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Thread: What makes US manufacturers uncompetitive

  1. #41
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    Quote Originally Posted by marrt View Post
    Kevin, you've hit the nail on the head with that comment. This is the 21st century and EVERYTHING is going direct. Retailer's are dying. For my company, I make exactly TWICE as much money going direct. Create an exceptional product and customers WILL find you.

    There are two trends which have potential to reinvigorate American manufacturing:

    Direct Sales: Here, your brand and reputation matter. The Chinese ONLY sell on price...nothing else. Therefore, they have to sell through distribution (e.g., Harbor Freight crap), giving the direct seller an opportunity to compete.

    Automation: Obviously, automation reduces labor costs while increasing productivity and consistent quality...a win, win, win.

    Find a product which can be sold direct and manufactured in an automated environment. Build a brand and a reputation for customer service. You will win.
    I guess I'm well out in left field here, but if every manufacturer in this country outsources the materials or product to India and China or the newest cheap labor country du jour, fully automates their production, sales, shipping and then cuts out all the middle people who make a living selling their goods, who will be left in this country to consume? The military? The government? Between that philosophy and our political climate, there almost seems no hope for our children's future. It is all about what you can make now and not sustainability isn't it?

    Bryan

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    Quote Originally Posted by S_W_Bausch View Post
    It's not "labor unions", it's "American labor unions"
    There may be differences - and large ones.

    But I think the effect of labor unions is overstated and over-blamed in the present day. WTH - union-for-years UPS still competes effectively with non-union FedEx.

    There are only a few remaining major areas in MANUFACTURING where unions still dominate - Boeing and major automakers, to name two examples.

    And in both cases, any differences between union/non-union labour costs, even if one is a multiple of the other - are negligible as a percentage of all-up product costs.

    As to work-to-rule, strikes, and similar 'job actions'?

    When working in a bargaining-unit environment, one has to understand the contract and heed it. From both sides. Unions have gotten wiser about analysing a companies 'genuine' ability to afford changes, even become investors or part-owners, and less belligerent as to striking over rules or job changes, whilst management has learned to be more communicative and flexible as well.

    Most of the time, that effort costs less than the odd individual lawsuit in the non-union shop.

    What is more worrisome about unions is their growing dominance in Health Care, State, Municipal, and other Governmental and 'NGO' environments. It ain't about strikes or the cost of dues. It's about changes in healthcare and pensions. 'Public Service' union members rarely vote for reductions of the sort industry has had to make.

    Severe polarization ensues, folks get progressively more stubborn, radicalized - stoopider, even - on both sides, and no good comes to either.

    Though not IN manufacturing, the costs of that reaches out and burdens ALL citizens, especially when taxpayers are hit with funding costs for things they can't afford themselves.

    FWIW .. 'right to work' doesn't change any of that by much - if at all.

    Bill
    Last edited by thermite; 01-10-2012 at 12:26 PM. Reason: sp

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    Quote Originally Posted by marrt View Post

    Direct Sales: Here, your brand and reputation matter. The Chinese ONLY sell on price...nothing else. Therefore, they have to sell through distribution (e.g., Harbor Freight crap), giving the direct seller an opportunity to compete.
    Now there's something I dislike. You state an almost proposerous claim as if it's a fact.

    If you'd stated (as perhaps applied to the USA) that the Chiese sell mainly on price and through retailers you might be right. From what I read in PM it does seem that way. It's your big fat "ONLY" that gets me.

    If other members in other countries share your opinion I'd like to hear about it.

    Mass production will always be cheaper per unit than single items and small series. Selling mass produced items often require distributors in various countries.

    Coca Cola for example is produced in almost all countries it's sold in.

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    Quote Originally Posted by bedwards View Post
    It is all about what you can make now and not sustainability isn't it?
    It's not the responsibility of business to ensure sustainability of jobs. That's the government's job (although, as we know, they are completely inept). The goal of business is to make money. If you try to force businesses to behave in a socially responsible way, you inject tremendous inefficiencies into the system that creates unexpected results. Take a look at what they have to deal with in Hungary: This is why I don't give you a job.. Would anyone want a system like that here?

    The bottom line, as others have said, is adapt or suffer the consequences. Ultimately, this flexibility is the strength of the American economy.

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    PeteM is online now Diamond
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    Quote Originally Posted by marrt View Post
    . . . The goal of business is to make money. . . .
    I realize this is likely a quibble with respect to marrt's intent.

    I've lost count of how many times executives have said "the goal of business is to make a profit." I believe that's part of the problem with business in this country. Hear me out. If money were the only criterion, then making money by any means would be justified. It would be up to someone else to catch the crooks in the act of "making profits." Which is pretty much the problem with a significant fraction of US business today.

