Who is United Service Source (USSI)?

Outsourcing of technical service is a growth industry. One organizational structure for this application is the use of independent contractors organized by National technical service organizations (NSO). It can be expensive to hire direct employees across the country, and outsourcing the work via a NSO is often the less expensive alternative.

But the NSO community has a terrible reputation for paying their bills. The NSO business model is built on using contractors as a firewall. It's like a South Carolina Football team. If a play is successful, the credit goes to the brilliant coach. If a play fails, the blame goes to the flawed quarterback. The coach is never responsible for failures.

It's a classic David versus Goliath story. The NSO is Goliath, with deep pockets, and a staff of lawyers on retainer. The "David" is a small contractor operator, who not only cannot afford large legal bills, but he (or she) is also dependent on the NSO for future work.

With a problem NSO, the contractor finds themselves begging for money that has already been earned. According to Committee of Sponsoring Organizations (COSO) of the Treadway Commission, fraudulent activity of this type occurs most frequently in the computer hardware and software industries.

United Service Source Inc. (USSI) in Brevard County, Florida (Melbourne) is an interesting case study. USSI organizes work for companies across the United States through a network of subcontractors. USSI also does business as (DBA) "Kyadax", "National Service Source", "United Residential Services", and "Ascent Media Systems and Technology Services", all from the same location and with the same employees.

Companies like USSI have a poor record for meeting the financial obligations with their contractors (see Fraud Against Contractors or Programmer Sues USSI for Delinquent Payment). On average, a contractor working for USSI will spend 1 - 2 hours in haggle time for every hour of billable time. And beware of the large project, where USSI has a track record of reneging on agreements.

USSI Known Associates
Organization	Vendor	Application
Financial Consultants	E-Trade	Stock Broker
Hotels	Lodgenet	Hotel Pornography
Hospitals	TipTV	Infomercials
Hospitals	Newborn Channel	Infomercials
Kentucky Fried Chicken	NCR Enterprise	Digital Display Menus
Kentucky Fried Chicken	Wireless Ronin	Digital Display Menus
Enterprise Rent-a-Car	AirMagnet	Order Processing
Pediatricians	Enqii KidCARE TV	Child Care
Oral Medicine	Dynasign	Dentists
Animal Medicine	EmebaVet	Veterinarians
Animal Medicine	Enqii PetCARE TV	Veterinarians
AT&T	Samsung	LCD Television
Corporate	Verizon	Business Satellite Link
Corporate	Samsung	LCD Television
Corporate	Star2Star Communications	Telephone via Internet (VoIP)
Movie Theaters	Mainstream	Satellite link for pre-movie commercials
Federal Aviation Administration	SPL Integrated Solutions	Communications
U.S. Postal Service	Logix	Internet Services
U.S. Postal Service	Target Vision	Postal Vision Employee Training

NSO-Governmental Relationship

A corrupt NSO will typically cultivate a cozy relationship with the local government. It is not an accident that most of these operations are based in rural jurisdictions, probably more malleable to their needs. Non-locals should not expect objectivity with disagreements. The local judiciary acts as a "home-town referee". Florida Today (November 23, 2008) called the situation in Melbourne, USSI headquarters,

"an ugly pattern of incompetence and impropriety that cries out for investigation," Florida Today further said "It would be negligent at this point for the Governor to ignore his duty to the public to make sure that the laws and the Constitution are faithfully enforced. Today, reasonable people are making the conclusion that Brevard County systemically engages in corruption and collusion."

Florida, ranks as the state with the most federal corruption convictions over the past decade. Florida, with 824 convictions of local, state and federal officials, even exceeded Illinois (Blagojevich) and Louisiana (William Jefferson). Florida is the only state in the union to charge court fees to those who cannot afford to pay, effectively holding hostage the Constitutional rights of millions of Floridians to access the courts without sale, denial, or delay, a basic tenet on which our government was founded.

USSI manipulated local government officials in 2010 to receive local tax abatements. USSI feigned interest in moving the company to Texas, and used this leverage to give local authorities enough cover to award USSI a tax exemption. Insiders know the play was a complete ruse.

