The Social Costs of the Hardware Revolution – A Postscript

For now, this can be only a short postscript to what I had to say earlier today about the CNN Money article by John Hagel and John Seely-Brown on “the hardware revolution.” It has to do with a question that occurred to me as I read, and to which I don’t yet have anything like an adequate answer. That will take some research. But I at least want to articulate the question.

Startups and smaller companies can now play in the hardware space in part because the barriers to entry have been lowered, Hagel and Seely-Brown observe. There are a number of factors at work here. New and cheaper technologies from 3D printers to more user-friendly software put the design and manufacture of hardware within reach of smaller companies. And “a new class of factories” will produce the smaller orders that new entrants and entrepreneurs typically require:

New infrastructural elements have also helped new hardware products move from the hobbyist’s basement to the startup garage. Before, to get a contract manufacturer’s attention, you had to commit to producing high volumes (say 50,000 or more units). But a new class of factories — mostly in China and Mexico — will manufacture batches as small as 5,000 units. By filling low-volume orders, these factories have filled an important structural hole in the market: They allow entrepreneurs to launch new products for small consumer groups with little investment.

My question is whether conditions and, for that matter, sourcing practices in this new class of factories, and the more fluid hardware market they serve, are not going to be terribly difficult to monitor. We’ve seen how challenging it is even to ensure fair labor practices in large-scale manufacturing facilities in China used by major global technology brands; now, as smaller-scale manufacturing facilities proliferate and Mexico becomes a technology “quicksourcing” destination for American companies, the problem will no doubt be aggravated.

The reasons for this are probably obvious. I would frame the issue in a few ways. First, how much visibility do these smaller players actually have into their supply chains? Second, how much leverage do they actually have with their manufacturers, since they are only placing small orders, and, depending on their success, may or may not be repeat customers? Third, there’s a question about whether these small businesses — the small hardware startups placing orders and, for that matter, the manufacturing facilities taking them — have the capacity to take on the human rights challenges that seem inevitably to accompany outsourcing.

In other words, the social costs of the hardware revolution deserve some careful consideration.

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