Green IT in Asia: Development Outlook, the Supply Chain, and Policy

Adam Collardey MAPS 640 Economies of Asia Spring 2010 University of San Francisco Instructor: Dr. Inderjit Kaur 4065 words 05/20/10

Abstract The motivation behind this project stems from my professional life and my leisure time. 2 years ago I was a Technical Writer at D-Link in Taiwan, one of the largest computer networking product brands, and I currently work for Pogoplug, a startup company in San Francisco that makes an innovative computer networking device. I enjoy outdoor activities, which have increased my awareness about the environment. I have been looking for a way to combine these two seemingly unrelated interests. Since most of the material I initially came across about green IT in Asia was only about e-waste, I thought that looking into supply chain issues would be useful. I found some sources about the IT supply chain in Asia as well as some about making the supply chain (in general) more environmentally friendly. I hope to show the feasibility and likelihood of Asia adopting a truly green approach to IT through throughout the entire IT production system, not just in the proper handling of the e-Waste disposal process. Introduction Information Technology (IT) has greatly improved our lives and work, however IT systems and products consume large amounts of electricity, contribute to greenhouse gas emissions, and harm the environment during production and disposal (Murugesan, 24). Green IT is the design, manufacture, use, and disposal of computers and computer systems that strives for minimal environmental impact (ibid., 25). Companies around the world are adopting green IT principles, with the intent to reduce power consumption and lower costs (ibid., 26). The current policy of most IT companies is largely reactive, with a few early leaders taking interest in proactive environmental initiatives. My hypothesis is that increased government enforcement of private industry's compliance with green computing standards will make the computing industry in Asia more profitable and efficient. I plan on demonstrating this by showing how greener systems will create value by focusing on reducing waste, and including sustainability during the design phase of an IT product or a computer network. I will also show how government policy is another productive method to ensure compliance with green IT standards. Asian-based IT companies recognize the consumer demand for environmentally friendly products and follow certification standards including the Electronic Product Environmental Assessment Tool (EPEAT), Energy Star, the Waste Electrical and Electronic Equipment (WEEE) directive, and the Restriction of Hazardous Substances (RoHS) directive (Yeo). Asian organizations and consumers are becoming 2

aware of green IT through initiatives like the Japanese Home Electronics Recycling Law, China RoHS, and Korea RoHS (Velte, 40-41).

PRODUCTION & USE RANDs 2003 book, The Information Revolution in Asia, contains a comprehensive overview of the state of IT in Asia. Countries in Asia include major IT users and producers (Hachigan, 7). Countries in Asia that are both major IT users and producers include Japan, South Korea, Taiwan, and Singapore (ibid.). China and India are also rising into this category (ibid.). Countries that are only major IT users include Hong Kong, Australia, and New Zealand (ibid.). The countries that are only major IT producers include Malaysia, Thailand, and the Philippines (ibid.). The IT producers in Asia use a mostly uniform development model called the Japan model. After World War II, Japan had limited natural resources, capital, and domestic demand, along with the infrastructure of military industry and a supportive government (ibid., 24). The first step was to convert industry to low-capital, light-industry export manufacturing with government loan and tax help (ibid.). Next, this developed into assembly manufacturing of a variety of different goods (ibid.). Then came an expansion of heavy industry and consumer electronics (ibid.). From this stemmed more local content, the creation of brand value, and automation (ibid.). This in turn created cutting-edge electronics, chemical, and automobile exports (ibid.). Eventually the domestic market became as important as the export market, and finally Japan developed into the position of a world innovator of IT (ibid.). The Japan model described above contains seven stages of IT development. In 2003, Japan was the only country to have achieved the highest stage in this model (ibid., 25). The remaining countries rank one step down the ladder from the next: South Korea (stage 6), Taiwan (stage 5), Singapore (stage 4), and Malaysia (stage 3) (ibid.). Thailand and the Philippines were both at stage 2 of the Japan model development process (ibid.). While venture capital has been highly influential of IT development in the United States (and most notably Silicon Valley), venture capital basically does not exist in Asia (ibid., 48). This could be one of the reasons or influential factors in the lack of innovation in the IT industry in Asia, especially taking into consideration that many IT professional based in Asia decide to relocate to the United States because the financing environment in more open to new ideas (ibid.). Openness to the funding and adoption of cutting-edge IT 3

products creates a prosperous environment for IT.

