Why Intel’s Andy Grove is wrong about jobs in America (Part II)
August 2, 2010
We recently pointed out several reasons why Andy Grove, the man who built Intel into what it is today, was both right and wrong in a thought provoking opinion piece he had written for Bloomberg about making jobs again in America where he argued that the USA should levy an extra tax on the use of offshore labor and implement other protectionist type measures. However, the history of Intel, especially that of its presence in the Philippines, is a good case in point that shows why Andy may be right about the symptoms and problems facing America, but also why he is completely wrong with his prescription for a cure.
To place things in perspective: Andy’s company was founded in 1968 by two technologists and investors who invested US$3 million in a venture to make memory chips for the computer industry. In 1974, Intel set up its second Asian offshore assemble operations center on the edge of the Makati business district in Metro-Manila and it became the first American multinational semiconductor company to operate in the country. By 2003 though, Intel, like many multinationals involved in manufacturing, had moved its operation out of Metro-Manila to the region south of the city. Eventually, Intel’s 20-hectare site in Cavite would employ several thousand employees involved in test and assembly operations and all told, the company invested about US$1 billion in the country.
During this time though, Intel also opened assembly test sites in Kulim and Penang in Malaysia, Pudong and Chengdu in China and in Ho Chi Minh City in Vietnam. These countries offered Intel high quality talent, abundant cheap labor, low cost electricity and/or favorable investment incentives. Meanwhile, the Philippines (like much of the USA and California in particular) offered Intel and other MNCs just like it high corporate taxes, inconsistent investment incentives, expensive electricity charges, restrictive labor laws and a deteriorating infrastructure and education system. Hence and in 2008, Intel announced that it would close its manufacturing operations in the Philippines (along with plants in Malaysia, Oregon and California) and concentrate on its China and Vietnam manufacturing operations.
Granted, both China and Vietnam easily beat the USA, Malaysia and even the Philippines when it comes to labor costs but they also easily beat most other countries when it comes to offering stable and pro-business regulations and incentives to lure foreign manufacturers and foreign investment in general in order to create jobs for their citizens. Moreover, both China and Vietnam are series about getting their infrastructure up to world class levels (although Vietnam still has a ways to go).
Andy seems to understand this when he pointed out that job creation and the effective involvement of the government in targeting the growth of manufacturing industries were made the top objectives of state economic policy for many Asian countries. Moreover, he pointed out that by some calculations, the cost to Silicon Valley companies to create one position has risen from a few thousand dollars in the early years to around US$100,000 today. Hence, companies hire fewer employees in the USA and subcontract the remaining work to Asia.
And yet, Andy failed to suggest that perhaps the USA (and the Philippines as well) may need to implement policies that will make the country a more friendlier and less expensive place to create jobs. Such policy measures would no doubt go much further to help create jobs at home than levying an extra tax on the use of offshore labor along with other protectionist type measures.
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