On The Record

High-Tech Changed The World. In The Future The World Will Change High-Tech

By Robert Faletra

WITH THE SEMICONDUCTOR

bill having made its way through Congress, one of the issues that has to be worked out is what does the future spell for the larger high-tech supply chain.

Backlogs and concern over the manufacturing location and expertise around chips is only a piece of the overall issue. Chips need to be placed on circuit boards, and in every case there is more to a complete solution than the chip.

So is every part of the supply chain coming back to the states or merely some of the higher-end chip development?

We all have to realize that customers at every level want to pay the lowest possible price for the best possible value. If a complete solution is better than that being offered by competitors, customers will certainly spend more. But there is a ceiling.

Cheap labor means a less expensive finished product, but there are ways to squeeze costs out by efficient supply chain management.

Dell Technologies was a master at this years ago when it not only employed just-in-time manufacturing but understood nuances about the supply chain that its competitors missed.

Just-in-time manufacturing cut costs in multiple ways. Not having to store as much product at the point of manufacturing reduced needed warehouse space, but it also meant getting stuck with obsolete product when a change was made. It allowed Dell to understand that the cost of the goods going into the finished product would itself decline over time.

That in turn allowed the company to look at a longer-term contract with customers in a different way that could increase winning bids.

By understanding that today’s finished product would cost less to build in the coming months as the price of certain components came down, sales could reduce pricing on a longer-term contract. By perhaps breaking even or even taking a small loss in the early months of delivery at a negotiated price, the bid could be won. In later months the profitability would return and, over the life of the contract, the profit was acceptable.

Over time, of course, cheap overseas labor was too hard to resist, and more high-tech manufacturing moved overseas, where it largely resides today.

The geopolitical challenges of today’s world—with China and Russia in particular—are putting more focus on the globalization of manufacturing. It’s not likely the majority of what has shifted overseas will return. What is likely to happen is a repositioning of manufacturing location.

Over time we are likely going to see much more debate and relocation to more friendly portions of the world that are still less expensive than North America. Growth areas like Vietnam will get more attention.

As big data and artificial intelligence grow, the importance around them will become so strategic politically that this is all going to become a huge issue across the globe.

The world has been changed by high-tech, and high-tech is entering a phase where it will be changed by the world.

Government intervention is only going to increase, not only here but worldwide. Friendly and non-friendly countries are going to push high-tech businesses to do what they believe is the right thing. Incentives also are going to become a bigger consideration for the strategic portion of high-tech, and that is going to extend well beyond the high-end chip manufacturing area.

Unfortunately, governments of all types want control of strategic areas, and high-tech is going to be dragged far more deeply into geopolitical issues. This will mean maneuvering through very different issues for high-tech CEOs in the future. n

BACKTALK: Make something happen. Robert Faletra is a Founding Partner of The Channel Company. You can contact him via email at rfaletra@thechannelcompany.com.