Many products have become commodities

The core features and functions of PLC and DCS systems are easily copied and the cost reduces to quality manufacture of commodity hardware with the lowest labor and overhead. Software is even more easily copied - if not directly, then at least through availability of functional equivalents that can be developed quickly and cheaply in countries like India, which have rapidly become software development centers.

With the recent lack of growth, US automation suppliers are looking to maintain or increase profits through the only means available - reducing costs through offshore outsourcing. Beyond just trained labor, knowledge work such as design and engineering services are also being outsourced. This trend has already become significant in the US, causing joblessness not only for manufacturing labor, but also for traditionally high-paid engineering positions. Supposedly innovation, the true source of value, remains; but that too is in danger of being dissipated - sacrificed to a short-term search for profit. Sleeping giants awaken It's clear to many people today that China is poised to take over the world's manufacturing. In China today, some 18 million people enter the work force each year, with typical wages of less than $1 a day. Manufacturing workers outside of China are being displaced on a large scale; even Mexico is losing jobs to China.

The idea that Chinese workers are replacing physical labor elsewhere has long been accepted. But now China is poised to replace the world's knowledge workers as well. The country is turning out 700,000 engineers a year, 37% of all college graduates, all trained in a university system that is rapidly growing in size and quality. Engineer pay ranges from $4,000 to $8,000 a year, plus medical costs, housing and pension. As product design becomes more network-centric and less location-dependent, competition against Western engineers is becoming fierce.

Already a significant share of manufactured goods is sourced in China; and similarly, there is a significant market for outsourced software from India. Major automation suppliers like Honeywell, Invensys, Emerson, Rockwell and General Electric are transferring software development to India and manufacturing to China.

Chinacosm

Consider some of China's recent high-tech milestones:

• Chinese universities granted 465,000 science and engineering degrees last year - approaching the US total.
• China will become the world's second-largest chip producer by 2004.
• 2 Chinese vendors of network switches have opened US and European offices and snatched contracts from Cisco and Nortel.
• China has been launching satellites for years and began manned space missions in 2003.

Indiacosm

The stock of two software companies from Bangalore (where I was born), India trade in US stock markets with multi-billion $ market caps. Infosys, with 2003 revenue of $750m, profit 25%, growth 38%, trades on Nasdaq with a market-cap of $11.5 bn. Wipro, with 2003 revenue of $ 900m, growth 29%, profit 18%, trades on the NY stock exchange with a market-cap approaching $9 bn.

By mid-century, India will surpass China as the world's most populous country (China's population growth is under control; India's is not). Already the world's largest democracy, India has the advantage of a high-percentage of English-speaking scientists and engineers, generating the “Indiacosm” of the new century.

Tough choices for the US