USSI has earned the Geeks Informed Smell Test rating of Somewhat Stinky.

Wolves tend to operate in packs. Many of companies that do business with USSI, including Samsung Electronics and Verizon Communications, have a lengthy history of marginally illegal activities.

Samsung has a long history of involvement with organized crime. A former CEO of Samsung, Lee Kun-Hee was convicted of tax evasion and security law violations. For his crimes, Lee was fined over $100 million and was sentenced to 3 years in prison (suspended because of his age). Lee stole a more than $2 billion.

Seong Hwan Kim, chairman of Samsung general labor union, was imprisoned even after Amnesty International selected him as a Prisoner of Conscience. Samsung maintains "free union", which effectively eliminates unions at their factories with violence. Samsung has legally maintained that any industrial disaster in one of their semiconductor factories is classified as a natural death.

Verizon is no stranger to involvement in seedy activities. In a well publicized example, a contract with the State of Pennsylvania wound up in court, because Verizon promised broadband services that it never delivered. Verizon made more than $1 billion in profit from this contract.

"The president of Verizon Pennsylvania struck a secret "gentleman's agreement" with State Sen. Vincent J. Fumo under which the phone company agreed to pay millions to a law firm of Fumo's choosing." Philadelphia Inquirer (6/26/07)

Fumo used his considerable influence in the Pennsylvania government to end a lawsuit in which state regulators opposed a plan to restructure Verizon into wholesale and retail units. Former Senator Fumo (D., Phila.) was recently convicted of 137 counts of fraud and corruption. Fumo joked with his girlfriend that he was good at spending "OPM", short for other peoples' money. Fumo will be eligible for release from prison (Ashland, Kentucky), in January 2013.

---

Is Your Neighbor Involved?

The strategy used by these companies brings back memories of Love Canal. In years past, large companies would hire a contractor to do their dirty work, most famously dumping highly toxic waste into the rivers and lakes. The strategy provided plausible deniability while the waterways were permanently destroyed. They could pretend to be as guiltless as a Southern Preacher and point their finger at the contractor as the Bad Guy who had Ruined the Environment.

Toxic waste from factories, chemical industry, and nuclear power plants can be very expensive to handle properly. Bean-counters from these industries are motivated to reduce these costs. An unfortunately common scenario would include a business partner hired to manage the waste. Of course, the lowest bidder would win the job. A competing bidder that properly performed the work would find it impossible to compete. The bean-counter would be unaware (and did not want to know) that the waste was being illegally dumped, after all, the responsibility had been delegated to the contractor -- the bean-counter's hands were clean. The resulting damage from thousands of these contracts has caused countless health and ecological problems in the affected areas, and the taxpayer is still paying for cleanup of these sites. Ignorance is no excuse.

As awareness improves, two trends are occurring:

Consumers and businesses are recognizing the benefits of hiring locally, and avoiding the participation in criminal enterprise.

Responsible clients are monitoring the NSO companies with whom they do business, and avoiding the ones with poor reputations.

Everyone must realize that if they do business with NSO operations with "questionable" business ethics, even through a 3rd party, they will ultimately be held accountable.



United Service Source Contacts


David Christiano, President, dave.christiano@ussi.org

Phone: (321) 723-5395, ext 114


Abed Alghani Zein, Director of Operations, azein@ussi.org

Phone: (321) 723-5395, ext 122

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A Guide to Importing Security Cameras from China

China is the world leader in labor-intensive manufacturing. China is the OEM (original equipment manufacturer) for about half of the world’s shoes and clothing, toys, electronics, appliances, and furniture. For items like security cameras, China controls more than 80% of the $13 billion U.S. market (1). Much of the manufacturing in China is performed in a region of Eastern China, in the Pearl River Delta in Guangzhou, and in particular the city of Shenzhen.

Shenzhen has received more than $30 billion in foreign investment and has grown in population from about 300,000 in 1985, to more than 10 million today (31X). This region of China has come to dominate many world markets in a very short time.

The challenges of importing cameras from China for use in the U.S. include the control of instrument quality, efficient shipping, the safe transfer of money, and the support of equipment warranties.

