Saturday, November 03, 2007

A Conservative’s Viewpoint
- Can The Job Exodus Abroad Be Reversed?

Article by Bob Steinburg
- Edenton, North Carolina: Cradle of the Colony

To corporations profits mean everything. We all hear about the global economy and companies that export jobs from the U. S. to cheaper labor markets to better compete. The benefits: less expensive goods, increased sales of product, bigger profits and access to more markets. Logistics may be causing some corporations to take to take a closer look.

Jim Jubak, a senior market editor for MSN Money states there is evidence of a deceleration in the rate at which jobs are being shipped abroad because of the crisis of global logistics, the systems that get products and material from here to there and back again. With the cost of offshoring rising and the benefits shrinking, more companies are rethinking plans to move operations abroad.

Asian countries pay lower wages and provide goods and services for less. That edge disappears, Jubak says, when you can’t get products to customers on time and when the product doesn’t meet expectations. Take China- there is no return policy. Chinese manufacturers carry no inventory so everything is made to order. Shipments take as long as eight weeks to arrive in the U. S. Finished goods sitting on Chinese docks must be paid for before export here.

Another reason a corporation establishes manufacturing facilities overseas is when they have existing or developing demand for their product in that region. Nissan, a Japanese company, felt it could be more competitive here by setting up manufacturing in the U.S. Others have followed like Honda, Subaru, Toyota, Mitsubishi and Mazda. The Japan Automobile Manufacturer’s Association next month is expected to report that the projected number of employees at their U.S. facilities in 2008 will be nearly 63,000. Certainly manufacturers of big ticket items benefit the most. An Asian T-shirt manufacturer is not going to move his operation here to be closer to U. S. markets. Caterpillar, however, could establish a plant in China for manufacture of products to be sold there, while maintaining U. S. plants for North American sales.

It’s not just the finished product that faces logistical hurdles but materials used in production. In addition there may be several points of assembly before the process is complete. Stages of movement have one common denominator: transportation costs. And with the cost of fuel going through the roof worldwide this could be the great equalizer in helping us keep existing jobs in the U. S. while bringing new jobs here from foreign corporations who produce goods that will be consumed here.

Dennis Donovan is a principle in Wadley-Donovan-Gutshaw Consulting, advisors to corporations seeking where best to locate their office and industrial facilities. He admits growth in U. S. manufacturing is uneven, but predicts the trend is upward.

Siemens {Medical instruments}, Hutchinson {Disk drive production} and Allen-Edmond Shoes are three American corporations who are reinventing themselves to emphasize superior quality, embedded technology, speedy delivery and customization. They are striving to manufacture products where labor represents 25 percent of the cost of goods sold. They see this as a template for their future success and that of corporate America.

North Carolina has a 4.9 percent unemployment rate. In the eastern part of the state the numbers are high as 7.3 percent. If Donovan and Jubak are correct than we in North Carolina need to take action to improve our business climate dramatically. Electing people to our state legislature who will terminate corporate incentive packages, reduce or eliminate corporate income tax, significantly lower the individual state income tax rate, improve our schools, amend Senate Bill 3 to insist alternative sources of energy plants be built in North Carolina and rebuild and/or repair our roads, bridges, sewer and water lines without raising taxes would be major steps in the right direction.

When you live in a state that the nonpartisan Tax Foundation in Washington ranks in the bottom tier (40th) in our ability to attract business, there is plenty of room for improvement.

I recently posted an article that talked about the new concept of "onshoring". You can read that article and my comments here.

The importance of onshoring is recognition that corporate America is looking to reduce its dependence on long distance movement of product, overcome the increasing costs of doing business overseas and take advantage in the decline of the dollar (which increases costs of foreign labor and goods) as a major reason to stay home in America. They are doing this by moving out of big American cities into rural America rather than to big foreign cities like Bangalore. The prediction of some experts is this is a long term trend. However for our area to take advantage of this new enthusiasm for staying home, and even bringing back some of our lost manufacturing and services, being at the bottom of the list of attractiveness as a business location in America does not bode well for North Carolina or the Inner Banks.

As Bob accurately notes, there is plenty of room for improvement.


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