Americans in Shanghai
I loved exploring Southeast Asia. On the thinnest of story ideas, I took business trips to Singapore, Malaysia, Thailand, the Philippines, colorful, mysterious countries, often with good snorkeling, exotic foods and achingly gorgeous women.
In their first phase of globalization, chip makers peppered the region with assembly and test factories. They offered mainly manual, semi-skilled jobs, putting slices of silicon into packages and making sure they performed to spec. Workers, at these plants, usually women, didn’t earn much money, and -- except for occasional strikes in Thailand that sent me scrambling for the airport -- they didn’t generate many good stories either.
The place everybody wanted to read more about was China. It felt like every major corporation was trying to score a joint venture deal there, despite at least one book, “Beijing Jeep,” that mapped the bumpy rode American Motors travelled.
China was always trying to strike the same deal: Get the Western partner to spend oodles of money building a big factory using its latest technology in exchange for access to the world’s largest emerging market. But China couldn’t make good on its part. It was still a poor country in those days. The market wasn’t ready, quality wasn’t up to Western standards, and the players on the China side shifted with the political winds in the Communist party.
But one significant thread of this story was changing, according to my colleague in Taipei, Alan Patterson. Like me, Alan was a refugee from the rustbelt of Midwest America. He was an easy-going guy, a good writer and he knew the tech landscape. He was at that time one of the rare Americans in Asia who spoke fluent Mandarin.
Alan’s best tip from those days was that entrepreneurial Taiwanese companies had set up China joint ventures that were starting to produce quality computer parts fast at a thin but sufficient profit margin. The island nation’s contract manufacturers were having quiet success in China where their larger counterparts from the US and Europe failed miserably.
Taiwan companies like Compal, Foxconn, Inventec, Pegatron and Quanta had no brands of their own. They made PCs and the electronics inside them -- called motherboards and adapter cards -- for big, brand name customers like HP and Compaq.
Their
operations in China were in violation of Taiwan law, but regulators looked the
other way, perhaps like many Asian countries tolerated prostitution because
they liked the money and the products. So, we never got folks on the record
about what Alan knew was happening. Because we lacked sources – and frankly, we
didn’t foresee the major impact this move would have on the future of the
computer industry—Alan’s scoop wound up buried at the bottom of page seven of our
special report on Taiwan.
As Alan later reported, the trend got its start in the 1970’s when RCA put a factory in Taiwan to build low-cost parts for color TVs. Over time, the plant’s managers started buying some of its components and materials from local firms, nurturing a network of small, interlinked companies that cultivated world-class skills in squeezing a few cents out of every product and process.
“By the time the laptop business started taking off in the 1990s, Taiwan had companies making laminates and printed circuit boards and doing surface mount placement of chips on the boards,” Alan told me in a recent email.
It was a natural step for Taiwan’s contract manufacturers to outsource their low-end work to China to further shave costs. In time, China would become the world’s factory for electronics, helping spawn a middle class that made it a big market for those products, too. At the time, I failed to see the nascent trend.
I was a China skeptic. A couple times, I had been to Shenzhen, the China town just across Hong Kong’s northern border. Once I took a day off to visit Guangzhou, the provincial capital. Along the way, I saw empty fields and villages, Communist communes, that looked stuck in feudal times. The Guangzhou train station was full of folks milling about aimlessly, poor villagers seeking opportunity, but there was little of it there circa 1990 based on my short walkabout that day.
On one trip to Shenzhen, I interviewed managers from Great Wall Computer, a venture with IBM. The town itself was small and ugly in those days, a dingy Communist backwater where it was hard to find a decent meal or an interesting story.
After our interview and tour, managers from Great Wall took me out to a truly horrible dinner at a sad café. “Try this,” they say. I’d ask what the unrecognizable dish was. “Try it,” they insisted. I did and grimaced, then they told me it was pig’s ear or snake or something equally nauseating and laughed out loud. I wouldn’t have minded being their entertainment if I got a story, but the factory seemed to be just a place where a few folks hung out, no one doing much real work.