Quality

Profit margins in China are usually very small for commodity items like security cameras. Competition with other manufacturers is intense, and copy-cat products are very common. There are often several dozen companies making products so similar distinction is difficult. This forces the suppliers to ruthlessly compete on cost.

   • A thin profit-margin explains the
     behavior of the typical OEM in China.

Thin profit margins also equal thin margins for error. If a product fails at your customer, the OEM business model in China may not account for return shipping costs and repairs (2).

Shipping

Shipping costs will be an important component in your total overhead.

The major international carriers serving the China to U.S.A. market include UPS, Federal Express, and DHL. Air delivery, which usually takes 3-4 days, will cost on average about 3 times more than delivery for the same package across the United States.

Most OEM are proficient at negotiating a fair rate, and passing that cost to you. The OEM usually bundle a handling charge into the quoted shipping cost.

Payment

The customer will usually need to prepay for goods at the time of order. Wire transfers (TTL) with your bank or Western Union are often used for the transfer of money. Many, but not all, OEM in China now accept credit cards and/or PayPal.

I have transferred money many times with both Western Union and banks with reputable companies from China, and to date, have never been victimized. But there is certainly a vulnerability to the process (see “warranty” below).

Credit cards and PayPal do offer some added security, but be advised, the time period for filing a grievance is usually 45 days or less. A transaction from China, if it includes any complications, will probably exceed 45 days.

If in doubt, when approaching the 45 day window, file a grievance. It can be cancelled if necessary.

Warranty

Every OEM has field failures. Electronics from China, including security cameras, are usually of very high quality. My failure rate on received cameras has been less than 5%, and the failure rate of the cameras once past the initial 10 day period, is less than 3% for the first year.

Many times, I have returned cameras to the OEM for repair because of failure during the warranty period. Once, I received fully operational cameras returned within 20 days (it would seem that was an aberration). On the second occasion (same OEM), I received the cameras back, but the cameras were still faulty, I returned them again, and received cameras, faulty for the 3rd time. With a second supplier (you can guess why I changed suppliers), the OEM received the cameras, sent them to their laboratory for “research” and they were never returned, despite many complaints.

A fourth incident with this same supplier resulted in another black-hole of warranty repair cameras shipped to the factory, never to be seen again. If you install many cameras, you may have hundreds or even thousands of cameras in the field before a trend of premature failure, and a derelict OEM, can be identified.

I am now on my third camera supplier in four years. The problems with the first two suppliers proved financially disastrous.

The lack of warranty support from the OEM may be the result of the extremely thin profit margin. When something goes wrong, there is no money in the budget to correct the problem.

If you place significance on customer service, then the costs of a warranty will need to be included in your own local business model. This is contrary to business norms in the U.S., but “it is what it is”. The warranty from the OEM is usually worthless.

This leads the conversation to an important point in the business relationship. In the United States, if an OEM failed to deliver on an important commitment, you as the customer would have options. You might contact the Better Business Bureau, or failing that, you could sue the OEM. As a practical matter, none of these options exist in China.

One option that is supposed to exist is a company called Alibaba, until recently, a China partner of Yahoo. Alibaba runs an Internet directory, and supposedly vets and polices China vendors. Alibaba proved to be asleep at the wheel. Multiple entreaties for assistance did not receive a reply, not even any automated acknowledgment.

   • It is worth noting that companies like Apple, Hewlett-Packard, and Dell, companies
     with great resources, still choose to do only do business with China
     via a Taiwanese intermediary (FoxConn). According to China's Ministry of Science and Technology,
    83% of all technology products manufactured in China, are managed by a company from outside of China.
    This number has remained stable over the last decade.

Conclusion

Using our example, the security camera, China so dominates the industry, that for the economy application, a choice will almost surely be an instrument from China. In many cases, there is not a reasonable alternative.

This can be frustrating if one does enter the business acknowledging the problems. Be prepared to solve those problems without support from the OEM.

But even after accounting for these issues, in a risk-rewards calculation, the China option is still often the logical conclusion.