PRODUCTION: Japan is the top IT producer and has the best development outlook in Asia, driven by an already advanced IT market with limited inhibitors to advancement (ibid., 27). Korea and Taiwan hold the middle ground, driven by increased success on the global market and moving up the value chain (ibid.). The development outlook for Singapore, Malaysia, Thailand, and the Philippines is low, due to rising costs, few risk takers, rising labor costs, lack of local players, no English ability, and political instability (ibid.). Japan leads the world market share and product excellence in numerous categories, including cameras, office equipment, DVD players, stereos, TVs, PCs, LCD panels, game boxes, integrated circuits (IC), consumer electronics, and advanced chemical and materials for aerospace and power plants (ibid., 34). The leading players include Canon, Fujitsu, Hitachi, NEC, Nintendo, Sony, and Toshiba (ibid.). Japan has maintained its position as one of the leading IT markets despite the lost decade and the more recent economic disruptions. E-Waste in Asia E-waste is one of the most commonly recognized aspects of green IT. E-waste is a pressing issue for local, institutional, and international groups. Even though electronic waste only compromises 2 percent of the total amount of material found in American landfills, it accounts for almost 70 percent of the toxicity found in American landfills (Velte, 7). China receives around 70 percent of the worlds e-waste (Krikke, 50). TES-AMM, a Singapore-based e-waste processor, is expanding its operations in both India and China, and serves clients such as HP, Dell, Nokia, and Motorola (ibid., 54). Sims Group, based in Australia and the largest e-waste processor in the world, has revenues over $4 billion and grows 30 to 40 percent annually (ibid., 52). Sony Ericsson works with local recycling programs throughout Asia to develop better ways of handling IT hardware that has already been produced and used (Sony Ericsson). The IT Supply Chain in Asia East Asia is the worlds main source for IT hardware and China has the potential to become the center of production (Ohki, 80). IT sales activity in East Asia will continue for some time as long as the 4

existing manufacturing infrastructure remains productive and up to date. The increasing popularity of the Internet has increased demand for IT equipment, while the standardization of IT equipment has reduced the procurement cost (ibid., 65). Competition among IT companies is increasing, and they are aiming at selling on a global scale, while dividing company processes accordingly (ibid.). Besides outsourcing, other influences on IT manufacturing in Asia include a short product cycle of about 6 months, IT company priority on product development and marketing, and precise timing of product launch to coincide with other IT products (ibid., 66). Meanwhile, East Asian countries are striving to achieve higher levels of value added (ibid.). The major IT equipment brands desire to shift low value added production and sales to original equipment manufacturers (OEM), while increasing management control over factory operations, product costs, technology and development trends, and production facilities (ibid., 67). Originally, IT manufacturing outsourcing consisted of OEM and original design manufacturing (ODM), but since the 1990s, electronics manufacturing services (EMS) companies have emerged that combine OEM and ODM, and are even starting to manage distribution (ibid., 66-67). China is growing as a domestic market for IT products, while also growing as an electronics producer (ibid., 76). In China and elsewhere, IT companies are increasing the division of labor, outsourcing, and the segmentation of processes, which is creating highly specialized companies (ibid.). China has lower labor costs than the nations that make up Association of Southeast Asian Nations (ASEAN), which creates the incentive for certain countries in ASEAN to shift to higher value added products (Ueki, 96). This can be challenging for ASEAN countries that lack enough capital and skilled labor (ibid.). Electronic Data Interchange (EDI), e-commerce, and EMS are the supporting services that comprise current IT supply chain management (Ueki, 90). Business use of IT combined with the IT production industry is self-reinforcing and will remain a significant part of the global economy. Greening the Supply Chain Incentive to pursue an environmentally friendly supply chain can range from reactive regulatory reasons, to proactive strategic and competitive advantage reasons (Sarkis, 1). The amount of considerations a company needs to take into account can be significant when deciding how to lower their carbon footprint. Impacts that come from upstream sources include the environmental impact of suppliers and electrical utility providers (Velte, 11). The direct impacts associated with any major IT company include cooling, transportation, 5

