Recently, I was under the weather and spent a lot of time in a recliner reading Economist magazines and such...in fact, most of the following comments are distilled from such reading (no originality from me), and I've referenced the articles in case you want to read them in their entirety. Just stuff I found interesting.
1. Foxconn, the worlds largest contract manufacturer, is seeking to improve its margins as it expands in the interior of China, in a bid to once again double in size. It's net margin has slipped to about 2% even as it has employed more people, although its latest earnings have surged, partly because Apple is paying more for their services, something Apple is putting a positive, wishful spin on by characterizing as a "subsidy", rather than meeting a demand to cough up more money. Part of the reason for Foxconn's low margins has been greater worker demands for higher pay and better working conditions. Another reason is its status as a "midstream" manufacturer, with little involvement in the higher profits associated with design (upstream) and marketing/sales (downstream). Apple, which represents 40-45% of its revenues, makes obscene profits by comparison. Typically, it costs Apple a few dollars to have a product assembled, which it then sells for several hundred dollars. This hasn't escaped the notice of Foxconn management. They're strategy is to gain control over more of the component design and manufacturing. (For instance, Intel is planning to hand over the lion's share of R&D of its motherboards to Foxconn, as part of an acknowledgment that Foxconn now has more experience and expertise, not to mention a likely bonus for the Intel managers who identified this cost reduction.) Foxconn also plans to help its customers sell their product in China via its stake in several retail chains. While these moves are designed to help both their customers and themselves, the longer term effect for Foxconn is an eventual reduction in their competition, more IP within their control, and greater bargaining power for them, which (in my opinion) could eventually "expose" companies like Apple as mere "shell" companies with little value or leverage and thus leave them on the trash heap of a once-great American high-tech industry. Perhaps Sharp serves as a harbinger of things to come. Incidentally, Foxconn is a nice Western-sounding trade name, although I'm wondering if whoever came up with that particular name might have had a Machiavellian twinkle in his eye. The real name of this Taiwanese company is the Chinese equivalent of "Hon Hai Precision Industry Co."
2. Speaking of IP (intellectual property), in 2011 China's patent applications increased by 2/3, knocking the U.S. off the top spot. Europe now has a more-or-less unified patent system, while the U.S. signed a patent reform bill into law last year after years of fruitless efforts at reform. The cost, bureaucracy and delays associated with obtaining a patent unfortunately still remain huge problems in both Europe and the U.S. One reason (in the case of the U.S.) is that the high fees associated with patent applications are not retained by the patent office, but may instead go toward other government expenditures. Meanwhile, the U.S. government patent office is critically understaffed.
On a related subject, fat royalty payments for intellectual property is a favorite legal scam used by big companies to shelter their profits in lower-tax countries and in tax havens like Bermuda, Barbados and the Cayman Islands. Ninety-eight of the 100 companies in the FTSE 100 have at least one subsidiary in a tax haven, where profits go in the form of such things as "royalty payments". Even companies like Google and Amazon do this. In my opinion, the solution to these shenanigans is simple: eliminate all corporate taxes, and replace with more taxes on high-income individuals. This will not only eliminate the shenanigans, but will encourage companies to do more business in the U.S.
Perhaps the most pressing issue with "intellectual property" though, is represented by our college students who are highly educated and unemployable. A wasted intellect is a tragic situation--a situation that was begotten of the belief that a "real" college or university education was a first-rate education while a vocational school or community college education was seen as less desirable. According to an article in the Economist, skills shortages are getting worse even as youth unemployment reaches record highs in Europe, the U.S. and elsewhere. Companies are now partnering more and more with vocational schools to attract, train and employ people with needed technical skills, while colleges and universities still are largely confined to their own ivory towers. South Korea may serve as at least one model, in that it has created a network of vocational schools--called "meister" schools--to reduce the country's shortage of machine operators and plumbers. Apple and other companies are paying Foxconn to open some plants in the U.S. and Brazil. Part of the hope is that Foxconn, who has a lot of expertise in training China's backward rural residents with little education to run their assembly lines, may be uniquely qualified to train our "worthless" college students how to likewise do something useful. (Having said this, I want to emphasize that I personally feel everyone should have some modicum of a liberal arts education--not necessarily as a route to a job, but to enrich their lives and make them better citizens.)
3. There has been a lot of discussion about whether universal government ID cards and a universal database rich in information are a good idea from the standpoint of an individual's privacy, data security and potential abuses, and regarding what level and on what pretext government spying on its own citizens may be justifiable. This is an important subject with a lot of opinions. However, articles such as this as well as the proliferation of smartphones makes me wonder if, in the final analysis, government spying may become the least of our worries. Perhaps the most pressing issue will become, to what extent and under what pretext can one individual or company spy on another, and to what extent can such rules actually be enforced? Could our future society turn into a paranoid, windowless nightmare? Or would the nation instead turn into one big party line where we get used to everybody knowing the most intimate details about everybody else, and if so, what would it be like to live in a society where there were no such thing as privacy?
