Dell looking outside of China for 'safer environments,' according to Indian PM
By Vlad Savov 
posted March 24th 2010 5:56AM
posted March 24th 2010 5:56AM
Michael Dell's outfit already has one manufacturing plant in India, and the man himself has been on a charm offensive in the country this week meeting and greeting local officials. It could well be, however, that Dell is just seeking to play China and India off one another to get itself the most favorable manufacturing deal, but it's still interesting to find such a high profile protestation against the supposedly enterprise-choking climate and uncertain legal system in China. It appears that Google's wrangle with the Middle Kingdom's leadership has forced consumer electronics execs to reevaluate their strong reliance on China, and the (very) long-term effects could indeed be a shifting, or at least diversification, of manufacturing away from Yao's homeland."This morning I met the chairman of Dell Corporation. He informed me that they are buying equipment and parts worth $25 billion from China. They would like to shift to safer environment with climate conducive to enterprise with security of legal system."
[Thanks, Piyush]
Dell, I assume this is for your Asian business. But for safety of the US economy and safe operating environment, why not reward the country that made you rich, hey Michael? (honestly, I wouldn't actually advise this, you can't live playing against the guys like Asus doing this without some serious brand loyalty. But still, it'd be nice to think that there might one day be some corporate and consumer responsibility and reward the Google's of the world for doing the right thing, while Michael Dell is just trying to do the prudent thing.)
I sense a trend here...
It turns out that large companies do value legal certainty and operational freedom above absolute reduction of costs.
@AlienSix How did we come to Apple?
Google is only standing up to china because it does not make that much money in china so it does not matter that much it they leave, if it did make more money it would be less vocal about china.
@Newwales
That's such a bogus claim.
Wall Street thinks Google is going to lose out on billions of click-thrus from getting out of China, and people like you seem to put this whole deal into a weakly constructed argument of sour grapes?
@DarkGrimoire Given a chance? You think that's what it is about? It's cheaper that's why we outsource. Now China's economy is getting better and its cheaper to outsource elsewhere.
This is not about us westerners "giving a chance" or about human rights. Its about profit and the next country the companies choose will be as cheap and corrupted as the previous.
in terms of manufacturing capabilities, China is quite far ahead of India. for those of you who claims that fabrication can be done anywhere.... where do you get this nonsense from? High tech fabrication requires clean room and a bunch of auxiliary implementations before it can produce any sort of quality product.
As for China's insisting on companies obeying their laws... gosh! Which nation does not do that? A company like Microsoft or IBM simply does not enter a country and dictates what it wants, and expects the politicians to fulfill their wishes.
@darkmax
"High tech fabrication requires clean room and a bunch of auxiliary implementations before it can produce any sort of quality product."
Did you just contradict yourself with that statement ?
High tech fabrication can be done anywhere. Even on moon's surface. Its money that matters
@GnuGeek Well for starters it would be really really nice if you could get say.... electricity to work 24 hours a day next to a gigantic power plant!
http://www.nytimes.com/2010/03/23/business/global/23enron.html
The article illustrates just one problem in the sea of issues that plague India. There's a reason why there's never much talk about moving manufacturing out of China, there are actually very few places where you could go to.
@Atkins It's so funny you should mention that. China invested in its infrastructure long before they are attracting so many manufacturers. It takes DECADES to build a decent power grid. So in the mean time what are you expecting the companies to do? Starve to death while their TW/China competitors thrive?
@satoru I believe many of the IT companies that have off-shored out to India have become independent by using powerful backup generators to seamlessly take over, so they are not caught in the unreliable mess that is Indian infrastructure. Yes, once the industry gets more robust, you would think that infrastructure would get better. Gotta wonder though...there are a lot of lazy, power-hungry bureaucrats in the govt...
@Appleblows Nobody in the US will work for the same wage as a chinese.
@Ameen It was the same for China before.
@r3loaded Or maybe today India is just cheaper than China?
That's why we should not treat the US as god
Intel's Dunington line of processor (6 core, 45nm, 16MB) was designed in india. SO basically, corporate large as dell can easily setup their facilities anywhere (referring to darkmax's comments about clean room requirement etc), if clean room is what your primary requirement for chip making facility is... just saying..
@darkmax "High tech fabrication requires clean room and a bunch of auxiliary implementations before it can produce any sort of quality product."
So it is possible everywhere, if you have enough money.
@chashmis Designing and manufacturing are different activities requiring different equipment.
But setting up a new facility is just costs. If you are willing to invest you can build a facility wherever you want.
This seems like one of those things the PM should have kept a little more secret.
