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.
It is no wonder that Craig Addison, the former editor of Electronic Business Asia magazine, wrote an essay for the International Herald Tribune (September 29, 2000), headlined “A 'Silicon Shield' Protects Taiwan from China.” He argued that “Silicon-based products, such as computers and networking systems, form the basis of the digital economies in the United States, Japan and other developed nations. In the past decade, Taiwan has become the third-largest information technology hardware producer after the United States and Japan. Military aggression by China against Taiwan would cut off a large portion of the world's supply of these products... Such a development would wipe trillions of dollars off the market value of technology companies listed in the United States, Japan and Europe.” Even if China's leaders, like former president Jiang Zemin, who was once minister of electronics, lose sight of how integrated China and Taiwan are in the world's computer supply chain, they need only ask their kids for an update. Jiang Zemin's son, Jiang Mianheng, wrote Addison, “is a partner in a wafer fabrication project in Shanghai with Winston Wang of Taiwan's Grace T.H.W. Group.” And it is not just Taiwanese. Hundreds of big American tech companies now have R & D operations in China; a war that disrupted them could lead not only to the companies moving their plants elsewhere but also to a significant loss of R & D investment in China, which the Beijing government has been betting on to advance its development. Such a war could also, depending on how it started, trigger a widespread American boycott of Chinese goods-if China were to snuff out the Taiwanese democracy-which would lead to serious economic turmoil inside China.
The Dell Theory had its first real test in December 2004, when Taiwan held parliamentary elections. President Chen Shui-bian's pro-independence Democratic Progressive Party was expected to win the legislative runoff over the main opposition Nationalist Party, which favored closer ties with Beijing. Chen framed the election as a popular referendum on his proposal to write a new constitution that would formally enshrine Taiwan's independence, ending the purposely ambiguous status quo. Had Chen won and moved ahead on his agenda to make Taiwan its own motherland, as opposed to maintaining the status quo fiction that it is a province of the mainland, it could have led to a Chinese military assault on Taiwan. Everyone in the region was holding his or her breath. And what happened? Motherboards won over motherland. A majority of Taiwanese voted against the pro-independence governing party legislative candidates, ensuring that the DPP would not have a majority in parliament. I believe the message Taiwanese voters were sending was not that they never want Taiwan to be independent. It was that they do not want to upset the status quo right now, which has been so beneficial to so many Taiwanese. The voters seemed to understand clearly how interwoven they had become with the mainland, and they wisely opted to maintain their de facto independence rather than force de jure independence, which might have triggered a Chinese invasion and a very uncertain future.
Warning: What I said when I put forth the McDonald's theory, I would repeat even more strenuously with the Dell Theory: It does not make wars obsolete. And it does not guarantee that governments will not engage in wars of choice, even governments that are part of major supply chains. To suggest so would be naive. It guarantees only that governments whose countries are enmeshed in global supply chains will have to think three times, not just twice, about engaging in anything but a war of self-defense. And if they choose to go to war anyway, the price they will pay will be ten times higher than it was a decade ago and probably ten times higher than whatever the leaders of that country think. It is one thing to lose your McDonald's. It's quite another to fight a war that costs you your place in a twenty-first-century supply chain that may not come back around for a long time.
While the biggest test case of the Dell Theory is China versus Taiwan, the fact is that the Dell Theory has already proved itself to some degree in the case of India and Pakistan, the context in which I first started to think about it. I happened to be in India in 2002, when its just-in-time services supply chains ran into some very old-time geopolitics-and the supply chain won. In the case of India and Pakistan, the Dell Theory was working on only one party-India-but it still had a major impact. India is to the world's knowledge and service supply chain what China and Taiwan are to the manufacturing ones. By now readers of this book know all the highlights: General Electric's biggest research center outside the United States is in Bangalore, with seventeen hundred Indian engineers, designers, and scientists. The brain chips for many brand-name cell phones are designed in Bangalore. Renting a car from Avis online? It's managed in Bangalore. Tracing your lost luggage on Delta or British Airways is done from Bangalore, and the backroom accounting and computer maintenance for scores of global firms are done from Bangalore, Mumbai, Chennai, and other major Indian cities. Here's what happened: On May 31, 2002, State Department spokesman Richard Boucher issued a travel advisory saying, “We urge American citizens currently in India to depart the country,” because the prospect of a nuclear exchange with Pakistan was becoming very real. Both nations were massing troops on their borders, intelligence reports were suggesting that they both might be dusting off their nuclear warheads, and CNN was flashing images of people flooding out of India. The global American firms that had moved their back rooms and R & D operations to Bangalore were deeply unnerved.
“I was actually surfing on the Web, and I saw a travel advisory come up on India on a Friday evening/' said Vivek Paul, president of Wipro, which manages backroom operations from India of many American multinationals. ”As soon as I saw that, I said, 'Oh my gosh, every customer that we have is going to have a million questions on this.' It was the Friday before a long weekend, so over the weekend we at Wipro developed a fail-safe business continuity plan for all of our customers.“ While Wipro's customers were pleased to see how on top of things the company was, many of them were nevertheless rattled. This was not in the plan when they decided to outsource mission-critical research and operations to India. Said Paul, ”I had a CIO from one of our big American clients send me an e-mail saying, I am now spending a lot of time looking for alternative sources to India. I don't think you want me doing that, and I don't want to be doing it.' I immediately forwarded his message to the Indian ambassador in Washington and told him to get it to the right person.“ Paul would not tell me what company it was, but I have confirmed through diplomatic sources that it was United Technologies. And plenty of others, like American Express and General Electric, with back rooms in Bangalore, had to have been equally worried.
