Imagine you run a lemonade stand in front of your house, and you do pretty well at it. Now suppose I live a thousand miles away from you, but I decide to invest my money in a lemonade stand in your neighborhood, I hire your neighbor's kid to run it, and I start to make some money too. My profit comes at your expense because I take some of the lemonade market from you. How can that possibly happen? How can I make money in your business in your neighborhood? I could do it by selling better lemonade then you, of course, or by selling lemonade cheaper; and I could succeed by offering better service or by staying open longer hours.
Any way you cut it, however, the only way I can succeed is by managing my lemonade stand better than you manage yours. And when I am able to out-manage you and make money in the lemonade business your whole neighborhood loses out. The ten cents per glass profit you used to make now goes to me. Instead of you spending it in your neighborhood, I start spending it in mine.
According to Deutsche Welle, "Sany, an exporter of cranes, concrete pumps and other construction machinery from China's Hunan province, has officially opened its assembly plant in Bedburg near Cologne and predicted it would be selling 1 billion euros ($ 1.43 billion) worth of machinery into Europe annually by 2015." If that happens and the Chinese company succeeds in selling a billion euros worth of machinery from their new German plant, how can that be anything other than proof of the Chinese outmanaging their German competitors?
Isn't the presence of Toyota, Honda, Volkswagen, BMW, Kia, Subaru and Nissan plants in the United States the direct result of those companies looking at GM, Ford and Chrysler and coming to the correct conclusion that they could make better cars, or at least make comparable cars and sell them cheaper … and then going out and proving that they were right? It seems to me that, had those American companies been better managed, the foreign car companies never would have invested billions of dollars in the USA, and all of the profits from those plants wouldn't be going back to their homelands.
I have to scratch my head a bit when Barack Obama says, "The United States consistently receives more foreign direct investment than any other country in the world," as if it were a good thing. Most of the $194 billion of foreign money he was bragging about went into manufacturing, and 6% of the goods made in the USA, made by some 5 million + people are made in foreign owned plants. When Obama says, "By voting with their balance sheets, businesses from abroad have clearly stated that the United States is one of the best places in the world to invest," he should be saying that by voting with their balance sheets businesses from abroad have clearly stated there is a lot of lousy manufacturing management in the United States.
Politicians and a lot of economists whose 'long term view' extends as far as a week from Tuesday get jazzed up about the foreign money coming in, but I think it is a pretty safe bet the Chinese crane company isn't a charitable concern, and they are putting a hundred million euros into Germany because they are convinced they will take a lot more than a hundred million euros back out eventually.
The politicians and economists get excited about the jobs the foreign companies create. It seems to me that either the market is flat and those jobs are going to be offset by jobs lost in the locally owned compaies, or the market is growing and those are jobs the locally owned company could have added had they run their business better.
The Chinese buillding the cranes in Germany is certainly better for Germany than having them invest their money in China, hire all Chinese workers, and simply export the cranes to Germany. This strikes me as the wrong comparison, though. It is like celebrating the fact that you are going to have your foot amputated because it is better than having your whole leg amputated. A lot better, don't you think, if the problem with your foot could have been healed and nothing had to be amputated at all?
It seems to me that, if foreign owned companies are looking at your industry and concluding that they should invest money in building a plant in your country to complete with you, they are sending a pretty loud and clear message that you have work to do.