Say what you want about China but India in its current state cannot take over for China. It has gigantic infrastructure and political problems that make it pretty unattractive for businesses. The whole internal taxation system is a gigantic cluster as well, with each province your goods travel through charging a tax of some kind. It still takes months to ship a server to India with all the red tape and crap you have to deal with.
@Atkins
No, but China, being a one-party dictatorship, could gather the required resources to make things happen. India, being a democracy, does not wield so much power. Everything will be slower, and less "dramatic".
@Atkins Yeah, you keep fooling yourself around, well, you are doing quite a good job anyway.
Every single economy in this world are envious about how the Chinese economy stimulus pack could work while the others can barely pass their parliaments -- and with all those strings attached.
Do you know that industries gets prioritised treatment when it comes to power/transprot etc? Or do you know anything about other ("developing") Asian countries at all?
None of those countries except India have the man power to ever build a viable ecosystem for manufacturing industry. Only that India's uncertainty of policy would prevent it from ever getting a reliable infrastructure.
I mean look at the US and US-styled developed countries (such as Australia), the productivity per tonnes of CO2 is woeful. Transport/logistic would never be able to handle the traffic required. That's in rich countries. You expect what, a party would risk losing votes and short-term economic benefits to invest in infrastructures?
How ridiculous you are!
@Hazdaz "We either bring some of that manufacturing back home, or continue to suffer the consequences of a reduced standard of living and high unemployment. Your $200 Chinese-made widget might (OH NOES!1!) have to give way to a $250 US-made version. "
And how is 'bringing manufacturing home' going to improve your standards? Your $200 chinese-made gadget would probably cost $1000 if made in the US. Good luck buying a computer then.
@aniym Just to refine your statement - enforced laws :)
Does China really deserve all of this business? They do not deserve any of it. They help make your goods and then copy it. Then they export those copied goods all over the world.This is what happens when you allow unions to dictate everything to you. Business will look for cheaper deals.
@Mike Vick
They don't deserve anything but they do it to get their hands on as many IP as possible. Still a communist nation so I'm sure the government is taking all the IP. Bravo to those company that are bold enough to not follow by moving to China. What scares me most is the pharmaceutical companies that's there and all their IP that's being lost to the Chinese.
@satoru There is no electricity, because there aren't investments. If companies start going there, the power grid will be up in no time. You are speaking of India's issues, but you forget that before it was the same for China. It's just cheaper, issues or not.
@satoru And China was better when everybody started outsourcing there? That is why they started outsourcing.
@Mike Vick Do you deserve your gadget made by kids?
Relative to the comments on outsourcing: China & India both have huge market potential and increasing consumer demand. Apart from export, this is what multinational companies are after. If a company is not in those markets, major domestic competitors will grow and gain so much leverage that they surpass you on the international stage and come and compete on your home turf.
Africa will be the next stop, probably picking up in 5 year (and China has already moved several factories there and captured infrastructure projects). In 15 year, the worldwide wage structure and people cost will be more balanced (already stagnating in Western countries, increasing steadily in less developed nations) and jobs will return locally where international supply chain is too costly to provide for domestic markets.
LOL : "They would like to shift to safer environment with climate conducive to enterprise with security of legal system." Dell has been in Danish tv a couple of times, they do NOT care about laws in Denmark, and they do not wanna replace defective or non working notebooks/pc's they sold in Denmark. Or take em back. According to law, you got 14days return right :) Last tv program about it, they told us, there were over 120000 complains in Canada, soon to become a lawsuit, so it isn't just in Denmark. :)
@Hazdaz Yes, I am. For sure my ratio is not correct. And I doubt about yours too, btw. I found one article:
""The China price." They are the three scariest words in U.S. industry. In general, it means 30% to 50% less than what you can possibly make something for in the U.S."
And about the 20%:
"almost every chemical, component, plastic, machine tool, and packing material Flextronics needs is available from thousands of suppliers within a two-hour drive of the site. That alone makes most components 20% cheaper in China than in the U.S."
Still at the end you have to pay americans a decent salary. This will reflect itself on the final product price and then on the sales, which will reflect on the employment.
And let's not forget that outsourcing isn't only about labor, but a buying market. You will produce in US and you'll still have shipping costs, but this time to China.
It's not a switch that you can flip and just bring the factories back "home".
Here's the link:
http://www.businessweek.com/magazine/content/04_49/b3911401.htm
LMAO, good luck with safer india
It is actually a good sign for China. Capital is just like water, it flows wherever the lower trend is. Now that China has accumulated enough resource (both money and know-how) and move on to some more profitable piece of the whole product chain, these low-value assembling manufacture business will of course leave for cheaper place. Actually, not just DELL, even some Chinese companies are considering moving their manufacturing to India and other south Asian countries.
