Posted on 10/13/2005 9:28:50 AM PDT by Willie Green
For education and discussion only. Not for commercial use.
Gone are the days when U.S. manufacturers united to compete against the likes of Germany and Japan, pumping out high-quality goods under the protective shelter of the world's most vibrant economy. Today, amid liberalized trade and widely available cheap labor, manufacturers have turned against one another, threatening to topple a house built upon the pillars of ingenuity, productivity and competitiveness.
It's no secret there's a civil war going on out there. The U.S. manufacturing landscape is being ripped apart by a series of attacks on its traditional strongholds that has left few industries intact.
Already tens of thousands of small and midsize manufacturers have gone under. Those that remain are struggling. Whole industries such as furniture, shoes, textiles and many computer components -- once hallmarks of American ingenuity, productivity and competitiveness -- have virtually disappeared, the victims of the rapid emergence of easily accessible low-cost labor overseas.
While all manufacturers face the same lopsided trade policies, surging prices for raw materials and relentless competition from China and other low-cost markets, small manufacturers get squeezed the hardest.
The statistics bear this out, reports Joel Yudken, sectoral economist at AFL-CIO. Using figures from the Bureau of Labor Statistics, Yudken found that out of a net loss of 27,000 U.S. manufacturers' establishments from 2001-2004, 90% were companies or individual plants employing fewer than 250 employees.
"Large manufacturers don't feel the market changes anywhere near as fast or as hard as the smaller companies," observes Martin Piszczalski, research director and automotive industry analyst at Gartner Group in Ann Arbor, Mich.
In fact, these days large manufacturers benefit from the very policies and practices that harm smaller companies. They tend to have the financial padding to withstand price increases while their market share and assets enable them to partner with contract manufacturers and overseas competitors to leverage the advantages that these companies have over U.S.-based companies.
This phenomenon has divided U.S.-based manufacturers in an unprecedented way.
While IndustryWeek has reported on many supply-chain partnerships that are healthy and mutually beneficial, it's evident that these are rare and that a growing faction sees large manufacturers as indifferent toward the struggles of their smaller and midsize counterparts.
"The larger manufacturers don't really perceive their fate as being tied to the smaller domestically focused companies," says Alan Tonelson, research fellow at the United States Business & Industry Council (USBIC). "In fact, the larger multinational companies view these small supplier companies as rather expendable commodities."
Some observers say the big companies have contributed to the smaller firms' woes through their relentless price-cutting mandates in recent years. In 2001, Daimler-Chrysler AG told its suppliers they would have to slash their costs by 15% over three years. Toyota Motor Corp. maintains a practice of requiring suppliers to cut prices annually. In a 2002 value-chain survey, IndustryWeek found that more than half of manufacturers reported they had required their suppliers to cut prices as a contractual obligation. Overall, the effect of these mandatory price reductions -- coupled with other geopolitical and economic forces -- has been to drive many suppliers out of business.
The schism has become so apparent that it has led to a rift within the membership of the Washington-based National Association of Manufacturers (NAM), which is perceived by some to represent primarily the interests of the large multinational manufacturers. As a result, a reform group within the membership is seeking to make the organization more responsive to small firms.
"We have established a working group of people within the membership who have a whole different point of view," says Jeff Noah, director of the small and medium-size manufacturers department at NAM. "This is part of an internal debate here at NAM. But we don't see it as big versus small."
But in fact -- when you talk with manufacturers -- it is big versus small, especially when it comes down to where manufacturers stand on the U.S. government's trade policy, which often favors the big multinationals at the expense of the little guys.
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United States Business and Industry Council
From the Web site: "The United States Business and Industry Council (USBIC) is a national organization of business owners and executives dedicated to making the U.S. domestic economy the world's leading engine of economic growth. The USBIC Educational Foundation is its research arm. . . . The USBIC was founded in 1933 to represent the concerns of America's small and medium-sized business community. Member companies are typically family-owned or privately held, mostly in the manufacturing sector."
National Association of Manufacturers
From the Web site: "The NAM's mission is to enhance the competitiveness of manufacturers by shaping a legislative and regulatory environment conducive to U.S. economic growth and to increase understanding among policymakers, the media and the general public about the vital role of manufacturing to America's economic future and living standards. . . . The NAM is the nation's largest industrial trade association, representing small and large manufacturers in every industrial sector and in all 50 states." |
USBIC, which is made up largely of small and midsize manufacturers, comes out and blames NAM "for hastening the demise of domestic manufacturing by following the dictates of its multinational members."