I
have to give the Great Wall managers credit for speaking frankly. They admitted
they were falling short of their export goals for several reasons: China had
difficulty in those days getting foreign currency to buy essential parts like
DRAMs, and government regulations prevented access to 40 MHz 386 CPUs,
considered the fastest on the market. Nevertheless, in my May 1989 interview,
they optimistically predicted rising student demonstrations in Tiananmen would
not further slow already sluggish progress hitting their targets.
From my report in ACM on a visit to Great Wall Computer in Shenzhen.
So, the tech business outlook in China was pretty grim in those days, but eventually the big shift arrived. IBM sold off its PC business to its Chinese partners who formed what became Lenovo, one of the few brand-name computer companies to survive the global PC industry’s consolidation.
During my Hong Kong stint, China and its snake and pig’s ear banquets literally left a bad taste in my mouth. I preferred travel to the more sophisticated Singapore, home to luxury hotels and a robust hard disk drive industry that occasionally attracted a U.S. startup trying to make matchbox sized drives for the so-called personal digital assistants (PDAs), sexy handheld gadgets that the U.S. tech press was starting to write about. It was also home to some very ambitious government investment types trying to attract multi-million dollar deals for semiconductor factories.
Like South Korea and Taiwan before them, Singaporeans knew they had to go up market to make money in tech. It’s a hard trudge. While they attracted a couple small chip factories, both were eventually gobbled up by larger players. No one else in Southeast Asia seemed to have the money or smarts to get much beyond securing the low hanging fruit of a few labor-intensive chip assembly plants. Today, Vietnam is the breakout exception, cashing in big time on the tech industry’s efforts to diversify manufacturing out of China.
But in those days, everybody wanted to know about the mainland. So, it was not long into my tenure at EWN before Rob charged Alan and me with putting together an editorial trip for the three of us through China. I took charge of getting interviews. It was long arduous work reading through China Daily and other semi-reliable sources. I made phone calls, often with our office assistant acting as translator, though she knew nothing about the tech business. And I sent lots of faxes. I called or faxed every semiconductor company in China I had ever heard of. Eventually we got a half dozen meetings, mostly with dysfunctional state-run enterprises, proud to show us crude prototypes and a couple joint ventures struggling to find the vast domestic markets they were promised.
At one large and underused China plant, Rob spotty a dirty mop and pail in a corner of what was supposed to be a “clean room.” These facilities are called clean rooms because they use special HVAC systems to protect the tiny transistors in the chips from getting shorted out by specks of dust in the air. Workers must don smocks, masks and booties and undergo air showers before entering. So, the mop and pail was in Rob’s eyes a joke, a giveaway that at least this clean room wasn’t making anything particularly advanced.
While the technology at these firms often looked like Soviet-era hand-me-downs, our hosts greeted us warmly, often with long banquets. Hungry for export markets, they welcomed us with open arms. That eased Rob’s anxiety about interviewing state-run enterprises while travelling on tourist visas to avoid questions from China immigration officials. Though he didn’t smoke, Rob brought a carton of cigarettes in case we had to bribe our way out of awkward situations.
One night in Shanghai, Alan and I walked out to the Bund. We looked out over the Huang Pu River to the swamp across the way. China Daily routinely reported the Communist Party planned to turn this bog called Pudong into an international center for finance. What malarkey, we thought. Pure propaganda we American journalists were too seasoned to believe.
We were as wrong as we could be.
A decade later the needle-shaped Oriental Pearl Radio & TV Tower rose up from that swamp nearly 1,600 feet to become for many years China’s tallest building. It’s among hundreds of skyscrapers that today outshine the lights of Hong Kong as one of China’s most valuable jewels. Pudong is home to Asia’s largest stock market, and Shanghai is considered among the world’s top five financial centers.
Next: Shadows of Tiananmen
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