The World Is Flat

There is a lot of truth to this. Countries whose workers and industries are woven into a major global supply chain know that they cannot take an hour, a week, or a month off for war without disrupting industries and economies around the world and thereby risking the loss of their place in that supply chain for a long time, which could be extremely costly. For a country with no natural resources, being part of a global supply chain is like striking oil-oil that never runs out. And therefore, getting dropped from such a chain because you start a war is like having your oil wells go dry or having someone pour cement down them. They will not come back anytime soon.

“You are going to pay for it really dearly,” said Glenn E. Neland, senior vice president for worldwide procurement at Dell, when I asked him what would happen to a major supply-chain member in Asia that decided to start fighting with its neighbor and disrupt the supply chain. “It will not only bring you to your knees [today], but you will pay for a long time-because you just won't have any credibility if you demonstrate you are going to go [off] the political deep end. And China is just now starting to develop a level of credibility in the business community that it is creating a business environment you can prosper in-with transparent and consistent rules.” Neland said that suppliers regularly ask him whether he is worried about China and Taiwan, which have threatened to go to war at several points in the past half century, but his standard response is that he cannot imagine them “doing anything more than flexing muscles with each other.” Neland said he can tell in his conversations and dealings with companies and governments in the Dell supply chain, particularly the Chinese, that “they recognize the opportunity and are really hungry to participate in the same things they have seen other countries in Asia do. They know there is a big economic pot at the end of the rainbow and they are really after it. We will spend about $35 billion producing parts this year, and 30 percent of that is [in] China.”

If you follow the evolution of supply chains, added Neland, you see the prosperity and stability they promoted first in Japan, and then in Korea and Taiwan, and now in Malaysia, Singapore, the Philippines, Thailand, and Indonesia. Once countries get embedded in these global supply chains, “they feel part of something much bigger than their own businesses,” he said. Osamu Watanabe, the CEO of the Japan External Trade Organization (JETRO), was explaining to me one afternoon in Tokyo how Japanese companies were moving vast amounts of low– and middle-range technical work and manufacturing to China, doing the basic fabrication there, and then bringing it back to Japan for final assembly. Japan was doing this despite a bitter legacy of mistrust between the two countries, which was intensified by the Japanese invasion of China in the last century. Historically, he noted, a strong Japan and a strong China have had a hard time coexisting. But not today, at least not for the moment. Why not? I asked. The reason you can have a strong Japan and a strong China at the same time, he said, “is because of the supply chain.” It is a win-win for both.

Obviously, since Iraq, Syria, south Lebanon, North Korea, Pakistan, Afghanistan, and Iran are not part of any major global supply chains, all of them remain hot spots that could explode at any time and slow or reverse the flattening of the world. As my own notebook story attests, the most important test case of the Dell Theory of Conflict Prevention is the situation between China and Taiwan-since both are deeply embedded in several of the world's most important computer, consumer electronics, and, increasingly, software supply chains. The vast majority of computer components for every major company comes from coastal China, Taiwan, and East Asia. In addition, Taiwan alone has more than $100 billion in investments in mainland China today, and Taiwanese experts run many of the cutting-edge Chinese high-tech manufacturing companies.