Outsourcing backlash hits India

The discussion was specific to Siemens product. BMW don't make Siemens.

"The things that can make us even more competitive than we are ........ is by reducing the size of government, not increasing it with tariffs, taxes, regulations, rules, lawyers, politicians etc. etc."

I certainly agree with you there. In addition, we have a tax system that puts US producers at a disadvantage vs their international counterparts in most of the world's markets - including our own. A friend sent the following letter to the WSJ

Dear WSJ,

Discussing "comparative advantage" is useful, but where is the discussion of "comparative TAX advantage", which is a reasonable name for what the 120 Value Added Tax (VAT)countries have over the USA.

That differential is 15 to 25% in the European Union. In short, they add their VAT to our products when our products arrive on their shores, despite all the embedded taxes in US products (20-35% according to Dr. Dale Jorgenson of Harvard). Thus, we aren't competitive in Europe, or other VAT country. (TAX advantage)!

When they ship their products to the USA, they strip out those VAT taxes and, essentially, sell their stuff tax free in competition with our products, on our own shores, which are loaded with payroll, profits, and other taxes. (Thus, TAX advantage!)

I await your discussion.

(name withheld)

He didn't even mention the hundreds of billions of dollars which are wasted on compliance costs annually. Free trade when we have a tax system like ours is tantamount to economic suicide.

Yup, my complete sentence was Maybe not at the same level as third world countries, but then that's why they are third world countries -- they try to restrict incoming goods.
If you want the US to become a Third world country then fine, put in more restriction like the third world does right now. BUt remember, these current third worlders are removing their restrictions at the same time we're increasing ours.

Not Harley Davidsons -- their roads are too cr**py for such bikes, but Ford and GM are selling qutie a number of vehicles there.

BS. Harley is blocked by PRC regs, and when PRC put on a "show" of changing its regs, suddenly, the cities in PRC had regs restricting Harley sales. (I'm in Milwaukee metro--and I've followed this closely.)

As to the Big Three: they made a BIG SHOW of telling us that PRC would allow them to import 250,000 cars from US to PRC in 2004.

250,000. Wow. US market is 18 million cars/trucks.

Yeah. Toothpaste and soap will redound to the HUGE benefit of US workers....

Some countries are less level than others.

Yup, we're at a lower level when it comes to car workers pay than in Germany, that's why BMWs are made in the US -- they're more cost effective for BMW.

Are you REALLY trying to tell us that Chinese laborers, working for $0.35/hour, are going to buy millions of SUV's in 2004? 2005? Or Palmer-Johnson yachts?

Not the yachts, the SUVs and cars, yes, go look at the statistics. Chinese are buying more and more cars and the number of cycles sold are falling.
Those $.35 labourers aren't buying the cars, but the nouveau riche who are at higher levels ARE buying them. And in hughe numbers. Many companies find that they're selling more stuff in china than in the US. And Those are American companies.

"Also, somewhere out there in Googleland is a dollar amount that U.S. taxpayers (OPIC, Ex-Im Bank, special programs, etc.) have risked/spent supporting our "capitalist" corporations' efforts to build infrastructures and factories for India and China. To free traders that kind of government interference is "capitalism" -- as long as it benefits them."

Excellent point! The Free Traders L-O-O-V-E government intervention when it benefits the corporation but think it's anathema if it benefits the employees and "gores their ox". Bunch of hypocrites!

If you want the US to become a Third world country then fine, put in more restriction like the third world does right now. BUt remember, these current third worlders are removing their restrictions at the same time we're increasing ours.

Reminder: the USA became the world's most powerful industrial economy PRECISELY by using tariffs. This is the model that PRC is now using against us, with great success.

PRC is at WAR with the USA. You have a pipe-dream globaloney vision of friendly PRC Gummint types--forgetting Tianamen Square and the millions and millions of Chinese executed by the scumbags running that fiefdom.

Get real.

Why the hell would Chinese people buy US product? And HOW would they buy it?

