Today I had the opportunity to talk with the CFO of a relatively small (less than $1.5 billion of sales) American light industrial company. This company is at the forefront of one of the challenges of our generation - clean water. We talked about business in the slowing economies of North America and Europe, and while there are certainly short term challenges, this is a great business that I have no doubt will do well in years to come (it a low cost producer, has leading market share in its products, and serves what will be a growing market for foreseeable future).
What struck me most in our conversation, though, is that this company is planning to bring back manufacturing jobs from China to the United States. Talk about a paradigm shift! For all we hear about outsourcing jobs overseas and China taking jobs from America this company is talking about the exact opposite. Why are they doing this? The answers are surprisingly simply: the strength of the RMB, labor cost inflation in China, and taxes in China. Without any government intervention, this company is making an economic decision to bring manufacturing jobs back the America. Further, this CFO cited a labor walk out and eminent domain problems in China.
So this is a new paradigm and could be the start of a new trend. As developing economies turn into developed countries they are encountering the same issues that faced the workers of the Industrial Revolution in the West over a hundred years ago. This also got me thinking that if corporate taxes were eliminated or vastly reduced in the United States, it would (contrary to standard liberal talking points) actually create jobs right here at home by attracting our own companies to repatriate manufacturing. It would also attract foreign companies to set up businesses to take advantage of our productive workforce, legal system, and relatively low inflation. We have already seen the latter from the transplant auto plants of the Japanese auto manufacturers and BMW, but this is the first time I have heard of repatriation of manufacturing by an American company that had gone overseas. We can accelerate this shift if we eliminate or lower corporate taxes.
This company is still planning on growing in China, but it will use its expertise to manufacture in China to serve the domestic Chinese market and not to export back to the United States. Another company I talked to is already doing this, and it is in fact exporting key components manufactured in the United States for final assembly in China to be sold in China. I think we will see this shift take place at an even greater rate over the next 10 years as the American consumer slows its credit-fueled shopping binge for soft goods and electronics and as China demands more technologically advanced hard infrastructure and industrial products from the West.
Thursday, October 2, 2008
Welcome to a New Contract
The 21st Century will be shaped by Generation Y. We came of age at the end of the 20th Century and will be the largest most influential demographic aggregation since the Baby Boomers. The world we will come to lead faces a new set of challenges and the way we choose to lead it will shape the next 100 years.
We must break free from the politics and economics of the past to forge a New Contract for our generation. We are the first generation that has not been heavily influenced by the major 20th Century conflicts of World War II, Vietnam, and the Cold War. We have grown up in relative luxury and the Information Age is inseparable from our lives. Some say we are irresponsible and selfish.
While the social, ideological, and military, conflicts of the past bear little influence on us, we must be aware that past is prologue and not forget the lessons of the history. Nonetheless, our New Contract must be forward looking and not focus on the crisis "du jour". The world is changing rapidly and the paradigms of the past can be broken before we have even fully come to grips with them.
So, what is the New Contract? Even in my own mind it is still evolving, but it must contain principles addressing four E's close to our collective hearts: Education, Energy, Environment, and Economy. This will be a wide ranging blog about politics, policy, history, economics, business, and culture. It is my hope that by sharing my experiences and thoughts, we will togther draft the New Contract - a contract for our future.
We must break free from the politics and economics of the past to forge a New Contract for our generation. We are the first generation that has not been heavily influenced by the major 20th Century conflicts of World War II, Vietnam, and the Cold War. We have grown up in relative luxury and the Information Age is inseparable from our lives. Some say we are irresponsible and selfish.
While the social, ideological, and military, conflicts of the past bear little influence on us, we must be aware that past is prologue and not forget the lessons of the history. Nonetheless, our New Contract must be forward looking and not focus on the crisis "du jour". The world is changing rapidly and the paradigms of the past can be broken before we have even fully come to grips with them.
So, what is the New Contract? Even in my own mind it is still evolving, but it must contain principles addressing four E's close to our collective hearts: Education, Energy, Environment, and Economy. This will be a wide ranging blog about politics, policy, history, economics, business, and culture. It is my hope that by sharing my experiences and thoughts, we will togther draft the New Contract - a contract for our future.
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