No Place Like Home

It’s not that we’ll soon all be sporting a pair of ruby slippers soon…

But if it helps, go ahead and imagine that I am clicking my heels together as I write this article.

Because the nasty and persistent whirlwinds of the global financial storms are certainly re-arranging the economic landscape both here and abroad.

And though there are serious negative impacts from Athens to Atlanta, it’s not all bad, either.

Now although the wicked witch of recession is not yet dead, we do have something to be thankful for here in the US of A…

How does the old Billie Holiday classic song go?

“God bless the child who has his own?”

That may become the national anthem of corporate America…

Just add the phrase “large domestic market” at the end of the line.

Bringing It Home

Why do I say this?

Because as I noted in an earlier Gorrie Details article, as the economy crashes in the Eurozone…

A decline in demand makes it less profitable to make things there, especially when the demand is drying up and the currency is melting into the streets.

There are now several good reasons to not base factories in Europe.

Even European companies are moving cash out of Europe to safer, more stable areas.

So with Europe’s problems come opportunities for the US.

But it’s not just a fractured, euro-frozen Europe that is proving new opportunities for Americans…

In Asia, the lure of China’s vast and cheap labor market is beginning to fade as the Middle Kingdom grows wealthier and closes its gates…

Because the fact is, manufacturing costs are not the advantage they used to be in China.

Poor quality, manufacturing delays, rising labor costs, rising shipping costs, and the lack of legal recourse have all made China less of a bargain for American firms these days.

As we have seen, too.  China’s modus operandi is to lure innovative US firms there, set up joint ventures, get hold of the technology, then directly compete with their partner to put him out of business…or just steal the entire company altogether.

Try getting your company back in Chinese courts…It ain’t gonna happen.

So the economic development and mercantile paranoia of the Chinese is working against them…

Therefore, as bad as Europe is, and China is becoming, the upside is that corporate America may find that its own salvation lies…where else?

In America.

There are several factors at play that work in America’s favor…

First, as noted above, the nastiness in Europe has dampened demand for US goods…

And it looks as though that will be the way things are there for a while for many industries.

At some point, US firms will see that it may make more sense to scale back production due to lower demand.

Another factor is the transfer of wealth to Asia.

As nations grow wealthier, a rise in wage levels typically follows...which makes labor more expensive.

Such is the case in China today, as it was with Japan before it.

But, again, as noted above, it’s not only labor costs that are making China less desirable, but much more.

And lately, China’s growth has actually been slowing down…

And the reality is that with the huge level of fraud built into the Chinese state-run economy, the slowdown is likely much worse than most analysts think.

Because remember, China is not a capitalist country with free flowing information on business and economic data…

There are data on the economy meant for the communist leadership…

And data intended for Western consumption.

And the two sets of data paint two very different pictures.

But there is no question that China’s wealth has grown tremendously, negatively affecting its ability to compete as it once did.

Wealthy Nations Buy More

Another factor is that as other nations grow wealthier, like Brazil and India, for example, demand rises for capital goods…

Which can certainly be good for US manufacturers.

And lastly, the American market is still the richest is the world, and, given our deep recession, labor rates have dropped...by a lot.

Plus, Americans still know how to make things; we’re still a nation of doers.

In fact, given the other problems with shipping costs, quality, on time delivery, and lack of legal framework…

Not to mention exchange rate issues and political stability…

Moving their factories back to America is making a lot of sense for US firms.

Some other advantages the US has are its highly mobile and non-union labor market.

Only about 7%-9% of American labor is unionized, which explains why BMW, Toyota, and other “foreign” car makers can open plants here in the US and be very profitable.

Now the question is, “Will the US remain a good place for manufacturing going forward?”

Because even if there are several advantages for the US right now vis-à-vis Europe and China, those conditions won’t last forever…

And given the Obama Administration’s cult-like belief in higher taxes and over regulation…

The conditions that drove American businesses off our shores may well drive them out once more, when conditions improve elsewhere.

In the meantime, click your heels together and repeat after me…

“There’s no place like home.  There’s no place like home…”

And those are…The Gorrie Details.

Related posts:

1. The China Paradox
2. Heavy Metal
3. The China Syndrome
4. Euro Crisis The Story of Our Time
5. Embracing The New Normal

Other posts by James R. Gorrie