By Francis Hutchinson , FOR THE STRAITS TIMES
The electronics sector is one of the most dynamic and globalised, with manufacturing operations in locations spread across the globe. But despite the industry's internationalisation, many of its start-ups still originate in Silicon Valley, a 'node' of excellence. -- PHOTO: ASSOCIATED PRESS
IT APPEARS that our world is changing shape. According to commentators like The New York Times' Thomas Friedman, it is 'flattening' for a number of reasons - including technological advances such as the Internet and workflow software, as well as new forms of organising production such as offshoring, outsourcing and supply- chaining.
As a result of these changes, sectors in industrialised nations that had previously been sheltered from international competition are now being threatened by far-off and cheaper locations. In turn, countries that were once on the margin of the global economy are enjoying rapid growth. This increased competition is what has been described as the ''flattening' of the world or a 'levelling of the playing field'.
In a recent NYT column, Mr Friedman cited as emblematic of a 'flat' world a start-up established by Indians and Cubans living in the United States. It had venture capital from St Louis, Missouri, a manufacturing operation in Uruguay, technical support from professionals in Israel, India and Chile, and a South African as chief executive. Entrepreneurs and technically 'savvy' people from around the globe, he argued, are able to meet and collaborate due to advances in technology and organisational processes.
This vision of a 'flat' world has considerable merit. Yet it is possible that while the world is changing shape, it is not 'flattening'. While distance has become less of a barrier, the location of economic activity is still very relevant. If anything, the changes in economic activity arising from globalisation mean that location is more important than ever before. This is particularly the case with regard to the development of new products and processes - otherwise known as innovation.
While business transactions can be impersonal, they are still social activities carried out among people. Trade is not just about exchanging an item for an agreed- upon price. It is also about communication within the framework of an agreed- upon set of rules such as transparency, efficiency and confidentiality - rules that do not always lend themselves to communication from afar. In addition, certain types of activity respond better to being cut up and parcelled out across a range of locations than others.
Industries such as medical transcription, call centres, payroll administration and draughtsmanship are being carried out in locations as diverse as Tunisia, the Philippines and India. These are often taken as examples of the globalisation of services. However, many of these industries consist of tasks that are repetitive, easily measured, and not business-critical for clients. Furthermore, they do not rely on constant technological innovation.
Many other economic activities rely on close, detailed communication and the establishment of dense social links for their success and continual creativity. This is particularly the case for highly sophisticated activities or those that rely on skills that are hard to acquire or transmit. Industries such as finance, film and fashion as well as craft-based activities such as watch-making and jewellery fabrication are quite resistant to being sliced up and moved to far-off locations. Industries such as public relations and management consulting depend on healthy doses of 'face time' to plan, strategise and collaborate. Even sectors that are well-known for being mobile are not immune to the importance of location - for example, critical tasks such as design and research and development.
The electronics industry is probably one of the most dynamic and globalised, with manufacturing operations in locations ranging from China to Costa Rica. Despite the industry's internationalisation, many of its start-ups continue to originate in Silicon Valley. In addition to facilities such as technology parks and institutes of higher learning such as Stanford University and the various campuses of the University of California system, that part of California also has social 'infrastructure'. This includes formal and informal venues for entrepreneurs to meet and exchange ideas, shared perceptions of innovation, and industry veterans willing to nurture the development of new firms. In fact, some argue that all of Silicon Valley functions as a giant laboratory. Despite attempts across the globe to recreate a similar setting for other industries, few, if any, have succeeded.
Therefore, it is unlikely that Silicon Valley will be 'flattened' out of existence. Rather, it will probably remain an 'island' of excellence that entrepreneurs in the electronics and IT industries will have to incorporate into their business strategies. Such islands are emerging in other sectors and other countries. For example, India's Bangalore has cemented its reputation as such a business-critical location for the software industry.
While the start-up Mr Friedman mentions is sure to do well, a counterexample of a Singapore firm offers another vision of how the world is being re-shaped. Quantum Precision Instruments was set up by a Polish-Australian physicist in Melbourne. He subsequently moved it to Singapore to access this country's business- friendly environment, research facilities, and a wide range of grants. The award- winning firm has venture capital from London, accesses testing equipment from the University of California at Los Angeles, Cambridge University and A*Star, and has a marketing arm in Silicon Valley.
From a business point of view, Quantum Precision Instruments is structured to carry out everyday operations in one of the most business-friendly nations in the world, tap capital from the foremost financial centres, utilise leading-edge equipment from the globe's best research institutes, and sell its technology directly to the industry's most discerning clients.
This business strategy shows that while technology and associated production processes have reduced the importance of distance, the location from which a firm's activities are carried out is now more important than ever. Centres or islands of excellence that are far from one another can be tapped simultaneously and made an essential part of everyday operations.
Thus, rather than living in a 'flat' world, it may be more accurate to see our reshaped world as one comprising inter- connected nodes or 'lumps'. The challenge for policymakers is how to become - or remain - a node. The challenge for entrepreneurs is how best to connect these different nodes into a winning business model.
The writer is a visiting research fellow at the Institute of Southeast Asian Studies.
Source - The Straits Times (http://www.straitstimes.com/Review/Others/STIStory_540873.html?sunwMethod=GET)