1. Foxconn, the worlds largest contract manufacturer, is seeking to improve its margins as it expands in the interior of China, in a bid to once again double in size. It's net margin has slipped to about 2% even as it has employed more people, although its latest earnings have surged, partly because Apple is paying more for their services, something Apple is putting a positive, wishful spin on by characterizing as a "subsidy", rather than meeting a demand to cough up more money. Part of the reason for Foxconn's low margins has been greater worker demands for higher pay and better working conditions. Another reason is its status as a "midstream" manufacturer, with little involvement in the higher profits associated with design (upstream) and marketing/sales (downstream). Apple, which represents 40-45% of its revenues, makes obscene profits by comparison. Typically, it costs Apple a few dollars to have a product assembled, which it then sells for several hundred dollars. This hasn't escaped the notice of Foxconn management. They're strategy is to gain control over more of the component design and manufacturing. (For instance, Intel is planning to hand over the lion's share of R&D of its motherboards to Foxconn, as part of an acknowledgment that Foxconn now has more experience and expertise, not to mention a likely bonus for the Intel managers who identified this cost reduction.) Foxconn also plans to help its customers sell their product in China via its stake in several retail chains. While these moves are designed to help both their customers and themselves, the longer term effect for Foxconn is an eventual reduction in their competition, more IP within their control, and greater bargaining power for them, which (in my opinion) could eventually "expose" companies like Apple as mere "shell" companies with little value or leverage and thus leave them on the trash heap of a once-great American high-tech industry. Perhaps Sharp serves as a harbinger of things to come. Incidentally, Foxconn is a nice Western-sounding trade name, although I'm wondering if whoever came up with that particular name might have had a Machiavellian twinkle in his eye. The real name of this Taiwanese company is the Chinese equivalent of "Hon Hai Precision Industry Co."
2. Speaking of IP (intellectual property), in 2011 China's patent applications increased by 2/3, knocking the U.S. off the top spot. Europe now has a more-or-less unified patent system, while the U.S. signed a patent reform bill into law last year after years of fruitless efforts at reform. The cost, bureaucracy and delays associated with obtaining a patent unfortunately still remain huge problems in both Europe and the U.S. One reason (in the case of the U.S.) is that the high fees associated with patent applications are not retained by the patent office, but may instead go toward other government expenditures. Meanwhile, the U.S. government patent office is critically understaffed.
On a related subject, fat royalty payments for intellectual property is a favorite legal scam used by big companies to shelter their profits in lower-tax countries and in tax havens like Bermuda, Barbados and the Cayman Islands. Ninety-eight of the 100 companies in the FTSE 100 have at least one subsidiary in a tax haven, where profits go in the form of such things as "royalty payments". Even companies like Google and Amazon do this. In my opinion, the solution to these shenanigans is simple: eliminate all corporate taxes, and replace with more taxes on high-income individuals. This will not only eliminate the shenanigans, but will encourage companies to do more business in the U.S.
Perhaps the most pressing issue with "intellectual property" though, is represented by our college students who are highly educated and unemployable. A wasted intellect is a tragic situation--a situation that was begotten of the belief that a "real" college or university education was a first-rate education while a vocational school or community college education was seen as less desirable. According to an article in the Economist, skills shortages are getting worse even as youth unemployment reaches record highs in Europe, the U.S. and elsewhere. Companies are now partnering more and more with vocational schools to attract, train and employ people with needed technical skills, while colleges and universities still are largely confined to their own ivory towers. South Korea may serve as at least one model, in that it has created a network of vocational schools--called "meister" schools--to reduce the country's shortage of machine operators and plumbers. Apple and other companies are paying Foxconn to open some plants in the U.S. and Brazil. Part of the hope is that Foxconn, who has a lot of expertise in training China's backward rural residents with little education to run their assembly lines, may be uniquely qualified to train our "worthless" college students how to likewise do something useful. (Having said this, I want to emphasize that I personally feel everyone should have some modicum of a liberal arts education--not necessarily as a route to a job, but to enrich their lives and make them better citizens.)
3. There has been a lot of discussion about whether universal government ID cards and a universal database rich in information are a good idea from the standpoint of an individual's privacy, data security and potential abuses, and regarding what level and on what pretext government spying on its own citizens may be justifiable. This is an important subject with a lot of opinions. However, articles such as this as well as the proliferation of smartphones makes me wonder if, in the final analysis, government spying may become the least of our worries. Perhaps the most pressing issue will become, to what extent and under what pretext can one individual or company spy on another, and to what extent can such rules actually be enforced? Could our future society turn into a paranoid, windowless nightmare? Or would the nation instead turn into one big party line where we get used to everybody knowing the most intimate details about everybody else, and if so, what would it be like to live in a society where there were no such thing as privacy?
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