manufacturing, and datacenter power usage (ibid.). Environmental impacts that occur downstream include waste considerations and employee commuting (ibid.). Two major topics in the greening of the supply chain are life cycle assessment (LCA) and design for the environment (DFE) (ibid.). LCA is the evaluation of a products environmental impact. DFE includes manufacturing, packaging, and disposal (Crow). LCA can include a wide range of data input, including the extraction of raw materials, energy processes, and transportation (Environmental Protection Agency, 1). LCA is currently extremely challenging for suppliers and organizations (Sarkis, 6). A typical LCA is comprised of 9 phases, including terms, a feasibility study, fact finding, analysis, design, system specification, implementation and review, use, and close (Velte, 134). The life of a system for an electronic product within LCA can be translated into terms of useful life, economic life, and technological life, where the useful life is the lifespan of the use of the physical product, the economic life takes into account newer systems that lower operating costs, and the technological life considers the likelihood of the system becoming outdated and obsolete compared to newer technology (ibid, 136). Research on purchasing and inbound logistics has shown that policy entrepreneurs were the main influence behind a companys green purchasing activity (Sarkis, 2). Middle and upper managers were also critical to the successfulness of the green purchasing activity (ibid.). Monitoring green product procurement becomes more complex in a decentralized [procurement] environment (ibid.). In some cases it is more feasible for multinational conglomerates to allow divisions to determine their own supplier and purchasing environmental requirements (ibid.). Regardless, it is the purchasing managers motivation and capability to properly evaluate the selection of green materials and vendors (ibid.). An obstacle is that purchasing managers tend to use reactive policies, for the sake of liability issues, as well as ensuring a long-term relationship with the supplier (ibid.). Challenges remain in these complex systems. ISO 14000 are standards for environmental management that can be beneficial for larger organizations to implement, however it can be too timeconsuming and expensive for small businesses (ibid., 3). Pollution prevention during production is still dependent on employee involvement and empowerment, while management remains a larger factor (ibid.). How IT Companies Rank on Greenpeace Greenpeace currently produces a semi-yearly Guide to Greener Electronics that ranks some of the top electronics companies based 6

on three categories of criteria: chemicals, e-waste, and energy. The criteria are in favor of environmental initiatives such as RoHS and Individual Producer Responsibility (IPR). While this guide serves as a useful measure of where the companies stand, it also shows that there is still a long way to go before the realization of a significant reduction in environmental impact of the electronics industry. For example, in December 2009, the highest rating of 7.3 out of 10 went to Nokia, for factors like Nokias comprehensive voluntary take-back program, committing to reduce its own absolute CO2 emissions, and following RoHS (Greenpeace). 7 of the 18 companies surveyed score just above 5, while 9 companies have even lower scores, ranging from 1.4 to 5 (ibid.). The largest IT equipment firms possess overwhelming advantages and will dominate the future market (Ohki, 77). Sony Ericsson Sony Ericssons sustainability plan includes six parts: substance control, ethics, energy and climate, recycling, health, and society (Sony). The following paragraphs describe each part of the plan. The substance control policy follows the UNs Rio Declaration on Environment and Development, and declares and makes publicly available the material content of all components on a database called COMET (Compliance On Materials and EnvironmenT) (ibid.). Sony Ericsson follows laws including RoHS and is proactive in reducing its environmental impact, while seeking to find and identify harmful substances (ibid.). Greenheart is Sony Ericssons green mobile phone product line, and the result of years of innovation (ibid.). The mobile phones in the Greenheart line use over 50% post-consumer recycled polycarbonate plastic, mostly coming from water bottles and CDs (ibid.). The ethics portion of Sony Ericssons sustainability plan seeks respect and responsibility through the respect human rights and ethical employee treatment (ibid.). Suppliers who wish to do business with Sony Ericsson must meet the requirements of the supplier social responsibility code (ibid.). Also included in Sony Ericssons ethics plan is a dialogue about metal extraction that includes non-governmental organizations and members of industry (ibid.). Sony Ericsson does not buy raw tin, tantalum, tungsten, or gold, and instead buys and collects used hardware components that already contain these metals (ibid.). Sony Ericsson would need to further increase the capability and reach of its supplier management system in order to further expand the impact of green IT policy and overall environmental impact. For the energy and climate part of Sony Ericssons sustainability plan, they focus on the reduction of overall CO2 emissions through energy efficiency (ibid.). The overall CO2 emissions from Greenheart 7

