Why an American High-Tech Firm Recruits in Asian Rice Fields : Labor: California-based Seagate says remote disk-drive production gives it a competitive edge. Beginning workers are paid 50 cents an hour.
They arrive by foot and by bus, 3,000 at a time, and pour into a sparkling white plant the size of five football fields. There, they suit up in crisp pastel smocks, file into rows of immaculate workbenches and begin the arduous task of screwing, fastening and bending thin wires under the small lens of a microscope. Eight hours later, they are relieved by 3,000 fresh pairs of eyes and hands.
They are young Thai women--conscientious and compliant--and the symbol of success for Seagate Technology Inc., a $2.5-billion American company that may be better known in Singapore and Bangkok than in most parts of the United States. To Seagate Chairman Alan Shugart, having 27,000 of your 40,000 workers in Southeast Asia makes logical sense: “In Thailand, there is a lot of close work under microscopes. It is pretty tough to find people in the U.S. to do that kind of work.”
Shugart’s blunt conclusion might make many people cringe, particularly considering that his Asian employees earn as little as 50 cents an hour. But it is by recognizing these kinds of stark, though controversial, distinctions that Seagate believes that it and a handful of other U.S. competitors have remained the undisputed world leaders in the fast-growing $7-billion market for compact hard-disk drives, the part of a computer system that stores volumes of data.
At a time when nearly every other high-technology industry seems to be losing ground to Japan, this one has stayed American--but largely in name only. These companies, with Scotts Valley, Calif.-based Seagate leading the pack, are not the so-called stateless corporations that disperse their operations rather evenly around the world. Rather, they are companies that keep their most highly paid, highly educated employees in the United States and deposit a lopsided proportion of their manufacturing in Southeast Asia, moving when necessary from place to place in ruthless pursuit of cheaper labor, generous tax havens and lower-priced parts and services.
While the rest of the nation struggles to recapture jobs and skills lost during years of tough overseas competition, the companies in the unsexy business of making disk drives are busy fanning out from their first operations in Singapore farther into the Pacific region, to places such as Thailand and Malaysia. In so doing, they are defying academic experts who argue that remote manufacturing can cause quality and service problems outweighing any apparent savings brought about by low-cost labor.
Seagate’s venture abroad began in 1982, three years after its founding by a group including Shugart, who with President David T. Mitchell runs the company today with an iron grip, determined to squeeze every last cent out of operating costs. That mentality is pervasive in the disk-drive industry, where prices drop 20% a year and rival companies run a merciless marathon in hopes of cramming ever more data into an ever smaller space. Yet, even in this industry of tough taskmasters, Seagate is known as a bully of sorts, a reputation earned with its history of sudden layoffs, harried hiring binges and an erratic bottom line.
Its fixation on cost-cutting made Seagate a fine match for Singapore, the tiny island republic that beckoned a decade ago with a 10-year exemption from income taxes, sundry other financial incentives and the promise of plentiful and diligent English-speaking workers.
The lure proved fruitful--Seagate in the early days was able to cut costs by 30%, although the savings have declined somewhat--and the firm has mushroomed into Singapore’s largest private employer, with 12,400 workers. Other firms followed in rapid succession, making Singapore the disk-drive capital of the world, the producer of roughly 70% of the world’s supply of hard-disk drives for desktop computers. The shift to Singapore has been so complete that some key parts needed to make the disk drives no longer can be bought in large quantities or at reasonable prices in the United States.
About three-fourths of the parts that Seagate needs come from Asia, with many flown in by Singapore Airlines, then expedited by snap-to-attention ground crews and rubber-stamp customs officials. From touchdown to arrival at Seagate’s factory is a mere six hours.
“You can do business in the disk-drive industry in Singapore in a more concentrated and streamlined manner than anywhere else in the world,” said James McCoy, chairman of Seagate competitor Maxtor Corp. of San Jose. “Effectively, all you need is right there--and it’s not an accident.”
Neither is the diligence of the workers. The powerful government of Prime Minister Lee Kuan Yew has ingrained in Singaporeans a single-minded pursuit of productivity, a strategy that has attracted so many foreign factories that Singapore no longer is interested in the kind of manual jobs that Seagate offers.
Seagate’s assembly workers, whose pay averages $2 an hour, are scattered across the island in spacious, campus-like industrial parks and in a cramped complex of seven-story high-rises. At one location, the employees, nearly all women, piece together drives while facing each other across 3-by-3-foot tables. They rarely speak, rarely look up. One American Seagate manager described them as “mini-robots,” then was cautioned by an aide to display more sensitivity.
That’s not always easy, given cultural differences that sometimes can be subtle. American managers routinely make the obvious accommodations; for example, they must provide separate food preparation and eating facilities for the Moslems among the primarily Chinese population.
But they can miss nuances. The company was accustomed, for example, to moving workers from job to job as factory needs changed, only to find that some would abruptly quit without explanation. A Seagate human resource director, Albert Sim, set the American managers straight: “They don’t like changes,” he said. “There is loyalty to the boss.”
That practice was cut back, but Sim still worries that the company could do better by its workers. One year, turnover reached 40%. “Our focus is trying to be No. 1,” said Sim. “As a result, there is not a lot of attention paid to human development.”
That situation is changing somewhat now that the Singapore government is striving to make the island a financial and distribution hub and a center for higher-skilled jobs, in the process forcing firms such as Seagate to soften their image and harden their sell to potential employees.
At one point, the company splashed its logo across a bus and drove into the city’s densely populated housing developments, recruiting workers on the spot. These days, it copes with the labor shortage by bringing in 1,900 women a day by bus from Malaysia, 45 minutes away.
