Tag: U.S. competitiveness

OM in the News: European Manufacturers Shift to the U.S.

“A big winner from the energy crisis in Europe: the U.S. economy,” writes The Wall Street Journal (Sept. 22, 2022). Battered by skyrocketing gas prices, companies in Europe that make steel, fertilizer and other feedstocks of economic activity are shifting operations to the U.S., attracted by more stable energy prices and muscular government support.

Steelmaker ArcelorMittal is cutting production at two German plants

As wild swings in energy prices and persistent supply-chain troubles threaten Europe with what could be a new era of deindustrialization, the U.S. has unveiled a raft of incentives for manufacturing and green energy. The upshot is a playing field increasingly tilted in the U.S.’s favor, particularly for companies placing bets on projects to make chemicals, batteries and other energy-intensive products.  “It’s a no-brainer to go and do that in the U.S.,” says the CEO  of Amsterdam-based chemical firm OCI NV, which just announced an expansion of an ammonia plant in Texas.

While the U.S. economy is facing record inflation, supply-chain bottlenecks and fears of a slowdown, it has emerged relatively strong from the pandemic as China continues to enforce Covid lockdowns and Europe is destabilized by war. New spending by the U.S. on infrastructure, microchips and green-energy projects has heightened the U.S.’s business appeal.

Danish jewelry company Pandora and German auto maker VW announced U.S. expansions earlier this year, while Tesla is pausing its plans to make battery cells in Germany as it looks at qualifying for tax credits in the U.S. And Luxembourg-based ArcelorMittal said it would cut production at two German plants after reporting better-than-expected performance in its Texas facility that makes a raw material for steel production.

Europe remains a desirable market for advanced manufacturing and boasts a skilled industrial workforce. Many companies that have seen exploding energy prices in recent months have passed them on to customers. The question is “how long can that last?”  The continent could face high prices, at least for gas, well into 2024, threatening to make the scarring on Europe’s manufacturing sector permanent. European manufacturers may struggle to stay competitive without the lower energy prices or green incentives currently offered in the U.S.

Classroom discussion questions:

  1. If you were an operations manager at a European manufacturer, what would be your 2023 strategy?
  2. Is the U.S. advantage temporary?

OM in the News: Revitalizing U.S. Manufacturing

The U.S. shed 5.7 million manufacturing jobs from 2000 to 2010—more than 1/3 of the manufacturing workforce—as companies abandoned plants and workers in favor of low-cost foreign countries. But in recent years, manufacturing employment has grown slightly as the auto industry rebounded and domestic plants became more cost-competitive with those of other countries where manufacturing expenses have escalated because of higher wages.

Welder at Work“Reviving the manufacturing sector won’t be easy—but it’s crucial,” writes The Wall Street Journal (June 8, 2016). Manufacturing is one of the best generators of wealth for an economy, requiring processes, materials and work skills that create employment and profits at each step in an assembly. Countries that don’t make anything eventually start to lose their edge in research and product development. “Manufacturing and design drive each other,” says a U. of Notre Dame prof. “If you lose one, you’ll lose the other, too.”

Here are just 3 possible strategies discussed in the article:

(1) Look at the true cost of offshoring. When companies decide to offshore production, they often simply seek the lowest initial price per unit. If they were required to take into account the hidden costs of foreign production, U.S.-made goods would become more cost-competitive. Manufacturing overseas carries dozens of uncounted expenses and consequences. Companies often don’t weigh costs for transportation, as well as expenses for dealing with reduced product reliability, undependable supply chains and the need to hold more inventory in case overseas deliveries are delayed.

(2) Turn community colleges into career factories. Despite low manufacturing payrolls in the past decade, companies continue to have difficulty finding welders, machinists and other skilled craft workers to replace retiring employees. Community colleges need to offer programs for skilled trades that are specialized to suit companies’ needs.

(3) Spend more on manufacturing R&D. Training workers isn’t enough. The government also needs to spend more on applied research to solve specific problems in manufacturing and bringing new products to market.

Classroom discussion questions:

  1. Name several other strategies proposed in the WSJ article.
  2. Can U.S. policy makers create this revival?

Good OM Reading: Michael Porter on Restoring U.S. Competitiveness

“Michael Porter has influenced more executives –and more nations– than any other business professor on earth,” writes Fortune (Oct.29, 2012), in a story on the 65-year old Harvard scholar. Porter’s newest article, with Jan Rivkin, in the same Fortune issue, called What Business Should Do to Restore U.S. Competitiveness, is critical reading for OM professors.

Porter and Rivkin write: “America’s feeble economy reminds us every day that our global competitiveness is in trouble.” Whose fault is that?  One camp holds that national competitiveness is the responsibility of policymakers, not business leaders, who need to focus on running their companies. The opposite camp says companies owe loyalty to the country that supports them, and executives who move American jobs overseas are Benedict Arnold CEOs. “Both positions are deeply flawed, reflecting simplistic views of how competition and economies really work,” say the authors.

They  explain that the U.S. is competitive to the extent that firms operating here can compete successfully in the global economy while supporting high and rising living standards for the average American. Doing one without the other means we aren’t really competitive. A high-wage economy like the U.S. can achieve both only by being a highly productive location, one where firms can create innovative, distinctive products and produce them efficiently.

“Managers must run their U.S. operations well,” they write. ” This means positioning U.S.-based activities to draw on unique American strengths.” For instance, La-Z-Boy has avoided head-to-head competition with low-wage Asian furniture manufacturers by emphasizing the customization and faster delivery that its U.S. location and worker skills make possible.

But running U.S. operations well does not always mean staying at home, they add. Going overseas often improves competitiveness by allowing U.S. companies to penetrate foreign markets. U.S. multinationals that expand faster abroad also tend to grow faster in America. And well-run companies do bring activities back to America as costs rise overseas and managers feel offshoring’s hidden costs, such as lower foreign worker productivity, quality problems, and loss of intellectual property.