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China Shows Politics Still Rule

Excitement about China both as a market and a partner for technology companies has been pretty evident in both Japan and the US over the last couple of years. Yet, the recent Chinese demonstrations against Japan should be giving pause to this unbridled enthusiasm, both in Japan and the US.

One of the arguments about opening economic engagement with any non-democratic country is always that the flow of commerce and money will strengthen the bonds of the country with the democratic countries they trade with and these ties will be difficult to break even if political issues arise. Or at least that's the theory.

If any test case should prove the theory, you think it would be Japan and China. Japanese companies have been heavily investing in China and the two countries are important trading partners. Yet, the Chinese government seems to have been willing so far to let the demonstrations continue to the point of violence, bringing about a situation where tension threatens all ties, including trade ties, between the two governments.

I think there are a variety of reasons behind the Chinese government's action, but most of them have been detailed elsewhere. What I think this does show is that the Chinese government has the will to push political issues, if they think they are important enough, and trade ties be dammed.

I've always felt one party rule in China and a government that acts primarily in its own interests regardless of other factors makes investments in China a risky thing. Recent events seem to, unfortunately, bear this out. Many contentious issues exist between the US and China as well, and, since Japan is such a close ally of the US, the demonstrations are meant as a message to the US as well. US companies should carefully consider their investments in China and how much they're willing to loose should push come to shove.

Posted by Phillip Keys : 03:32 AM | Comments (1)

Spring Looks Good for Silicon Valley

In Japanese tradition, letters between people are supposed to contain a reference to the seasons, so in that spirit, here I go. Spring is a wonderful time to be in the San Francisco Bay Area. The weather begins to warm up as (hopefully) the rains fade away and the hills are still beautifully green and covered with flowers before the grass is blasted to brown by the relentless sun soon to come.

It looks like it could be a good spring for Silicon Valley as well. The home town newspaper, the San Jose Mercury News, has come out with their report of the financial situation of the top 150 companies (SJ Mercury article) in Silicon Valley and the headline is that 2004 was a record year for both sales and profits for local companies in the 20 years that the newspaper has been tracking them. The numbers? $336 billion in net revenue and $31.4 billion in net income and a very nice hockey stick climb in profit since the depths of 2001. While, believe it or not, Silicon Valley does include non-tech companies, of the top 10 revenue producing companies in Silicon Valley only one, Calpine, an electrical power company, falls outside the tech industry as we know and love it, so it's fair to say the report give a good representation of the health of the tech industry here.

However, living here it really hasn't felt like the industry is out there just burning rubber. From what I can see, hiring really hasn't picked up in the Valley as Valley based companies increasingly set up shop either out of state or out of the country, or, even more perniciously, continue to drive the long working hours of the employees they already have. Also, macroeconomic factors seem to be not boding well for this year, at least as the stock market saw it last week.

Still, Silicon Valley continues to have a unique environment and workforce with skillsets that fit the technology industry. While many folks have forecasted the demise of Silicon Valley, it looks like those prognostications are yet premature.

Posted by Phillip Keys : 03:05 PM | Comments (0)