The Last Word: ‘Balance' in Favor of U.S.

March 28, 2008
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Where should the “line” be drawn about technology the United States allows to be transferred to foreign companies?

Recently, 3Com, the Marlborough, MA-based manufacturer of Internet router and networking equipment, was approached by Bain Capital, the private equity firm founded by onetime presidential candidate Mitt Romney, about a possible acquisition. Bain put in a bid to purchase 3Com for $2.2 billion. Over its 24 years of existence, Bain had worked similar deals. The problem came about when it was learned that one of the minority investors was Chinese telecom company Huawei Technologies, which has ties to the Chinese military. 3Com makes antihacking computer software used by the U.S. military, and despite assurances it would divest itself of the business unit that creates the software so that China would not have access to this sensitive technology, 3Com and Bain were, as of Feb. 21, 2008, unable to get approval for the sale from the Bush Administration. Undaunted, the Bain Group (www.baincap.com) has attempted to restructure the deal so that it would own 83.5% of 3Com, but Huawei would still have a 16.5% equity share.

Similarly, I recently learned that a major manufacturer of ordnance being used in Iraq and Afghanistan has outsourced its manufacturing. The bullets being used to battle terrorists are being made in China, a country whose military has more than once made provocative actions toward the U.S. military. In addition, China’s recent missile successes against orbiting satellites and surprise “visits” to U.S. naval fleets in the Pacific by Chinese submarines, came as the result of unchecked sales of U.S. technology to the Chinese during the Clinton Administration.

These situations illustrate how not every part of U.S. manufacturing should be “for sale.”

That being said, there is nothing inherently wrong with international trade, sales and business partnerships. Often, they stand to benefit all involved parties in a benign manner. And, there is nothing intrinsically wrong with such relationships with China.

A trip to the local Target, Wal-Mart, K-Mart or similar store reveals far more products “Made in China” than any other part of the world. It’s hard to make the case that a $5.99 storage container needs to be made in the United States, when by doing so it would probably cost twice the amount. It’s also hard to argue that a $14.99 small appliance is critical enough to U.S. national security that it ought to be made “at home” rather than abroad.

As for measurement tools, it also can be debated where those should be made. For the average do-it-yourselfer, a trip to Home Depot, Lowes, Menard’s or any other “big box” hardware store reveals that occasionally used measurement tools made in China can reliably deliver the accuracy needed to cut some molding for one’s house. However, for achieving the accuracy needed in more critical measurements, tools from China still have a way to go. And of course, supplying highly accurate measurement tools to China, without qualification of how they are to be used, is fraught with potential problems.

The 3Com-Bain Group, ordnance manufacturer and Clinton-era decisions point to circumstances where China benefits and the United States loses. The buying of Chinese-made consumer goods seems to have more winners than losers on both sides, as China raises its economy, lower-priced goods are available to U.S. consumers, the standard of living is raised in both countries, and one could argue that China is forced to be a more accountable player on the world stage. The verdict is still out, I believe, on the sale and purchase of measurement tools to and from China.

At the heart of international buying and selling there must be “balance.” Product cost must be balanced with supporting critical American business. Developing international manufacturing partnerships must be balanced with providing for U.S. workers. Shareholder profit must be balanced by national security. When there is conflict in balancing these issues, short-term gains must be sacrificed for long-term benefits. The United States can’t be on the losing end of this increasingly difficult balancing act.

Share your thoughts with me at williamst@qualitymag.com.

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