Noah concedes the small manufacturers have a different agenda, which he views as not realistic for NAM as an organization. "The small companies want tariffs that the majority of our members don't want," he insists.
Out of 14,000 members, about 10,000 are small and medium-size manufacturers, he adds.
Bad For Everyone?
Tonelson believes that eventually all U.S. manufacturers will suffer from this divide. And he is not alone.
"We are all in the same boat, whether a manufacturer is large or small," says Bob Johns, director of marketing for the sheet metal group at Nucor Corp., the big minimill steel producer based in Charlotte, N.C.
Johns isn't exaggerating. Take the case of Visteon, the multibillion-dollar Tier I auto supplier spun off from Ford Motor Co. that was struggling to stay in business until Ford stepped in again this year to give the giant parts manufacturer a financial hand. "Ford couldn't afford to let their most important parts supplier go bankrupt," Piszczalski points out.
Tonelson spells out these risks associated with not protecting the U.S. supply base:
Still, most large U.S. multinational manufacturers have shifted some or all production abroad and now export products back to the U.S. to take advantage of cheap labor elsewhere. According to a 2004 report by consultants McKinsey & Co., one-third of the U.S. trade deficit can be attributed to foreign operations of U.S. multinational companies.
"That's powerful evidence of the supply chains moving overseas," Tonelson says.
Another fear is that the demise of these smaller firms will hurt everyone through a diminution of talent, innovation and technology.
"These smaller manufacturers often are like a farm club, with their people often jumping to one of the bigger manufacturers," says analyst Piszczalski. "They serve as a breeding ground for talent and an important source of innovation. There are a lot of advantages to having these 'mom and pop' operations in your country."
Dave Frengel, director of government affairs at Penn United Technology, a Saxonburg, Pa.-based manufacturer of precision metal-forming dies, agrees. "If the big companies can't find the skills and the components they need in the U.S., then they have to buy them offshore."
And as Matt Meyers, director of the Global Business Institute at the University of Tennessee, Knoxville, Tenn., points out: "We are seeing a dramatic decrease in the number of supplier options worldwide."
That's one reason the Chrysler Group launched its Highly Integrated Partnership Organizations (HI-PO) program last January to work with a few dozen of its key suppliers. Although the auto manufacturer's primary goal of its initiative is to raise the quality of the parts delivered by suppliers, the company clearly is looking to improve ties with them and over the long haul, to help ensure their survival.
As part of Chrysler's HI-PO initiative, the automaker has loaned its manufacturing and quality-improvement talent to more than 40 suppliers. Earlier this year Chrysler assigned about 40 employees to its crack Quality Assessment and Audit Team (QAAT). They typically split up into squads of three or four to work with individual suppliers on helping them improve processes, reduce reject counts and boost overall quality.
"This effort is primarily focused on quality, but with some companies we've seen corresponding benefits in reduced costs," says Scott Garberding, vice president of supplier quality and product team program manager. "We see it as an investment in our suppliers' performance."
Garberding rejects the notion that Chrysler is merely trying to streamline suppliers' processes so that the OEM can reap the cost benefits. "It's not related to our cost-reduction plan, and we are not asking these suppliers for cost reductions," he says. "We do ask the supplier to agree to some performance improvement objectives, including certain quality-related milestones. We want to drive quality improvement across our supply base."
In the end, of course, Chrysler must determine which suppliers to keep and which to jettison. "We do make sourcing decisions based on supplier performance, including quality, supply capability, technological capabilities and cost performance," Garberding adds.
As far as sourcing parts overseas goes, Garberding says Chrysler takes a hard look at what each supplier brings to the table before making a decision. "Suppliers may have specific technologies or we may have longer-term relationships such that resourcing may not be practical, yet at the same time, we still need them to achieve performance improvement."
Some large manufacturers are committed to fighting the decline of U.S. manufacturing out of plain and simple self-interest. One reason is that many of these small and midsize companies are their customers. "We are going to fight the decline of U.S. manufacturing tooth and nail," says Johns of Nucor. If small and midsize firms go down the tubes, he adds, "The direct impact will be that volume will go down for large companies, and we'll all eventually disappear down the sewer."
