It is now time to pay our final respects to the widget. For decades the widget has served as the paradigm for business texts: a basic, uncomplicated manufacture. But in the brave new Nike economy we live in today, even the simplest products -- a pair of sports shoes, say -- have behind them a complex and frequently international pedigree. Everyone understands that things like cars and computers are complicated products. But when a Singaporean or Los Angeles teenager puts on a pair of Nikes, does he or she have any inkling about the elaborate process behind them?
These thoughts came to mind during our recent visit to the Yue Yuen Industrial Estate in Dongguan, China. Technically, Nike doesn't own any factories (we will discuss this and related issues involving workers' rights in a subsequent editorial). But Yue Yuen produces Nike shoes, is geared towards Nike standards and reflects Nike needs. As leaders from the Asia-Pacific region prepare for high-level Apec and WTO meetings later this year, they would do well to give Nike's operation here a careful look. For it at once illustrates the growing sophistication of Asian manufactures and suggests what countries will need to do to continue to offer value -- added as affluence erodes their traditional advantage in low-cost labour.
The nearby chart points to what we are getting at. The particular Nike shoe is the Air Max Penny named for basketball star Anfernee "Penny" Hardaway. The Air Max Penny may look simple, but it is made up of 52 different components coming from five different countries -- and that doesn't include nonmaterial inputs such as design, transportation and marketing. Like all footwear on a Nike assembly line, it will be touched by at least 120 pairs of hands during production. This helps explain why a pair of children's shoes costs as much as an adult's.
In other words, our new widget is a triumph of logistics that would make many an army general green with envy. Not only do all the materials have to come together, they have to come together at the right time.
This is business in an international era. And it requires constant upgrading: of materials, of process, of workers. "This is the future and beyond right here," says Nike's general manager for China, Ron Hartfeil, holding one of the factory's running shoes. "In the old days we'd make one model and it would run for 9-12 months. But no more. Now we are changing models every week."
What does this mean for Asia? For one thing, it suggests the futility of trying to apply borders to today's business. Nike, for example, is an American firm that started in Japan, and though we laugh at the medieval philosophers who debated how many angels could fit on a pin head our own statesmen and trade negotiators haggle over local content. Yet how would they classify a Nike from the Dongguan factory? The leather comes from South Korea. Those putting it together are mainland Chinese. The factory is owned by Taiwanese, and the design and marketing come from America. And if this is what it is like for a simple sports shoe, imagine what it must be for an Acer computer or a Toyota sedan.
More important, the Nike metaphor shows that Asia's competitiveness will depend more and more on factors outside the factory gates; while it costs only a $1 to ship a pair of Nikes by sea from Dongguan, it costs $5 to send them by air. With retailers insisting on ever shorter lead times, this differential becomes more important, and a more open cargo policy might provide the competitive edge. We concede that trade liberalization may seem arcane and the direct effects of inefficient local regulations hard to measure. But to paraphrase Marshall McLuhan, the process is the product. And wise will be the Asian nations who realize that if they want to continue to make competitive widgets, they will need much more than low wages.