Question: Globalization is affecting manufacturing. What’s the good and the bad?

Answer:

The integration of traditional manufacturing, new technologies, national markets, and improved supply chain management— all spawned by globalization—is transforming American manufacturing. In the process, resources have shifted to sectors with competitive advantages.

As a result, productivity has climbed to new highs and due to the American ability to change and improve, innovation is flourishing. Brawn power—the use of muscle on the factory floor—is quickly being replaced by brainpower.

Today, self-directed workers operate in teams and apply more sophisticated skills to create and run new processes. Concurrently, competitive forces unleashed by globalization are compelling U.S. manufacturers to compete less on price and focus more on product design, branding strategies, productivity, flexibility, quality, and responsiveness to customer needs.

In an attempt to adapt to this dynamic new global environment, U.S. companies also are increasingly specializing in more complex, value-added goods and services. In turn, they are outsourcing non-core functions down the street, across the country or around the world. To keep up, workers are seeking greater and greater expertise.

This pattern, however, is not without consequences. The previous shift from an agrarian society to an industrial economy compelled workers to leave farms in search of factory jobs. Workers were required to learn new skills. But the skills demanded today are far more sophisticated, creating even more fear and anxiety than before. This is causing a backlash.

Question: With fear and anxiety caused by outsourcing and the hemorrhaging of regional jobs, what can Western New York do to counteract this trend?

Answer:

Western New York has a number of sustainable, competitive advantages that, if marketed correctly, could propel the region economically. For example, the cost of living is among the lowest in the country. The quality of life is exceptional. And the region offers Manhattan-based financial firms a well-suited data back-up location that exceeds the 300-mile distance recommended by the federal government’s interagency white paper on improving the resilience of the U.S. financial system against terrorism.

But more importantly, Western New York has a large well-educated labor pool— fed by a tremendous number of graduates from institutions of higher education. Plus, the region is stable: no earthquakes, hurricanes or tornadoes. If positioned correctly, Western New York could become “America’s Back Office Service capital,” or put another way, “America’s In-sourcing Center.”

According to the U.S. Department of Labor, of the 19 million net new jobs projected from 2004-2014, 99% will be in the service sector. And of these, a large percentage will be sophisticated knowledge-intensive jobs not requiring face-to-face customer contact.

Since many of these jobs, commonly known as back-office jobs, involve processing or analyzing information—which now can be digitized and electronically transferred anywhere—they easily can be moved to locations that offer highly-skilled labor, inexpensive real estate, and extraordinary connectivity to major markets.

This means legal briefs can be written or architectural drawings computerdrafted in Western New York and e-mailed to corporate headquarters in high-cost metropolitan areas.

Due to the mobility of such jobs, many will be offshored to Bangalore and other foreign cities with less expensive, well-educated English-speaking labor pools. Consequently, Western New York should target service operations least likely to move offshore. These include culturally sensitive, highly skilled back-office service operations that require elevated levels of quality control.

Unlike Bangalore, Western New York also is free of cultural disconnects, long-distance management problems and political uncertainties caused by Indian-Pakistan tensions and global terrorism.

Importantly, the strategy for attracting targeted investors—those that maintain skilled back-office service operations in high-cost metropolitan areas such as New York City, Boston, and Washington, D.C.—requires a sound branding strategy and senior level face-to-face contact with targeted investors.

Question: Will free trade force countries to lower their environmental or labor standards in order to compete?

Answer:

No. In fact, the popular “race to the bottom” perception is a myth.

Although exceptions exist, many antiglobalist organizations would have you believe that, as a whole, U.S. manufacturers investing abroad seek low-cost facilities that provide sweatshop-like working conditions. If this were correct, Haiti would be a manufacturing powerhouse and a tremendous amount of investment would be flowing to underdeveloped countries with the poor labor standards and environmental records. In reality, the opposite is true.

The latest available data indicate that only 15% of U.S. manufacturing foreign direct investment—a primary component of globalization—was directed to developing countries in 2003. Why? The most important determinants of capital flows are political stability, education, and productivity levels, communications and transportation infrastructure, the rule of law, proximity to market, and the ability to repatriate profits.

This is why foreign multinationals employ more than 5.3 million Americans with a payroll of $318 billion in the United States— a country with high labor and environmental standards.

Although exceptions always exist, American manufacturers who do invest in developing countries typically offer higher wages and better working conditions than local employers. This makes jobs at U.S. facilities highly prized and, over time, leads to improved environmental and worker protection at all levels.

In fact, U.S. companies operating abroad act as agents for change. Through their operating standards, business practices, values and principles, U.S. companies often serve as role models, charting a path for other foreign and domestic companies to follow. This strategy, which is good for business, results in greater employee loyalty, less absenteeism, higher morale, and increased productivity.

Question: How can small business benefit from free trade?

Answer:

In some ways, free trade has benefited smaller businesses to a greater extent than larger ones. Although foreign tariffs are an obstacle to companies of all sizes, larger organizations often have the resources to circumvent them by, for example, establishing a presence in the foreign country. Small firms usually don’t have this option. By the United States participating in free trade agreements and thereby eliminating foreign tariffs, small companies are put on a level playing fi eld with larger firms and better positioned to sell internationally.

Foreign red tape or non-tariff barriers, such as import license requirements, also prevent small companies from exporting. Again, large companies often have resources, such as consultants or in-house expertise, to work through these complicated and sometimes-hidden barriers. Small companies usually don’t. By eliminating confusing red tape through free trade agreements, small companies are impacted in a very positive way.

Additionally, small companies often are able to respond to market changes more quickly than large firms. This gives smaller firms an edge as the pace of global change quickens. Importantly, as more niche market opportunities present themselves—thanks to globalization—free trade empowers small companies to act more quickly than ever before.

This article appeared in Business Strategies Magazine, May 2006

John Manzella
About The Author John Manzella [Full Bio]
John Manzella, founder of the ManzellaReport.com, is a world-recognized speaker, author and an international columnist on global business, trade policy, labor, and economic trends. His latest book is Global America: Understanding Global and Economic Trends and How To Ensure Competitiveness.




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