Jim Fritsch, executive vice president for strategic planning at Commercial Metals Co. Steel Group in Dallas, thinks there are a number of ways bigger manufacturers can take heed and learn from the smaller companies.
"First, smaller companies are usually quicker at decision making and at moving in new directions," Fritsch says. "Second, small companies tend to focus more effectively on cost management. They don't get complacent, and they keep a close eye on the cost of doing business."
He also thinks smaller manufacturers often tend to know their markets more intimately and are quicker to sense and react to market changes or shifts in customer preferences. "Although new product innovations are extremely important for larger companies as well, it's the smaller companies that tend to do this more rapidly."
That nimbleness and creativity -- while in itself not always enough to sustain a small manufacturer -- can extend into other areas of the business as well.
"One challenge for all companies today is transportation, and small companies tend to be more creative in finding ways to get their products to their customers when there is a transportation crisis, such as a shortage of rail cars," Fritsch says. "They know they have to get their products to their customers, because they depend on that cash flow to stay alive."
Trade To Blame?
Another point that manufacturers once agreed upon that is now driving them apart is government action versus free-market forces. At the heart of this debate is trade. Again, larger companies can better absorb the pain associated with freer trade and more quickly reach the benefits: fewer tariffs and access to more consumers. The prevailing Bush administration theory is that trade eventually will bring more jobs and profits to U.S. shores. But small and midsize manufacturers -- and on occasion large ones, such as large steel producers -- say the administration has been lax on enforcing trade laws, which these days are a complicated stew of mandates of governments and quasi-government bodies such as the World Trade Organization.
In general, Frengel says, trade laws and the U.S. government's position on enforcement, or lack thereof, have encouraged the exodus of U.S. manufacturing.
"The message from the federal government is that you are an idiot if you are a manufacturer and you stay in the U.S.," Frengel says, echoing the bitterness and frustration of many U.S. manufacturers that feel betrayed by their government.
A lack of government support for manufacturers can have a dramatic negative effect on the survivability of these companies, industry observers say.
"Once you drop the trade barriers, then the various governments' policies become much more significant and can be the differentiators that determine where manufacturing goes," says Gartner's Piszczalski.
He offers as an example Canada's policy of assuming the health-care costs of workers as one reason that Ontario Province now produces more vehicles than Michigan. "That's one reason Toyota decided to put its latest plant into Canada," Piszczalski adds.
In another example, Frengel cites the Bush administration's negative stance toward the Hunter-Ryan Bill. House Resolution 1498 would treat currency manipulation as a means for a government to subsidize exports, and would prohibit military-critical parts or those key to national security from being imported if a country was found in violation of export subsidies. "This bill would allow injured parties to seek remedies," Frengel says. "The administration hates it, and they are not embracing this bill."
Frengel says his company supports what he calls "intelligent trade policies and a system to administer them, which are not there. We did not create a robust trade management system. Our company supports trade policies and reforms that will help our nation."
The loss to the nation, he says, is the same loss to large manufacturers, every time another small or midsize manufacturer goes bust. For example, only a single major machine-tool manufacturer -- Haas Automation of Oxnard, Calif. -- is left in the U.S. out of a once vibrant, thriving and innovative industry.
"The people and the technologies to make some of these products are being lost," Frengel explains. "To get an industry like this back can take 10 to 15 years. Precision tooling, for example, is difficult to make, and the innovation and creative manufacturing culture is all being lost. It's a huge cost, a loss that is very hard to recover from."
Johns offers a similar view: U.S. manufacturing, large and small, is in a deep decline, and something needs to be done about it before it's too late.
Says Johns: "We are industry, and we are quite upset."
What part about only 15% of workers in manufacturing belong to unions don't you understand. Unions didn't bust small manufacturing as much as cheap foreign labor did. Big Labor has moved on to the permanent jobs of government employees, where the taxpayer will become the unions victim and the new "GM".
My guess is that it's American capital (money) which dominates the largest and most powerful multi-nationals...and that the principal function of the United States government is to protect that money and its owners.
I haven't seen any stats to prove or disprove this assertion. But such stats must exist.
Actually, that trend was initiated by post-WWII government policy as part of the Cold War strategy to rebuild our allies and block the spread of communism. Unfortunately, the transnational corporations that helped us successfully pursue that goal have now found it profitable to cooperate with communist nations, and assist them in plundering and undermining our peaceful prosperity.
