In a global market location means nothing. What counts is cost

The explanation as to why 1,400 people lost their jobs in Clonmel this week lies on the far side of the world. In the global economy there is no difference between Tipperary, Penang state in Malaysia and Shenzhen in southern China: the cost of production is what counts.

So while Clonmel got the bad news this week, Seagate's 4,000 computer-disk assembly workers at its plant in Perai, a town of 26,000 on the western coast of the Malayan Peninsula, will not have their Christmas spoiled. The Perai plant, acquired last February when Seagate took over Conner Peripherals, also assembles disk drives. So, too, does another Conner-acquired plant in Shenzhen.

Too many assembly plants, too many disk drives. Which one to close? The most expensive.

Seagate's workers in Perai live and work in a country whose wealth just a generation ago was measured more in its rubber and palm-tree plantations than in its banks or factories. Under the firm guidance of Prime Minister Mahathir Mohamad, Malaysia's combination of cheap labour and relatively stable political leadership has proved irresistible for manufacturers seeking to undercut the competition.

Seagate is a case in point. The company now employs a total of 25,000 people at its seven Malaysian plants, making it one of the country's largest foreign employers (it also employs 18,000 people in neighbouring Singapore and even more in Thailand). Malaysia now accounts for roughly 25 per cent of Seagate's employees worldwide.

Citing an "information blackout" in advance of the release of corporate financial figures in January, Seagate did not respond to the Irish Times's request for information about its Perai plant. But local analysts estimate that production workers at Perai earn about 500 ringgit a month, roughly £88.

Just six months ago it seemed as if Malaysia could do no wrong. The capital, Kuala Lumpur, boasted the world's tallest buildings, the twin Petronas Towers. The country's economy looked set to continue a decade of phenomenal growth, expanding at a breakneck pace of more than 8 per cent a year for 10 years in a row.

But the regional currency crisis, set off by the devaluation of the Thai baht in July, has exposed some of the weaknesses of Malaysia's economy, sending its stock market into a tailspin and knocking its currency down 34 per cent against the dollar. But the south-east Asian currency crisis has done nothing to deter Seagate from investing even more in the region. In fact, the plunging ringgit means wages and costs are even lower.

Locked into a titanic struggle for markets and margins, Seagate has invested $70 million in a plant in Cebu, the Philippines, which is expected to go into operation early next year. Last month the New Straits Times reported that Seagate was also planning a new plant in Indonesia. The two plants will eventually employ 10,000 people each. Last month Seagate officially opened a printed circuitboard assembly plant in Johor, Malaysia.

"Obviously, they are going through a major restructuring exercise," said Pearly Yap, an electronics analyst with Socgen-Crosby Securities in Singapore.

Seagate is hardly unique in this respect. Last winter zip-drive maker Iomega Corp laid off 500 employees in its hometown of Roy, Utah, and beefed up its operations in Penang, and in September Komag Inc closed a California factory, laying off 350, to concentrate on its facilities in Malaysia.

What is it about Malaysia that attracts disk-drive manufacturers?

One reason is simply critical mass. Many of Seagate's suppliers and most promising markets are located in south-east Asia. At the same time, more developed Asian economies such as Malaysia and neighbouring Singapore are fretting about the future as they watch their low-tech manufacturing base erode to even cheaper centres such as Indonesia or China, repeating an earlier pattern.

Globalisation has made it possible for multinationals to help a nation develop fast, or to let it fall in a flash. Perai could yet feel the Clonmel effect.