a few percent of estimated worldwide employment," he writes.

How could the US have "forgotten" how to scale? Grove blames the "general undervaluing of manufacturing," with commentators and industry leaders focusing on preserving and enhancing knowledge work.

Groves' remedy to this imbalance? He recommends a tax on products produced overseas, with the funds applied to scaling domestic operations.

This post was originally published on Smartplanet.com

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