Your worst nightmare — more offshore manufacturing

July 1, 2003
Not long ago, those supposedly in the know derisively divided the U.S. economy into two halves

Not long ago, those supposedly in the know derisively divided the U.S. economy into two halves. One was the new economy, which was supposed to grow vibrantly based mostly on the Internet and telecommunications. The other half was the old economy, which was viewed as stagnant and not worthy of investment.

We all know what happened to the new economy. But the old economy somehow never shook the stigma of being “old.” Nevertheless, there are still companies that have faith in smokestack America and manage to thrive despite Wall Street’s contention that manufacturing is a sunset proposition.

One example is Baldor Electric Co., a manufacturer of electric motors and control systems. While many manufacturers are running for Mexico or Asia, Baldor has committed $3 million to a plant in Arkansas that will build a new line of motors for the air-conditioner market.

At a meeting of the Small Motor Manufacturers Association earlier this year, some of the more salient discussions came not from formal presentations but instead from informal talk heard during breaks and between sessions. What much of this conversation centered on were flights across the border or overseas, or the fact that more and more imported motors are taking business away from domestic manufacturers without politicians paying any attention.

Consider home appliances, for example. A lot of motors used in appliances are being imported, but because they are installed in appliances assembled domestically, nobody in government or labor seems to mind. It is all viewed as domestic manufacturing. The prevailing view is that only when the assembly of major appliances moves offshore will it be considered an exporting of manufacturing jobs. Then government and labor will sound an alarm.

Well, maybe it is time for that alarm to be sounded. Jeffrey Immelt, the CEO of General Electric, is under pressure to maintain the torrid growth that GE enjoyed under former CEO Jack Welch. The phenomenal growth came primarily from lending money through GE’s financial unit, but despite that, Mr. Welch was widely regarded as the genius driving an “industrial” company.

Now Mr. Immelt is expected to equal the growth that Mr. Welch produced during the stock-market bubble. But it is virtually impossible for him to do so because he has inherited a corporation negotiating a more difficult economy.

So what is Mr. Immelt to do? One of his strategies, according to newspaper reports, is to do more manufacturing overseas. Samsung Electronics may be building a new GE refrigerator in China, and GE may move other appliance production to Asia. Moreover, there is a lot of speculation among stock analysts about whether GE will sell its entire consumer-products business to an Asian manufacturer. Other speculation is that GE will sell its motor business if it can get a decent price for it.

Although politicians generally give only lip service to concerns about manufacturing being sent overseas, they are paying more serious attention to what is happening in financial and information-technology sectors. One estimate is that 500,000 jobs in financial-service companies, 8% of the total, will be exported to foreign countries in the next five years.

As always, lower labor costs are the draw. For example, someone answering a telephone at a call center in the U.S. will earn about $20,000 annually. In India, an English-speaking person doing the same work gets a wage of about $2,500 per year. A stock analyst with a college degree can make as much as $250,000 per year in the U.S. In India, doing the same job earns $20,000. And, of course, you already know about the thousands of software jobs already exported.

Do you want even more of a shock? There was a rumor circulating in aircraft circles a few months ago that Boeing was actually thinking of ending production of commercial airliners. The company hotly denied the assertion, but as they say, where there is smoke . . .

Management isn’t always rocket science

In a recent cartoon, Dilbert asks his boss: “Logically, doesn’t the existence of thousands of management books show that no one knows what works best?” Good question.

At least one academic, like Dilbert, takes a jaundiced view of the nonsense dished up as profound management theory. James Hoopes, a professor at Babson College in Massachusetts, is quoted as saying that a great deal of the advice given by management gurus glosses over the cold, hard facts of business, namely, that bosses tell employees what to do.

He points out that, contrary to what is published in the bulk of management self-help books, corporations are undemocratic institutions built on the idea of empowering managers to extract revenue-producing performance from employees. Power and authority are dirty words today, says Dr. Hoopes, but managers need power and authority to run a company. Soft-pedaling reality to employees won’t help them.

In this context, it is refreshing to see people portray management in the cold light of day. Almost all employees, especially highly placed corporate managers, like to see themselves as bringing incisive thought and decisive actions to complex business problems. But being a manager isn’t always a job requiring exceptional brainpower.

A former GE executive, one of many of its alumni brought in to revitalize stagnant companies, was recruited as CEO of Albertsons Inc., a supermarket chain, to bring new life to the firm. A member of the board of directors had this to say about the challenges facing him: “Our business isn’t that difficult. We’re not building the space shuttle.”

Joe DiFranco, Group Publisher
[email protected]

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