All unions must die, especially those of government parasites.
I recently read that the average hourly expense for unionized workers at Delphi was $65/hour when you include wages, pensions, and health insurance.
Of course Delphi just went chapter 11.
People say that because it seems to happen in their imaginations. It does not happen in real life. If it did, then we'd see US unemployment rise along with soaring foreign wages. Reality is high US employment with increasing US wages and wealth.
I guess this depends on how you define multinational. I'll assume, for the sake of argument, you are referring to the major multinational corporations that are very large. These companies have offices, factories or branch plants in different countries and have a centralized head office where they coordinate global management.
Now let's look at your statement from the small business perspective. According the the SBA, in 2002 there were 22.9 million small businesses in the U.S. Of that number 17.2 million were sole proprietorships (roughly equivalent to nonemployers) and 5.7 million have employees.
Small businesses, as defined by the SBA, have less than 500 employees. Not exactly what you meant by multinational or transnational corporation is it? Lets look at how important these small businesses are to our economy:
It's bad enough that you characterize American based multinationals as un-American. However, It's requires total ignorance to believe that there are not many American companies left. I think you need to find a new bogeyman.
Our economic success is driven by the search for profits. Any businessman not loyal to making a profit does no one any favors and will not be in business long. To suggest that these millions of business owners would sell out their country for that profit is reprehensible. I know more than a few vets who own these kinds of businesses who would love to give you a quick impersonal lecture on exactly where their loyalties lie.
What is your answer to this "problem" as you see it?
I was trying to describe reality, not theoretical constitutional obligations. Sorry for the lack of clarity.
I understand. I think its important for all of us to say that the principle function of government is to protect individual rights, over and over again, so that Americans won't ever forget.
I was at a loss as to where to begin in the face of all these 'feelings' about the market place. Mushy feelings can be just fine in the bedroom, but in the market we need a hard clear reality.
That's the key.
We can blow off anyone saying "U.S. manufacturing, large and small, is in a deep decline," but when they say "and something needs to be done about it" we want to know just what kind of "something" that we're getting into.
Second Willie's comments in #35. Also redo trade agreements. This problem reached roaring proportions when Bush/Clinton made China permanent favorite trading partner. With this kind of government protection, the multinationals took a fast boat to China. So that's a starting point.
Successful trade relationships have to be reciprocal. We buy from you, you buy from us. This implies a much closer trade differential. And I don't mean exporting factories. If we are not making product for export [and not 'intellectual property'] that's another starting point, let's produce.
Also vote out incumbents who are unwilling to redo these unbalanced trade agreements.
Raise import taxes
Restrict multinational corporate political contributions and lobbying.
Punish businesses that sell overseas.
What information do you have on the effect of law suits on any finished goods?
Levy 10~15% tariff on all imported goods.
Nutso, trade wars will bring about a worldwide depression. Ever hear of Smoot Hawley?
Reduce corporate income tax.
How then do you propose to make it mandatory they pass these savings on to customers?
Reduce government social spending, increase investment in productive infrastructure.
Which party will be able to reduce social spending as necessary to bring about the results you want and remain in power?
Restrict multinational corporate political contributions and lobbying.
So what you are saying here is that the politicians are not corrupt it is the MONEY that is FORCING them to pass these trade deals?
Delphi has just filed for bankruptcy. The average cost per employee including benefits is in the area of $65.00 per hour. Nothing you have mentioned will come close to making this nation competitive with one who pays its workers $1.00 per hour with NO benefits. Some of what you said will bring the world economy to its knees and at that point we won't be concerned about American mfg or any other mfg for that matter because there will be none.
It's just that I get in such a sour mood when I'm looking at higher taxes and big government control. I got feelings too I guess.
Boy, you're sure right on THAT statement!
Here in my little Southern Oregon town of some 17,000, the newly-hired city manager is being paid $110,000 a year, plus he gets two months of sick leave and a $30,000 a year HOUSING allowance!
Plus, for many years, all county managers were automatically given nine weeks vacation a year, after one year's service, and they had the right to sell half the vacation time back to the county.
And we are a supposedly broke county, so much so that the sheriff is talking about halting all sheriff's patrols and keeping only the jail duties.
Incredible...and if you mulitply that extravagent spending on government employees across the country, and you get the idea why government keeps raising taxes and is getting more corrupt...
Ed
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