Competition is good. Interesting because for the last few days I have been home in the USA and the general sentiment has been a bit shocking. I’m sure it’s a combination of things but probably most importantly due to the fact that next year is an election year, the unemployment rate is hovering around 9% and the gradual erosion of real income/wages has persisted for longer than most of us are willing to admit.
The focus is on jobs. Growing the economy by putting people back to work. And the idea I’m seeing expressed is the push for manufacturing to return to the USA. The best supporting argument I have heard so far is that every manufacturing job creates an average of three (3) jobs within the economy, while a service job (on average) creates only 1.5 other jobs.
So obviously the first step is to start setting up factories in the United States, manufacturing products and subsequently deciding whether to export or use the supply to quench domestic demand. This means that companies who mainly design products & manage brands while leaving the manufacturing to China may look to cut back some overseas manufacturing and bring a substantial amount back to the USA for the sake of growing the economy. In addition, I’m sure the good press from buying locally wouldn’t hurt the company’s brand.
But will they start buying everything from the states? Will this lead to direct competition between Chinese & American manufacturers? Who will eventually benefit from this?
Buy everything from the States? Just as it took time for the manufacturing sector of the American economy to slow down, it will take time to re-gain momentum. Manufacturers will have to find competitive ways to buy raw materials, put in place the processes/machinery to produce the desired product(s), manage logistics, etc. It can happen with time, but just as with anything, proficiency will come with trial & error. Thus, I think companies will move some of their manufacturing to domestic facilities & leave some in China.
Will this lead to direct competition? I don’t really think so. There is a LOT to go around on this level. By engaging the international marketplace, I think the idea is more to find a niche area where you have specialization of trade. This simply means that you have specialized in an area to the point where you can call yourself an expert.
In our company, we manufacture & export promotional goods. These could be for anything from a new movie to a new product launch. The items are usually relatively inexpensive & usually metal, plastic or knit wear. For these “trinkets” I just don’t think a country as developed as the USA will be able to compete with a developing country like China. There are still many, many places in China where the average salary is less than USD 200 per month. True, the average salary is increasing in China but increasing fairly slowly.
But I do think the USA will be extremely competitive when dealing in more “high technology” items or products that involve design/creative development in conjunction with manufacturing. I recently read that Mars (the company that makes Snickers, Mars bars, etc) is bringing a large factory back to the USA. I have heard of others as well and I don’t think it will lead to direct competition. Sure, there will be some overlap but the areas of specialty and strength are different for the two countries & there is enough room for the two to co-exist. There are certainly people/businesses around the world that need these American & Chinese made products.
Who will benefit? Everyone! As I said in the beginning, competition is good. With competition companies will be held to a strict standard on pricing because there will be many alternatives. This is good for consumers. Manufacturers will attain increased efficiency in the area of specialization & gain the core competencies that allow them to eventually own more of their value chain (i.e. produce raw materials, find better ways to train employees, etc). Both economies will benefit because we are so interdependent. This progress will help our Sino-American relationship in many ways.
I’m looking forward to seeing the next few years as the manufacturing sector in the USA matures. Their progress will naturally take the form of the natural resources in the area, the creativity of the individuals & the kinds of companies involved (i.e. cell phones, automobiles, solar technology, food/beverage, hospitality). There will be companies that push the envelope with their ability to find ways to navigate through tough environments. With this innovation, some will fail but those who succeed will define the American form of manufacturing. More important than direct competition is getting into the game. Get started and get some momentum going. This will propel the economy into a direction where people can reasonably expect to get a job and control their own future.
By relying too heavily on service-based jobs, any country would lose the core competencies involved in manufacturing. So move back! Make manufacturing a priority. Give tax incentives for manufacturing domestically. Reward productivity and innovation. And most of all develop students interested in supporting the manufacturing sector.
With this formula, no country can lose in the long run. Innovation and manufacturing together will lead in the direction of controlling more of your products and thus controlling more of your destiny…
This is true globalization… Good luck to all involved!