The Indians were worried about Chinese motorcycles undercutting them but the Chinese bikes never managed to sell. WHy? Low quality. Chinese people buy American because American means quality. The Asian mentality is to pay more money but to buy for life, the opposite of our buy and throw culture. So we can sell higher cost, higher quality goods:

Zen And The Art Of Engaging The Dragon The transformation from getting spooked about Chinese motorcycles flooding the Indian market to becoming blase about handling engine imports has taken three years. Then, the domestic two-wheeler industry was most fearful when the first consignment of low-cost 140 motorcycle kits from China landed on Indian shores and it clamoured for protection. Today, a leading domestic manufacturer is thinking of setting up an assembly facility in China by 2010! After securing some breathing space with tariff protection, domestic two-wheeler manufacturers started studying the rival’s practices and wondered whether low-cost components could be sourced from China. Now, of course, the domestic manufacturers are revved up to meet the dragon’s challenge — either in the form of fully built motorcycles or engine imports. India Inc’s sense of confidence in this regard is almost palpable. What accounts for this swift transformation? To some extent, India Inc’s fears were misplaced as the much-vaunted Chinese invasion didn’t materialise because of the domestic competition and the inability to set up a retail network. Reports indicate that the 12-odd Chinese manufacturers who appointed dealerships and announced plans to hit Indian roads, dropped from the radar altogether. Can anyone recollect any Chinese two-wheelers on Indian roads? More important was the detailed study by India Inc of the Chinese two-wheeler industry. Venu Srinivasan, TVS Motor chairman and managing director, pointed out that there were two sorts of manufacturers — one with collaborations with Japanese majors like Honda, Suzuki, Yamaha and Kawasaki, while a good many of the other sort came up during the last five years. Out of 460 manufacturers, 40 perhaps belong to the latter. According to a CII document, 10 large manufacturers out of the 460 control 70 per cent of the Chinese market, while 40 companies capture the remaining 30 per cent of the market, with the remaining 410 companies being component manufacturers. The market, indeed, is a huge one as the size of the fast growing market is eight million and exports are two million. The competition to India is from the 10 manufacturers with joint ventures plus the 40 companies who have hurt the market with their aggressive pricing. The 10 large companies, especially those with Japanese collaborations, are cost-based and not very different from their Indian counterparts. “These belong to the same cluster,” emphasised Mr Srinivasan. As for the latter sort, they mostly turn out low-cost, poor quality motorcycles with obsolete technology. Their selling price is not very different from material costs, thanks to opaque pricing mechanisms and handsome subsidies given by the Chinese government or local bodies. Clearly, India Inc was more worried about the latter sort who could flood the market with low-cost bikes. But, this threat didn’t come to pass as higher tariffs partly neutralised the Chinese cost advantage. However, the major factor of change was that the local manufacturers got their act together, acquired scale economies and developed models at extremely affordable prices to snuff out any possible Chinese threat. The three-year period was thus a watershed when domestic two-wheeler majors came of age. With prices as low as Rs 27,000 to Rs 31,000 for entry-level models turned out by Bajaj Auto Ltd and Hero Honda, the Chinese motorcycles weren’t price-competitive enough to impact the competition. With most domestic manufacturers implementing Japanese total quality management practices, lean manufacturing and so on, they were able to aggressively lower costs and selling prices of their models by 20 per cent over the last two years. It is not adequately appreciated that India’s market in motorcycles is one of the biggest in the world. Indian volumes are significant, with a few players even acquiring global scales. 80 per cent of the world’s two-wheeler sales is in Asia and India accounts for 25 per cent of the Asian market and is fast growing. The costs of entering such a market, where the domestic majors had already got their act together was, therefore, bound to be somewhat high for the Chinese manufacturers. The Chinese invasion therefore didn’t materialise, while India Inc’s confidence increased by leaps and bounds. Most of them have plans to set up assembly facilities in South-east Asia, including China by 2010. Clearly, scale economies underlie their global compulsions. “Without overseas experience, you cannot amortise your product development and R&D over larger volumes”, argued Mr Srinivasan in a recent article. An important fact about motorcycles is that its technology has got standardised and is available off-the-shelf. Indian motorcycle manufacturers have thus acquired savviness to source know-how even outside a particular collaboration or just pay for only what is required and adapt it to local requirements. Clearly, they have gone up the learning curve after having collaborated with the Japanese, with one of them being confident enough to even design a model indigenously. Not surprisingly, the Chinese read the writing on the wall. Motorcycle exports are not on, but they are now thinking of selling engines here. But is India Inc waiting with bated breath for such an offering? Hardly. Such engines do not provide a cost advantage for a host of reasons. While the Chinese are keen to sell 50 cc engines for $110, domestic manufacturers feel that there is a huge cost involved in assembling the entire motorcycle. A major misgiving is also that these engines don’t meet the existing pollution norms in India. If they are imported, catalytic converters and other parts have to be fitted, all of which add substantially to costs in an intensely competitive two-wheeler industry. There is also a sense that much of what is on offer is obsolete technology, while Indian two-wheeler manufacturers are gearing up to meet far more stringent emission norms. The upshot is that India Inc now has a renewed sense of confidence in engaging the Chinese dragon on the two-wheeler front — which is a far cry from the situation of being fearful about an invasion a few years ago. This sense of confidence has, of course, been based on competing in one of the world’s biggest two-wheeler markets and playing the volumes game even while paying attention to highest quality standards.