phones are 15% lower than comparable non-green phones because of its paper use reduction in the manuals and packaging, its recycled plastic content, its optimal light sensor display, and a reduced amount of harmful chemicals, including the phones exterior paint (ibid.). Sony Ericsson also follows the Integrated Product Policy in order to obtain Energy Star certification on all of its mobile phone wall chargers, working towards the most energy efficient chargers (ibid.). In 2008, Sony Ericsson conducted a Life Cycle Assessment (LCA) in order to measure the impact of its mobile phone production process (ibid.). Sony Ericssons offices and employee travel were included in the equation of the LCA (ibid.). The result of the LCA was that one mobile phone with a 3-5 year life span creates a total of 23.5 kg of CO2, which Sony Ericsson is quick to compare to a 150km ride in a typical family car (ibid.). Sony Ericssons recycling policy is well developed and is an integral part of is successful sustainability plan (ibid.). In 2008, about 5% of Sony Ericssons mobile phones was collected and recycled through European recycling programs (ibid.). In the US, an EPA project supported by Sony Ericsson collected 11 million mobile phones for recycling (ibid.). There are also recycling programs in Canada and Australia, and Sony Ericsson is involved in setting up similar programs throughout Asia, notably India, China, and Japan (ibid.). All of these recycling programs show that Sony Ericsson is serious about promoting IPR. Sony Ericsson is also fully compliant with the WEEE directive (ibid.). The health part of Sony Ericssons sustainability plan focuses on reducing the specific absorption rate of the radio waves produced by the mobile phones and also seeks to reduce other harmful substances in the phones (ibid.). Some of Sony Ericssons mobile phones that were produced before 2009 contained internal amounts of nickel that were found to leak through the external casing of the phone and cause problems for nickel sensitive users (ibid.). While Sony Ericsson claims to have fixed the issue in all newly produced phones since 2009, it is not clear how proactive they have been in notifying users of this potential health hazard (ibid.). Finally, the social sustainability plan at Sony Ericsson supports various community projects, including mobile phones for refugees, mobile phones for villages in Africa, research into solar chargers, and even the International Outreach Program (IOP) at Stanford University (ibid.). The IOP uses a Sony Ericsson smart phone for its courses on international environmental education (ibid.). USE: The penetration rate of Internet access and usage is a telling indicator of the state of the IT market in Asia. Among the Asian 8

countries, divisions can be made along the lines separating advanced internet users against emerging users, and laggard internet users (Hachigian, 2). Countries and areas like South Korea, Hong Kong, Japan, Australia, the US, Singapore, and Taiwan dominate, followed by the emerging countries like Thailand, the Philippines, China, and Indonesia, while India, Vietnam, and others are slowly getting started using the internet on a widespread basis (ibid.). Consumer Interest in Green IT Consumer demand for green IT products is limited at best. While die-hard environmentalists actually purchase environmentally friendly goods, they are still a small part of the total amount of purchases. Price, quality, and convenience are the top criteria that consumers follow when making a purchase (Sarkis, 4). Consumer interest in green products and government regulation are two external pressures that flow throughout the supply chain, although the actual purchasing behavior does not meet the level of interest in green products (ibid., 4). Increased consumer demand for green IT products would have a significant impact in the kinds of electronic goods that IT companies develop and put on the market. A major reason why companies use new materials instead of recycled materials is because customers require it (ibid., 2). Consumers also choose packaged over unpackaged products, despite most peoples acknowledgment that excessive packaging is bad for the environment (ibid., 4). Since online purchases have increased in the past few years, minimizing the packaging and transport of the finished IT goods is an important part of a companys environmental strategy. Government Policy Towards Green IT Federal legislation in Asia can effectively enforce environmental standards in electronics production and recycling. Major obstacles for promoting green IT policy are corruption, political repression, and Internet restriction (Hachigan, 19). Heavy taxation of IT companies resource use combined with lighter taxation of labor could increase employment while encouraging the companies to be more efficient (Isaak, 21). In Taizhou, a municipality of Zhejiang Province in Eastern China, the local inspection, supervision, and licensing of e-waste enterprises is relatively easy for the local environmental administration (China Daily). However, while recycling businesses in Taizhou have a much larger capacity, migrant households involved in e-waste reclamation escape regulation and are eager to work long hours for little pay without concern for their health (ibid.). 9