    Just about every great company I've worked with is much closer to Peter Drucker's proposition -- that the ultimate purpose of a business is to create and keep a customer. Along the way it must balance multiple goals -- especially making enough money to stay in business and compensate its various stakeholders.

    Similarly, just about every company working its way out of existence forgets about its customers while plundering the company for short term gain.

    Profits are absolutely essential to business. But saying they are the ultimate goal is a bit like saying the purpose of the human race is to eat and drink -- or better yet get fat and drunk.

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    Quote Originally Posted by marrt View Post
    The bottom line, as others have said, is adapt or suffer the consequences. Ultimately, this flexibility is the strength of the American economy.
    Yes. But if we ever held a patent on it (doubtful, that), it has long-since expired.

    Has anyone noticed that 'exports' account for less than ten percent of China's economy?

    Talk about 'flexibility'? How about a government willing to do whatever it takes to make a Renminbi, so long as they can *brand* it 'Communist' to save face.

    WTH is a de-facto Socialist Mobocracy America or a de-facto Communist Foolocracy France or a Cartelistic and monopsonic Germany going to do if a de-facto lassez-faire capitalist China tries to double that percentage?

    Keep working our individual and collective asses off is what...

    Chip flint, gather berries, snare fish ... turn metal... was there EVER any other choice?

    Bill

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    It sure seems easy to point fingers in every different direction when wondering why the U.S. can't compete. Part of me wonders if it has just as much to do with American people as anything else. It's pretty safe to say that we are a nation of consumers. We consume a LOT of stuff. The average person doesn't want to drive a car that is more than 7 years old. We have big houses. All of those LCD/LED televisions that were sold over the holiday season will be outdated within 2-3 years.

    It costs a lot of money to be continuously turning over all of our crap. It seems that the majority of people in the U.S. consume like this. When everyone needs more money to buy more crap, they have to have a higher wage. Even the people that work for companies that provide basic necessities (food and utilities)! They've gotta pay for that car loan and a 2,000+ sq/ft home. European manufacturers remain competitive (while maintaining a MUCH higher standard of living than here in the U.S.) by not being in a constant state of consumption. Most people don't have big cars and big homes filled with all sorts of crap.

    Anyway, those are some of the things that pop into my mind when I wonder about manufacturing in the U.S. Sure, crazy taxes and regulations don't make things any easier. However, it seems to me that we (as Americans) are often just working to subsidize one another's insatiable appetites for more stuff. The OP said that he can't even buy the material for as cheap as finished product arrives from Pakistan. Well, the company that buys/sells that steel is full of employees that want more stuff. The company that delivers it is full of employees that want more stuff. Maybe it's not that we aren't competitive. Maybe it's simply the way we live.

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    Quote Originally Posted by SeymourDumore View Post
    Well, I agree with Gary that some things are just not suitable for Internet sales, and shoes are certainly one of them. (My shoes fer' certain ain't gonna be mailordered)
    What is sad tough is that we ( as small US manufacturers) cannot convince or cannot establish a national brick and mortar retail chain where only US made products are distributed.
    Oddly, China had absolutely no problem doing exactly that in this country.
    I take it you guys aren't familiar with Zappos: Shoes, Clothing, and More | Zappos.com

    I think they'd kindly argue that their business model is working just fine.
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    Quote Originally Posted by ions82 View Post
    Maybe it's not that we aren't competitive. Maybe it's simply the way we live.
    We actually ARE reasonably competitive. And it isn't just the way 'we' live.

    As a nation, we are carrying debt undertaken in prior generations, and 'borrowing' from future generations.

    Too much of what could have been 'discretionary' income no longer is such, as it is already 'committed'.

    Folk in Asia in general not only have more modest homes, fewer gadgets, and a reliance on public transport instead of cars.

    They have savings accounts, however modest, instead of credit-card debt, auto loans, and huge mortgages.

    I don't personally know HOW to get there from here. Or even if we can do.

    But we had best start trying to find a way...

    Bill
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    [QUOTE=PeteM As for tax rates, our total effective taxation is lower than most industrialized countries. Where it fails is the web of complexity that tends to favor companies that buy favors and punish smaller companies without so much tax expertise.
    One culprit? Our tax laws have favored moving manufacturing abroad. Another culprit? QUOTE]

    I would take exception to the first statement and agree with the last. When you add all the levels of the income tax burden on every phase of our supply chain this forces our base levels far above competitive world markets.

