第 67 页

I believe that as time and progress go on there, the chance for a really disruptive

event goes down exponentially. I don't think our industry gets enough credit for the

good we are doing in these areas. If you are making money and being productive and

raising your standard of living, you're not sitting around thinking, Who did this

to us? or Why is our life so bad?"

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.

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

424

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 hisproposal to write anew 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

425

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 ofthis book know all thehighlights: 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, 1 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.

For many global companies, "the main heart of their business is now supported here,"

said N. Krishnakumar, president of MindTree, another leading Indian knowledge

outsourcing firm based in Bangalore. "It can cause chaos if there is a disruption."

While not trying to meddle in foreign affairs, he added, "What we explained to our

government, through the Confederation of Indian Industry, is that providing a stable,

predictable operating environment is now the key to India's development." This was

a real education for India's elderly leaders in New Delhi, who had not fully absorbed

how critical India had become to the world's knowledge supply chain. When you are

managing vital backroom operations for American Express or General Electric or Avis,

or are responsible for tracing all the lost luggage on British Airways or Delta, you

cannot take a month, a week, or even aday off for war without causing major disruptions

for those companies. Once those companies have made a commitment to outsource business

operations or research to India, they expect it to stay there. That is a major

commitment. And if geopolitics

427

causes a serious disruption, they will leave, and they will not come back very easily.

When you lose this kind of service trade, you can lose it for good.

"What ends up happening in the flat world you described," explained Paul, "is that

you have only one opportunity to make it right if something [goes] wrong. Because

the disadvantage of being in a flat world is that despite all the nice engagements

and stuff and the exit barriers that you have, every customer has multiple options,

and so the sense of responsibility you have is not just out of a desire to do good

by your customers, but also a desire for self-preservation."

The Indian government got the message. Was India's central place in the world's

services supply chain the only factor in getting Prime Minister Vajpayee to tone down

his rhetoric and step back from the brink? Of course not. There were other factors,

to be sure-most notably the deterrent effect of Pakistan's own nuclear arsenal. But

clearly, India's role in global services was an important additional source of