Japan's Home Appliance Recycling Law "requires manufacturers and importers to collect and recycle their own appliances" and places the primary responsibility of collection on the retailers (Inform). Initially, this law used an end-of-life financing policy that was too expensive for consumers, and a shift was made to front-end financing, where "recycling costs are included in the price of the product" (ibid.). Placing the collection responsibility on the manufacturers, retailers, and consumers freed the local government of this task (with the potential to devote more resources to the enforcement of environmental policies) (ibid.). For Hong Kong, openness to foreign people, capital and ideas gave it a competitive advantage (Burn, p.32). The Chinese Communist Party policy goals of maintaining social stability and political control may break down the competitive advantage that Hong Kong has developed (ibid). The United Nations Solving the E-waste Problem (UN StEP) program notes, current [e-waste] legislation lacks appropriate economic incentives for manufacturers to benefit from developing more sustainable designs (United Nations). The UN StEP program is comprised of task forces on policy and legislation, redesign, reuse, recycle, and capacity building (Velte, 21). Both the redesign and reuse task forces focus on practices established by the concept of electrical and electronic equipment (EEE) design (ibid., 22). The UN StEP program is more promising than other international efforts to reduce the impact of e-waste. The Basel Convention, an international treaty designed to reduce the amount of transport of e-waste has largely been avoided by the United States, Haiti, and Afghanistan (ibid., 25). The WEEE directive, the RoHS directive, and the Registration, Evaluation, and Authorization of Chemicals (REACH) directive in the European Union have been successful in the reorganization of companies global supply chain management (Sarkis, p.5). Additionally, IPR could be a policy that will work for the majority Asian IT companies. Another influence in the way that the IT industry has developed in Asia is the amount of restrictions that are in place concerning online political content and use (Hachigian, xix). The countries with the most open forms of Internet access include Australia, India, Indonesia, Japan, Malaysia, the Philippines, South Korea, and Thailand (ibid.). Notably, Malaysia is the only one-party dominant state that falls into this category; the rest of the countries are liberal democracies. The remaining countries not included in this first category have varying degrees of restrictions in place on Internet access and political content and use. Singapore has a moderate level of restriction, China and Vietnam have significant restrictions, and Burma and North Korea have the most severe restrictions in place (ibid.). Stemming from the idea of governmental restriction of Internet usage is the extent of influence that IT use has had on the domestic 10

