The reality of world competition for America’s factory owners
Tuesday, December 27, 2011
In today’s dog-eat-dog world, change is constant and accelerating. Other countries are stealing our factories and jobs and are hungry for more. That is the new reality.
For example, in the 1990s, a California-based company called FormFactor developed a new and faster way to test semiconductors, the heart of today’s computers. Chipmakers needed assurance their products operate efficiently, consistently and have long-term durability.
FormFactor was founded by a Ukrainian immigrant named Igor Khandros, who was an IBM engineer. Khandros developed the device, found investors and manufactured it in California.
The company was profitable and cruising along until a Korean company, Phicom, copied the device and started making it cheaper. That undercut FormFactor sales. It sued Phicom for patent infringement, but lost in a Korean court.
For FormFactor to compete and survive, it needed to invest millions to develop a more advanced product. But like many companies it needed cash.
Andrew Liveris, chairman & CEO of Dow Chemical Company, recounts the company’s story in his book, Make it in America: The Case for Re-Inventing the Economy. As FormFactor was grappling with this problem, Khandros got a call from Singapore’s Economic Development Board, which was empowered by that nation’s government to attract foreign investments.
Board officials offered FormFactor tax holidays, free property on which to build the plant and company headquarters, and substantial grants for equipment and materials. The savings would allow the company to invest substantially in research and development to leapfrog over Phicom.
Khandros, as Liveris reports, didn’t want to accept the deal. After all, he had made his fortune in America. But now he was losing his shirt to foreign competition. Simply put, FormFactor was rapidly on its way to extinction.
When Khandros approached U.S. officials for assistance in defraying research costs and additional intellectual property protection for its pending trade secrets, they brushed him off.
To survive, Khandros closed his U.S. operations and re-opened in Singapore. California and our country lost jobs, tax revenues and related business income, and FormFactor is one of the thousands of companies that are not only manufacturing offshore but conducting research and development in foreign lands too.
We’re not talking peanuts here. Intel’s CEO Paul Otellini told New York Times columnist Thomas Friedman that building a world-scale semiconductor plant from scratch in the U.S. in 2010 would cost $4.5 billion and take years for permitting. In China, that same plant would cost $2.5 billion and be permitted within months.
The problem is, if Congress and state legislatures end tax incentives in order to pay down the debt, American companies will have little choice but to invest outside the USA in order to survive. That will eliminate American jobs and the tax revenues we need to pay off federal and state government debts.
Made in America is a culture we grew up with and one we want to revive. It creates jobs in our communities, cuts our trade deficit and brings in tax revenues for our schools, police and fire departments, and provides for the needy.
I am not arguing that our federal and state elected officials should give away the store to companies like FormFactor or Intel, but they need to look at the reality of today’s global economy and make their decisions carefully, based on economics not politics.
They need to initiate rational and thoughtful policies to bring companies back to America. That will not be easy with the 2012 elections only 13 months away. However, we are at such a critical time in our nation’s history that politicians need to toss aside the political playbook, come together like we did following 9/11 and do what is best for our country.
It is that critical!
Don Brunell is the president of the Association of Washington Business. Formed in 1904, the Association of Washington Business includes more than 7,500 members representing 650,000 employees. AWB serves as both the state’s chamber of commerce and the manufacturing and technology association. For more about AWB, visit www.awb.org.