And like other companies, Seagate must increase pay at near-double-digit rates each year and offer a panoply of special benefits that would have been unthinkable just a short time ago. Among them: child-care reimbursements, free medical care, school allowances for workers’ children and $100 bonuses for employees who recruit another worker to join the assembly line.
Thailand, a newcomer to industrialization, poses challenges of a different sort.
Eager assembly workers are in ample supply; essential services such as electricity and water are not. When Seagate needed to hire 800 new workers, it spread the word by posting notices inside its Bangkok plant, asking the young women to tell their friends. Nearly 1,500 applied.
Seagate’s plants are on the outskirts of Bangkok, a tropical city that emerged from the shadow of the Vietnam War as an uncontrolled metropolis of more than 5 million people, where new office towers and roads seem to blossom overnight.
At the newest Seagate plant, located in a region of modern factories and shopping centers, 1,000 women are perched over microscopes in spotless, gymnasium-sized rooms, each threading a tiny wire 28 times through a pinhole. The good workers wind 16 coils an hour.
Beginners earn roughly 50 cents an hour, but if they move up the ranks they can earn considerably more and improve their status in life.
Twenty-year-old worker Wipaporn Pintong, who inserts electronic parts into drives, is saving money for college. Chusri Gradungnga, who supervises 38 women, hopes some day to be a Seagate executive. Working there, she said, “is like a big family.”
For many of the women, especially new arrivals from Thailand’s rural rice fields, the family life at Seagate begins with a basic course in urban living. It includes family planning, nutrition and pointers on the use of a Western-style toilet.
They can sign up for English instruction offered by Seagate’s two teachers, and they are taught a sense of urgency and asked to set aside a typically gentle, easy-going nature that would rather avoid than confront a problem.
Americans need to be broken in, too. Together, U.S. and Thai managers attend cross-cultural training classes. Thais are sensitized to the direct manner and loud speech of the Westerners. Americans are taught cultural tips, such as never to touch a Thai on the head.
Despite all efforts, communication gaps inevitably persist. Ronald Verdoorn had been chief of Thai operations for some time when he asked one of his top English-speaking Thai managers how much of the daily management meeting he understood. The man said he grasped about 60%.
A bigger obstacle for Seagate and the crush of new companies that has poured into Bangkok--the largest number of them Japanese--is the shortage of essential services.
A year ago, Seagate expected to get city-supplied water at one of its factories; it still relies on its own well. Backup generators are essential because electricity is knocked out at least twice a month. It took a year to get a pay phone installed. The main roads through a city built for transportation by canal are in a state of near-constant gridlock. The port is so jammed that goods can be tied up for days, requiring companies to shift to costlier air freight.
“It’s essentially a gold digger’s town, a boom town,” Verdoorn said. Another consequence is a shortage of professional personnel--the accountants, engineers and computer technicians needed to keep the company operating. Just as they do back home, foreign firms in Bangkok have taken to cherry-picking employees from one another with the promise of fatter pay packages.
And sooner than Seagate and other firms here expected, wages for assembly workers have shot up too. The government-imposed minimum wage has been boosted three times in 18 months.
“The frequency has been a bit of a surprise,” Verdoorn conceded.
These rising costs and the inconveniences that come with overseas manufacturing aren’t likely to deter Seagate’s Shugart, who arguably knows more than anyone else how best to manufacture a disk drive.
Shugart, 59, cut his teeth at International Business Machines Corp.’s San Jose laboratory, where the disk drive was invented in the 1950s. He went on to help three other companies into the business. One was his namesake Shugart Associates, the birthplace of the compact floppy disk drive. Another was Seagate, which pioneered the same small size in the hard drives that gained instant popularity in personal computers.
The fortunes he made along the way earned Shugart a place among the elite: He drives a cherry-red Porsche, lives in swank Pebble Beach and is regularly among the highest bidders at Napa Valley’s annual auction of fine wines. But he’s equally comfortable rubbing shoulders with the working class. Not long ago, Shugart, who always is seen in short sleeves, ran a commercial fishing vessel and a saloon. He has little patience for academic consultants who think they know disk drives.
They have little patience for his ideas either. For the most part, the consultants and a growing body of business executives consider the disk-drive industry’s love affair with remote manufacturing a quick fix that diverts attention from more substantial savings that can be derived from better product design and better management.
They argue that automation has slashed the cost of blue-collar labor as a percentage of total manufacturing costs, which means that wages may represent a relatively insignificant 5% or so of assembly costs.
Moreover, they say that whatever the advantages that may now exist in underdeveloped countries, they will diminish as wages inevitably rise and tax benefits wane. And often overlooked by companies going offshore, they say, are added shipping costs, long-distance bills, import duties and mistakes resulting from miscommunications.
“There was a logic that was fairly compelling 15 or 20 years ago,” said Robert Hayes, a professor specializing in manufacturing at Harvard Business School. “The logic has evaporated. Companies are absolutely blinded by the apparent labor savings . . . but they don’t look at the waste.”
Seagate managers, on the contrary, shun automation, saying it would impair the company’s ability to quickly change products. In a low profit-margin business such as disk drives, they insist, even the small savings on labor, coupled with cheaper parts and lower taxes, are compelling reasons to be in Asia.
Although Shugart expects to keep the U.S. plants Seagate inherited with its recent acquisition of a Control Data Corp. unit, he can’t imagine expanding production in the United States.
To those ivory tower inhabitants who say there are better ways to be competitive than going overseas, he has a quick retort: “My answer to them is, they’ve never tried it.”