political situation Asian countries. Examples of one-party dominant states where IT has had a visible influence on politics include China, Indonesia (during the fall of Suharto), and Malaysia (ibid., 57). The Philippines and South Korea are liberal democracies that have visible influence of IT on politics (ibid.). One-party dominant states with no significant influence on politics include Myanmar, North Korea, and Singapore (ibid.). Liberal democracies where IT has no significant influence on politics are Australia, India, and Japan (ibid.). Other Ideas on Green Computing in Asia Asia is seeing growth in cloud computing and thin computer clients, which could make the prospect of managing the IT system easier (in terms of environmental impact). A typical thin client computer uses about 15 watts of energy, compared to a conventional personal computer that consumes around 150 watts of power, ten times the amount of energy consumption (Velte, 15). While the switch to cloud computing and the increased use of thin client computers is a tempting way to lower energy consumption, the entire picture should be considered. Thin clients create the need for additional datacenter capacity, which has been already increasing significantly in the past few years (Velte, 16). In the year 2000, the total amount of power consumption per server rack in datacenters was only 1kW (ibid.). In the year 2010, this amount has already skyrocketed and is expected to reach 20 kW (ibid.). This is just another example of why the entire system should be considered when deciding how to reduce the environmental impact of the IT industry. Conclusion IT will remain a powerful industry within the global economy for years to come. IT, with its economies of scale and scope, will push developing countries into globalization. Multinationals promote globalization and close connections within and between Asia and the rest of the world; liberalization of investment and trade on a bilateral and multilateral basis complement these trends (Ueki, 99-100). The drive for increased involvement in the IT industry among Asian nations reinforces this trend. Making green IT in Asia happen on a large enough scale to make a significant reduction of ITs current environmental impact will be a difficult and complex endeavor. Current green IT research relating to Asia focuses on e-waste disposal and, to a lesser extent, production, supply chain management, and consumer demand for green computing products. Current initiatives, such as WEEE, RoHS, or the 11

UN StEP initiative can be globally effective ways to improve the ewaste issue. Proactive government policies to purchase green IT goods is another good way to place greater pressure on IT companies to begin providing more sustainable IT products and solutions.

References: Burn, Janice M. and Martinsons, Maris G. Information Technology Production and Application in Hong Kong and China: Progress, Policies and Prosepcts, in Information Technology Diffusion in the Asia Pacific: Persepctives on Policy, Electronic Commerce and Education, edited by Eli Cohen, 7-35. Hershey, PA: Idea Group Publishing, 1999. China Daily. City Makes Efforts to Clean Up in Recycling Business. China Daily, June 15, 2004. Crow, Kenneth. Design for the Environment. http://www.npdsolutions.com/dfe.html (retrieved March 24, 2010). Environmental Protection Agency. Life Cycle Assessment: Principles and Practice. http://www.epa.gov/nrmrl/lcaccess/pdfs/600r06060.pdf (accessed March 24, 2010). Hachigan, Nina and Lily Wu. The Information Revolution in Asia. Santa Monica, CA: RAND, 2003. Inform, Inc. Electric Appliance Recycling in Japan. http://www.informinc.org/japanepr.pdf (accessed March 6, 2010). Isaak, Robert. The Making of the Ecopreneur, In Making Ecopreneurs: Developing Sustainable Entrepreneurship, edited by Michael Schaper, 13-25. England: Ashgate Publishing Limited, 2005. Greenpeace. Guide to Greener Electronics, version 14, December 2009. http://greenpeace.org/electronics (accessed March 20, 2010). Krikke, Jan. Recycling e-Waste: The Sky is the Limit. IT Professional (January/February 2008): 50-55. Murugesan, Sam. Harnessing Green IT: Principles and Practices. IT Professional (January/February 2008): 24-33.

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Ohki, Hiromi. International division of labor in East Asias IT industry, In The Internet Revolution: A Global Perspective, edited by Emanuele Giovannetti, et al. Cambridge: Cambridge University Press, 2003. Sarkis, Joeseph. Environmental Supply Chain Management, In 21st Century Management: A Reference Handbook. SAGE Publications, 2007. http://0-www.sageereference.com.ignacio.usfca.edu/management/Article_n28html (accessed March 8, 2010). Sony Ericsson. Greenheart. http://www.sonyericsson.com/greenheart (accessed April 17, 2010). Ueki, Yasushi. Electronic industry in Asia: the changing supply chain and its effects, In The Internet Revolution: A Global Perspective, edited by Emanuele Giovannetti, et al. Cambridge: Cambridge University Press, 2003. United Nations Solving the E-Waste Program. Annual Report 2008. Velte, Toby J., Velte Anthony T., and Elsenpeter. Green IT: Reduce Your Information Systems Environmental Impact While Adding to the Bottom Line. New York: McGraw-Hill, 2008. Yeo, Vivian. Singapore Addition to EPEAT a Positive Move, ZDNet Asia, http://www.zdnetasia.com/news/hardware/0,39042972,62060972,00.ht m (accessed February 4, 2010).

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