References/Footnotes:

1 Asia-Pacific to Propel Growth in Global CCTV Market, RNCOS, May 29, 2009

2 Explaining China's Quality Control Problems, Paul Midler, U.S. News and World Report, April 23, 2009



Customs Requirements: Import Rules from U.S. Customs

About the Author:

Brian Bradshaw is the General Manager of B.V. Technology in Plano, Texas. B.V. Technology has imported electronics from China, Japan, South Korea, Taiwan, Singapore and Malaysia.
BV4Tech.com

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The Rise and Fall of the American Chip Industry

By Brian Bradshaw

The semiconductor chip is at the core of what we think us as technology. Computers, cell phones, iPods, medical equipment, avionics, etc. have only been possible because of the chip. The American chip industry has been damaged by the recent economic slowdown like most industries, but more importantly, the chip business in the United States has been in a slow fall for 30 years.

Over-investment in chip factories has resulted in steep losses of over the last five years. The chip business has been compared to farming. If too many farmers plant cotton, then the price of cotton will drop (supply and demand).

The semiconductor industry sold just over $300 billion in chips in 2011, slightly less than a one per cent increase from a very depressed 2010 ($299 billion).

The American chip industry, outside of Intel, is an endangered species. AT&T, Hewlett-Packard, and others are already gone from the field. Others, like Texas Instruments, have set a path for the eventual elimination of manufacturing. These companies have gone "fabless", meaning they will continue designing applications, but leave the process technology and manufacturing to someone else (most often to companies in Asia).

The microprocessor market has been the exception, especially Intel. The microprocessor market has been controlled by Intel. It has been a kind of monopoly. But Intel, when operating outside the microprocessor arena (i.e. DRAM or Flash memory), has followed the general model.

Intel has recently closed 3 factories (the industry calls them "Fabs", short for fabrication): one in Colorado, one in Oregon, and one in California. But Intel is building microprocessor fabs at the same time, currently building a factory in Phoenix and one in Israel. Intel is doing OK. Intel had over $12 billion of cash on hand at the end of 2008.

In the last three years (2009-2011), an additional 17 chip fabs closed in the United States. Japan also experienced 17 fab closings, and 12 fabs were closed in Europe.

In 1980, one of the pivotal events in the history of the chip industry, was IBM's selection of Intel to build the microprocessors for the IBM personal computers. IBM chose Intel over Motorola and Zilog (Zilog was founded by ex-Intel engineer Frederico Faggin, who invented the MOS process while at Fairchild).

IBM insisted that Intel facilitate second sources for the microprocessors by allowing companies like AMD to alternatively manufacture the chips. Intel's wealth has been almost fully acquired because of their control of the personal computer. IBM ceded control of the personal computer away with this agreement, or more accurately, their failure to execute this agreement.

The Rise of the American Chip Industry

The Chip Industry has its roots firmly in the United States. Scientists at AT&T Bell Labs invented the transistor in 1947. The chip, or integrated circuit, was invented by Jack Kilby of Texas Instruments and Robert Noyce of Fairchild (later Intel) in 1958. There were many interim steps between these two seminal events, most accomplished by the teams from Fairchild and RCA.

In 1975, the U.S. had more than 70% of the world's market share for chips. The chip industry titans during the development years were IBM, AT&T, Texas Instruments, Motorola, and Hewlett-Packard. These were established technology companies that had success in the emerging field.

Silicon Valley, in California, was largely the result of startup companies with ties to Fairchild, who was located in the area. Fairchild was a technology pioneer, but most of the success came from Fairchild alumni, what became known as the "Fairchildren". Alumni from Fairchild founded Intel, AMD, National Semiconductor, LSI Logic, Altera, Xilinx and many others. One notable Fairchild alumni was Eugene Kleiner, who would later found Kleiner Perkins, a venture capital firm that would help Amazon, Google and Sun Microsystems become billion-dollar companies.

The Fall of the American Chip Industry

Since the U.S. had such a commanding market share in the 1970's, it was natural that this position would be difficult to maintain. The first challenger was Japan, who was very successful at capturing the DRAM market, at the time the most important chip market. By the mid 1980s, 80 percent of the DRAM market belonged to Japan.

