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Practice Management > Building Your Business

China General Motors

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General Motors may have a public offering this week, and China may buy shares. And why not? It’s a great way for China to move into the mainstream business of building automobiles. Since Japan adopted W. Edwards Deming’s techniques in the 1940s — notably, the U.S. auto industry did not — there may not be much “manufacturing technique” to capture from GM.

There may be some outcry about the fact the largest U.S. auto company has “sold out” to foreign investors — the truth is, though, China won’t buy 100% of the shares, and if there is an outcry, the out-criers should know before they encourage restrictions and penalties that nothing kills a global recovery quicker than the lethal combo of tariffs, taxes and trade wars. And that toxic soup often comes as much from political pandering as it does from the rank and file. One other thing: By buying shares, China is helping to repay the U.S. taxpayer for GM’s debt; it owns something like 61% of GM now; the goal is to own zero.

It’s popular to think overseas production takes away from U.S. workers and increases unemployment, but the reverse is true. After all, the U.S. does a lot of manufacturing still — the recent improvements in sales at GM, Ford and Chrysler have to do with global success, not just U.S. success. Put aside autos and we still make lots of things — drugs, bandages, hospital monitors and exercise equipment. And we cause things to be made elsewhere — iPads, iPhones, laptops, desktops and what have you.

The truth is, whether ugly or handsome, business virtually always makes goods where labor is cheapest. After all, one of the reasons our auto industry had bankruptcies is labor contracts made it difficult or impossible to move offshore and to acquire cheaper labor. So if we make it hard to sell U.S.-made Buicks in Asia, Asia will make it hard (read: more expensive) for us to import or buy TVs, DVRs and laptops. (Hardly any TVs, if any, are now made in the U.S.; Zenith may have been the last of the Mohicans — is there still a Zenith? The Zenith website says Zeniths are sold and serviced by LG Electronics, a Korean conglomerate once called Lucky Goldstar.)

Who wins trade wars? No one wins. Less is sold here and there, and that’s recessionary. Fewer people work here and there, and that increases unemployment.

In an election, it’s popular to kowtow to unions and associations about saving American jobs, and, during the kowtowing, no voter apparently engages his or her brain. Think: If you could manufacture a widget in Indonesia for $20 and no pension and welfare benefit costs, why would you make it here for $142, plus pension and welfare benefit costs? In the U.S., it’s more than seven times as expensive.

On the other hand, it makes sense to make some goods near to the final consumer: drug manufacturing, food manufacturing and processing, furniture, homes, laundry soap, barbeques and swimming pools (hard to transport swimming pools, yes?). Clearly, high-tech devices — military aircraft, drones, rockets, for example — are not practical or safe to make overseas; plus, we invent and make some ultra-high tech medical devices.

And we manufacture or process many chemicals in the U.S. and Canada because they can be a problem or unsafe to transport over long distances. While it’s easy to ship automobiles, heavier machinery can be difficult: a diesel-electric locomotive can weigh up to 500,000 pounds, the equivalent of 125 average automobiles or 166 small ones.

Like it or not, we are witnessing the globalization of practically everything, and the U.S. in the future won’t always be the engine of worldwide economic growth, even though it still has some “chops.” If you doubt that fact, consider the Apple phenomenon or think about Microsoft over the past 30 years.

Find good people who need help and help them. Have a fantastic week.

Check out more blog entries from Richard Hoe.


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