I am just hoping that the pollution will also move away with those low-end manufacturing business. And China in the future will take less and less blames of making crappy products (even though people are still buying them). Love to see other countries join in.
@Hazdaz
"It's not just 1000 jobs at XYZ company that get shipped overseas, but also the 500 jobs at the rubber-maker and the 200 jobs at the plastics company and 300 jobs at the electronics assembler that all supply XYZ components."
Agreed. Yet the biggest problem stays - salaries. You can't pay your american workers the same as their chinese counterparts, it will reflect on the sales and then on the company. Of course, to what extent is arguable, but even if we go with your number it will bump up the prices by 20%.
"You are absolutely going to incur fairly large shipping costs to simply get your product to the US."
Again agreed. But when you make it in the US you must ship it to the chinese market. So this depends on the product - where do you sell it and how much of it. If the main market is the chinese one, then it will be a bad idea to bring it back in the US.
"Also note that that article was written 6 years ago - the costs to do business in China has risen as their standard of living has risen, while the costs in the US have for the most part fallen some."
Again agreed. But its also much cheaper in India.
I get your points, but it is all so arguable. And let's not forget one thing that every statistics will leave out - corruption. Companies can basically do whatever they want in countries like China and India. I really doubt those arguments like Dell's about the "uncertain legal system". For me that's more of a benefit to them. But that's just my opinion.
So here's what I think about bringing back manufacturing: if the product sells mostly on the american market, and the costs aren't that high (example: the final product doesn't require a lot of labor time or imported parts, building a new facility isn't that costly, etc), it is definitely doable. But there are a lot of "requirements" for this to work.
If the product sells worldwide (equally, for the example), the shipping costs become irrelevant. Rebuilding the facilities will involve higher costs already (as opposed to building in India in the case), so a company will add those to the already higher price product (because of the american workers).
@brown "Capital is just like water..." That's nice.
@onlymyrailgun Democracy doesn't really exist.
What will work in India would probably be the corruption, I guess. And it is arguable that the dictatorship gathered those resources.
I think, is time that western companies will fallow google and not US$!!
if we don't do that we give up human rights, and oder things that making us difference from China.
except that if we don't show now the chinese that they need us as much that we need them, in 5-10 years we will be there slaves and they can block our economy like in the 70's the oil countries did, the question is do we want that? I say NO, NO !!
"safer environment with climate conducive to enterprise with security of legal system"... LMAO...
Factory relocation, job loss and know-how transfer is a global problem. All over the world factories are moved to "low-cost" countries. There is a site - http://www.productfrom.com - where you can check country of origin of different products (electronics, computers, audio, TV, other). If you compare 10 items - more than 5 of them are made in China, and other 3 of them are manufactured in China's neighbourhood.
P.S. Few years ago Dell built a production plant in Poland. And just a few months ago they sold it to... Foxconn, one of the biggest Chineese manufacturers. Ironic?
YES!
Didn't Dell had an issue with a Chinese government 'mandatory' Green Dam software last year? Dude, bring the manufacturing back to U.S.!
Two reason they are shifting out of China, the likelihood of the increase in exchange rate, thus making product more expensive. Two, they are afraid of US charging carbon tax for US company that is doing business with China, once again increase their price.
Dell has not made any plans to shift its component spend. Michael Dell recently met with Prime Minister Singh to discuss ways of building India’s hardware manufacturing eco-system. In this context, Mr. Dell said that the company spends approximately $25 billion annually on sourcing components from its suppliers in China. With the right kind of progress, Mr. Dell believes that India also has an opportunity of becoming a hardware manufacturing hub, generating employment and adding to the country’s impressive growth.
Is this going to affect the price of tea is it?
@racca As stated in the article posted above the power plant is already there isn't it? It just needs to get to full capacity.
"China invested in its infrastructure long before they are attracting so many manufacturers." This is right and wrong. China also built their infrastructure with the help of investments from the first manufacturers willing to outsource there.
@racca "How ridiculous you are!" Thank you very much, this really helps the conversation.
"None of those countries except India have the man power to ever build a viable ecosystem for manufacturing industry."
I think we were talking exactly about India, not about the other countries. So it is about man power, not like the above comment to which I was replying:
"No, but China, being a one-party dictatorship, could gather the required resources to make things happen."
The resources were there, the dictatorship helped with "entering" the country. Corruption can do the same.
Clarify this, please, didn't get the point:
"You expect what, a party would risk losing votes and short-term economic benefits to invest in infrastructures?"