Many outside of Asia fail to give proper credit to the emergence of Japan in the chip industry. The common perception is that the sole reason for Japan's success was low labor costs. In fact, the primary reason for Japan's ability to manufacture at lower cost was a superior technical strategy. American DRAM manufacturers switched to a lithography technology called "steppers" a generation before the Japanese. The Japanese continued to utilize the previous generation lithography technology called "scanners". The American companies falsely believed that scanner technology would be inadequate for the newest memory devices. Scanners are significantly faster and less expensive to operate than steppers. Because the lithography step is so important to the overall process, the Japanese had a significant advantage, and used that advantage to capture the DRAM market.

In 1987 the United States started a research consortium called Sematech to combat the loss of market share. The plan called for the chip companies to share research costs, with a government subsidy. Member companies contributed $124 million to Sematech's 1990 budget and $100 million was contributed by the government through the Defense Advanced Research Projects Agency (DARPA).

Japan's market share did drop in the early 1990's, but this was probably more as a result of problems in the Japanese economy than with developments in the U.S. chip industry. The Japanese stock market "bubble" burst, much like the dot-com market burst in the United States. Japan's market share of total chip sales peaked in 1988 at about 49%. Today, Japan's world market share of the chip business is about 25%.

Sematech had a positive impact on the U.S. chip companies' circuit reliability. Statistical process control (SPC) techniques were led by Sematech and resulted in dramatic improvements. Motorola, a Sematech member, was the first winner of the Malcolm Baldrige Quality Award. The progress in reliability enabled chip customers to forego incoming inspection of chips, a huge cost savings.

Sematech was very active helping an immature U.S. equipment industry improve their tools. Sematech effectively moved the technology center of semiconductor industry from chip manufacturers to the chip equipment companies like Applied Materials and KLA. Before Sematech, the customers were the process experts, but now the process tool companies included process expertise with the equipment. This was very good for the lucky equipment companies, but Sematech was very selective. Many tool vendors were shut out by Sematech.

Those outside the chip community sometimes fail to understand the degree to which the chip equipment industry is internationalized. A fab requires hundreds of different process tools for the many different process steps (some chips require more than 500 process steps). Many of the tools cost more $1 million. Most fabs will attempt to standardize on a tool supplier for a particular process step, but all fabs have equipment from many different companies.

A few years ago, a major "Wall Street Analyst" cut his forecast of Applied Materials' business prospects based on the growth of the Taiwan semiconductor industry. The flaw in this logic is that a Taiwanese factory uses U.S. equipment at about the same rate as a United States based company. U.S. companies also commonly use equipment manufactured from outside the U.S, especially from Japan.

Since the chip equipment industry is so globalized, if Sematech makes an advance, U.S. companies gain little, if any, advantage. Chip manufacturing has become highly homogeneous, from company to company, and from country to country. Because the equipment companies now controlled the process technology, it became much easier for countries like South Korea, Taiwan, and China to enter the market. If a company had the money, the technology was for sale.

The result of the work done by the industry, especially by Sematech and its Japanese counterpart, Tohoku University, was that the process of manufacturing chips became less of an art, and more of a science. Chip manufacturing became "paint by the numbers". Once the industry reached this level of maturity, the price of capital, and the price of labor, became the dominant factors in the choice of manufacturing location.

A state of the art fab requires an investment of $3-4 billion. Chip manufacture is now a commodity business involving huge production volumes and low profit margins. A recent count of the last 40 chip factories built showed that 35 were in Asia, 3 were in the United States, and 2 were in Europe.

The memory market, including the products DRAM and Flash Memory, is the most competitive chip arena. South Korean companies currently dominate the memory market. Samsung is the leader, with more than 30 per cent market share, and Hynix is second, with more than 18 per cent market share. Elpida (Taiwan) with 15 percent, Micron (U.S.) with 11 percent, and Qimonda (formerly Siemens/Infineon, Germany, currently in bankruptcy) with 8 percent, are the other significant market share holders.

The Emergence of the Chip Foundry

Chip manufacturing technology continues to become more of a commodity. Companies that once designed, manufactured, and marketed chips, now hire a third party for the manufacture step. This is what is meant by a "fabless" company. The company that performs the manufacturing step is the "foundry". The design is accomplished via collaboration between the foundry and the fabless company.

