By Kevin Meyer
Here I naively thought perhaps we had moved on. Over the past several months we've had story after story of companies realizing the folly of following the the lemmings to supposedly cheaper overseas locales and coming home. And over the past several years we've told you story after story of companies in all kinds of industries being globally competitive and successful manufacturing from North America.
Furniture, apparel, even toys – companies are succeeding from U.S. plants by focusing on improvement and creating customer value.
But leave it to Industry Week to jolt me back to reality, to how far we still have to go. Another article on all the horrible hurdles and barriers American manufacturers face. The usual stuff.
The single most significant drag on manufacturing competitiveness is the United States' high corporate tax rate — an average federal-state statutory rate of 40% that has not changed in decades. On a trade-weighted basis, the U.S. rate is 8.6 percentage points higher than its nine largest trading partners. This represents the single most important piece of the total structural cost burden on U.S. manufacturers.
And as usual it doesn't take into account how the U.S. tax system, more than that of any other industrialized nation, has loopholes and offsets galore. Right GE? However I do agree that the U.S. system is also far more confiscatory of overseas profits that the others, and that does need to change. And simplification would remove incredible cost.
The article goes on in similar fashion with regards to regulatory, legal, health care, employee benefits, and other costs. Same old thing. Bottom line?
While manufacturers face a host of challenges, the data demonstrate that domestically imposed costs – by commission or omission of government — further undermine our ability to compete by adding at least 20% to the cost of making stuff in this country.
Yes 20% is a big number and I'm not denying it needs to be improved. If it's all valid in the first place, as I noted above. Four years ago I suggested that companies should stop whining and start competing. A bunch apparently took me up on the challenge as they are succeeding. Some more have just recently come to the realization that cheap overseas facilities aren't as cheap – or risk free – as they thought and are coming back home. Some have realized that if they focus on internal inefficiencies as well as the potential for value creation from the customer's perspective, even a 20% differential isn't that high of a hurdle.
And some are destined to just whine and complain some more. We'll check back in another four years and see how they're doing. Any wagers?
JF says
Great post Kevin. I just returned from an operation visit this week and had a similar dose of reality.
It seems to be human nature to approach problem solving, by assuming it must be some external, “outside of my control” force as the root cause to my lack of success. It can’t be that I am not managing my operation efficiently, as that might mean it is my compentency level which is the root cause..or maybe it is just ignorance. This kind of conference room management is poison to operations and supply chain management. Going to the Gemba, PDCA style problem solving (with the people doing the work), and being humble enough to admit that msot of us are wrong about 50% of the time. This is how you solve problems, not sitting in the conference room, thinking about who is to blame…other than me. Guess what? It is you. But that’s ok, as long as you are ready to do something about it.
Jim Fernandez says
Good points Kevin.
Let me play the devils advocate here.
Suppose you’re an American company and your manufacturing consumer goods. Say, sports gear. Your manufacturing and you are also selling your goods to consumers and consumer outlets. Or your selling through your own outlets (like in automobiles). Your humming along making a 10% profit. And over the last couple of years you have been selling 50% or more of your stuff to consumers overseas.
Now you think to yourself, hey, if I open up a factory overseas I can make more money. So you do just that. Now after a while your dynamics change and the world markets change and your selling 70% of your stuff overseas and your making a 20% profit.
A couple of years pass and you decide that it’s better to close your American factory and make 100% of your stuff overseas and ship 30% of it to sell in America. So you do that and now your profit is 25%.
This company would now be on Kevin’s “bad company” list. Is it fair for this company to be on the list?
Kevin says
Hi Jim – not necessarily on my bad list. I’ve always said that being closer to your customer is a very legitimate reason for moving. GM producing cars in China for Chinese consumption works fine in my book. My problem comes with those that simply chase supposedly cheaper labor without truly understanding all of the other costs involved – cash on the high seas, risk of sinking, development lag times, training, etc.
david foster says
“cash on the high seas”…I was talking to a salesman at Macy’s the other day. He said one particular color/style of pants had sold out when kids at a particular private school bought a lot of them….and it took FIVE MONTHS for the reorder to be filled.
This would be fairly pathetic even if sea transportation was limited to clipper ships.