"where local companies are adding thousands of skilled, English-mangling employees"

Yup, we're at a lower level when it comes to car workers pay than in Germany, that's why BMWs are made in the US -- they're more cost effective for BMW.

BMW manufacutures ONLY their SUV line in the USA.

THe cars are still made in Bavaria.

Nice list but why not list some of the others like the state of California.
http://www.freerepublic.com/focus/f-news/1079416/posts
I wonder how many of other govt agencies should be on this list.

cars, yes, go look at the statistics

I did. Two hundred fifty-thousand US-made cars go to PRC buyers this year.

Of course, if you choose to categorize cars made by PRC factories which STOLE US designs (check with Chevrolet and Jeep...) that's a different number.

As to the Big Three: they made a BIG SHOW of telling us that PRC would allow them to import 250,000 cars from US to PRC in 2004. 250,000. Wow. US market is 18 million cars/trucks. Yeah. Toothpaste and soap will redound to the HUGE benefit of US workers....

Ok, the PRC buys 250,000 cars from us in 2004. How many did they buy from us in 2000? 1000? 2000? That's phenomenal growth.

By 2010, they'll buy millions of cars from us. See the big picture, the long term view.

Toothpaste and soap -- you'rethe one who asked for what consumer goods are sold by American companies. What about Pepsico? our companies dominate the consumer goods markets there because we have quality. They know the cheap Chinese cr** made there ain't safe so they buy American. And they'll buy even more American as time goes by -- the statistics show a greater spending year on year. Japan's recession is fading BECAUSE CHINESE are buyign Japanese goods. Ditto for the US, this WILL happen as China pulls itself up (hopefully it'll become a democracy like India, otherwise everything goes bust...

I don't see my employer on this list, and I'm in the middle of IT offshoring to Covansys India. Where did you find this?

Your hypothesis, that PRC inhabitants will "buy American," is not substantiated by a long article telling us that PRC inhabitants cannot sell motorcycles in India.

Further, it is not substantiated by a post describing how Japanese/Indian motorcycle firms partner w/PRC factories.

It ain't substantiated, period. PRC inhabitants SAVE 40% of their earnings, live in PRC-factory dormitories, eat nothing--and BUY NOTHING.

>FAce facts these countries are opening up and since 2 billion people are being freed from the socialist 'heaven' there will be greater supply of technically sound people.

What you mention is the natural result of economic liberty. The result up to this point has been a kind of world technical wage. Programmers in Europe and the US tend to live similar lifestyles even if the wages themselves may vary due to local conditions.

But what the US corporations are availing themselves of is something which is the opposite of real free trade and actual capitalism. They are making use of an India government designed surplus of programmers. They are arbing the difference between US and Indian wages and standards of living. The fact this can be done is enabled by a whole series by govt import/export supports, host country labor policies, investment subsidies, tax laws. This is what the Carly Fiorina oddly calls free trade.

Normally business flows would push the Indian technical wage nearer to world levels but this is not happening. US companies create something called captive facilities in which the local offshore employees are kept carefully isolated from world price levels.

If true free market were in operation here, you'd have alot fewer India Java programmers and alot more Indian carpenters and builders.

Reminder: the USA became the world's most powerful industrial economy PRECISELY by using tariffs

No it didn't and stop repeating those lies. Those tariffs were in the 1800s when we were a DEVELOPING nation, a third world nation with massive investments coming in from Europe. Those tariffs also kept us restricted.

When we started to remove them in the 20s our economy boomed even further.

In the 50s when we entered our golden age, who were our competitors? Europe? Naaah, bombed out.

Russia? naah, ditto. Asia? Naaah, still recovering from colonialism.

We became the world't most powerful industrial economy by stripping the tariffs and opening up to capitalism -- we became the most competitive by allowing competition and stripping big government and regulations and socialist practises

"...[PRC] citizens will buy MILLIONS of US cars in 2010..."

BWAAAAAAAHAAAAHHHHAAAAAAAAAAA.

Get a calculator before you post again.

BMW manufacutures ONLY their SUV line in the USA.

And those SUVs are sold all over the world including in Germany, right?

I only had one dealing with an offshore person. He was an Indian, and his accent was so hard to understand, that I told him to forget it after a few tries. I did elicit from him that he was actually in India, not an Indian working in the U.S.A.