A modern foundry provides software tools so that the fabless company can accomplish their objective using standard process cells, technology that is owned by the foundry. One of the world's first chip foundries was created in Taiwan by Texas Instruments in 1989 to manufacture DRAM. The company was called TI-Acer.

Taiwan Semiconductor (TSMC), with $30 billion market capitalization, is the current leader in the foundry chip industry, and currently boasts more than 44 per cent of the world market share of chip foundry business. TSMC was founded in 1987 as a joint venture of Philips (Netherlands), the government of Taiwan, and private investors. Morris Chang is the founder of TSMC, and continues to serve as the Chairman. Mr. Chang's resume includes 25 years at Texas Instruments, leaving as a group vice president in charge of the company's worldwide semiconductor business. TI-Acer merged with TSMC in 1999.

The world's second largest foundry is also in Taiwan. UMC claims more than 14% of the foundry business worldwide. Taiwan, a country about the size of Vancouver, Canada, has the highest concentration of semiconductor manufacturing in the world.

It is interesting to note that two of the executives instrumental in recent events in the semiconductor industry are on the TSMC board of directors: Carly Fiorina and Thomas Engibous.

Carly Fiorina is now best known as John McCain's Economic Advisor during the last election. She is the former CEO of Hewlett Packard where she oversaw HP's exit from the chip manufacturing business. In addition, Ms. Fiorina spent nearly 20 years at AT&T and Lucent Technologies Inc. where she served as Executive Vice President, Computer Operations for Lucent and oversaw the exit of AT&T from chip manufacturing.

Thomas J. Engibous (former Texas Instruments Chairman, former president and CEO 1996 -2004), was the department manager of TI's semiconductor group when TI established TI-Acer. Texas Instruments has eliminated their R&D operation, and plans to be fabless for most of their production. TI was one of TSMC's first customers. Much of the foundry model has roots from within Texas Instruments.

The Future of the American Chip Industry

Intel will continue to dominate the Personal Computer microprocessor business for the foreseeable future. There are threats. AMD does everything well except make money. A Taiwan company called "Via" may be the more significant long-term threat. Via designs the chips and manufactures them at the local foundries. Via's core designs originated with Cyrix Semiconductor, a company started by ex-Texas Instrument engineers. Cyrix was sold to Via in 1999. Via's processors are competing well against the Intel "Atom" microprocessor, in less expensive laptop computers.

AMD recently completed an agreement with a company from ATIC (Advanced Technology Investment Company) funded by the Government of Dubai, that should enable them to continue to compete with Intel. AMD plans to build (with their partner), a chip manufacturing facility in Saratoga County, New York. AMD currently manufactures all of its microprocessors in Dresden, Germany.

AMD has a technology exchange agreement with IBM. IBM continues to do well. IBM's strategy is to participate in higher margin products and avoid commodity markets like DRAM. IBM remains a world leader of chip technology.

Foreign companies continue to invest in U.S. fabs, but at a reduced rate. Samsung is doing well with its DRAM factories in Round Rock, Texas, a few miles north of Austin. Samsung operates two fabs; the newest fab opened in 2007 and is considered state-of-the-art.

There are also success stories at the lower end of the technology scale. X-Fab, a German company, operates a fab in Lubbock that is a bright star on a bleak landscape. X-Fab excels by thinking "out-of-the-box", something exceedingly rare in the chip industry today, ironic considering its history. It would be impossible for X-Fab to compete in a high volume, low margin business like DRAM, but they do very well with custom analog chip production. The facility was originally built by Texas Instruments.

More than half of the chip fabs in the United States in operation at the beginning of the decade are now closed. Outside of Intel, there has been little to cheer about. There is little mystery about what the future holds. Our actions today determine our consequences tomorrow.

About the Author: Brian Bradshaw is a 25+ year veteran of the Semiconductor (Chip) Industry. His career includes work at AMD, Varian, and Sematech. He is currently General Manager of In Situ Host Systems.

IBM: Corporate Social Responsibility

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