    Let’s just say for starters if you start from the beginning. Someone has to dig the ore, he hires someone he pays income taxes SS contributions ETC. and makes a profit. Then someone refines the ore into steel, He does the same, don't forget the truck drivers and fuel companies and equipment dealers tire companies and all the supporting aspects of the supply chain. Every thing you touch in the chain has this hidden Burdon on it. Then you get the distributors and their delivery system. Every one of these levels has a built in Income tax burden and all of the compliance costs involved in their individual operations before it even gets to you. Even if you are paying wholesale for the material those underlying costs are there in each and every level of the production cycle. None of these levels could exist with out profit and paying their employees contributions. In fact because of this we are the 3rd highest tax base in the world. We just don't see it because it is hidden in the levels. This is a huge factor in bringing the US back into the world labor market.

    If you want to see a real change in this get behind “The Fair Tax”. Go get the book and read it. Call or write your Senators and Reps and support it. DO IT NOW!

    Here is a link for more: How does the FairTax affect the economy? - YouTube

    Steve
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    Quote Originally Posted by thermite View Post
    As a nation, we are carrying debt undertaken in prior generations, and 'borrowing' from future generations.

    Folk in Asia in general not only have more modest homes, fewer gadgets, and a reliance on public transport instead of cars.

    They have savings accounts, however modest, instead of credit-card debt, auto loans, and huge mortgages.

    I don't personally know HOW to get there from here. Or even if we can do.

    But we had best start trying to find a way...

    Bill


    Part of me thinks that, even if Americans were to start consuming less, other necessities would suddenly become far more expensive. If people in the U.S. started saving instead of spending and borrowing, I wouldn't be at all surprised if things like energy and food (things we need for survival) suddenly became very expensive. I'm with you, Bill. I certainly don't have a definitive answer on how to go about finding the key to prosperity. My goal is to just try and find it within my personal circumstances.

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    Competition implies that you are trying to make the same bag of goodies and getting someone to buy them.
    That no longer works.
    Our greatest gift is the ability to "think outside the box" and create products that aren't being copied (yet).

    I just got this comment from one of my distributors:

    Congratulations on filling a market
    niche that none of us knew existed!


    We are obviously blown away by our customers' response to your saw. I
    knew we would sell a bunch, but your saws have pretty much set a
    record for us for the quantity sold of a particular saw (of any kind!)
    in a short period of time. We are just a few saws away from having
    sold 100 in scarcely 2 months.


    This is also competition! The saws that I designed and manufacture are the result of taking a good look at a product that has been out there for over 500 years with very little change. It was begging for a major upgrade. None of the major names in the field paid any attention to the needs of the user and simply kept making the same old crap.

    Design and make a new product and simply outrun the copiers. By the time they catch up, you are on to the next one. Evolution in the marketplace!

    Lee (the saw guy)
    knewconcepts.com

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    Quote Originally Posted by falcoman View Post

    I would take exception to the first statement and agree with the last. When you add all the levels of the income tax burden on every phase of our supply chain this forces our base levels far above competitive world markets.

    Sorry, but this just isnt true.
    TOTAL US taxes are LESS than most civilized countries that we compete with.
    Here is a chart that shows we are way down below the middle.
    List of countries by tax revenue as percentage of GDP - Wikipedia, the free encyclopedia
    right down there between Bolivia and Kazakhstan.

    There are also plenty of studies that prove we are in the top five LEAST regulated countries in the top industrialized world.
    With LESS regulations.

    We also have LOWER wages than many of our top competitors..


    I would also point out that, despite all this naysaying, we are still the NUMBER 3 exporting country in the world, behind China and Germany.

    Which is to say, we actually do compete pretty well. Obviously we cant compete on things that low labor cost is the only factor. Because, labor cost wise, we are somewhere at the low end of industrialized countries, well below Japan or Germany or Sweden, but way above China or Vietnam.

    We can, and do, compete pretty well in a lot of categories, worldwide, and, curiously enough, most of the places we do well are in high price, high wage industries.

    We export plenty of locomotives and jet airplanes and semi trucks and bulldozers and farm equipment, all expensive and high wage.

    HAAS is still in the top 2 or 3 machine tool manufacturers worldwide, and they export somewhere between 50 and 100 machines a month to China, from high wage, high tax, southern California.

    As far as Kevin's particular industry goes, I think he probably can be competitive, as long as he makes the best stuff in his categories. If he tries to cheap out, of course the chinese will underprice him on cheap stuff. But, realistically, his actual competition on a lot of his products these days are more like the Germans and the Swiss and the Italians, who dominate the worldwide jewelry tool industry- and none of them have low wages or costs.


    As for Shoes being sold online- Zappos was mentioned above.
    Sorry to puncture Gary E's Balloon, but Zappos, alone, ONE SINGLE COMPANY, sold $1 Billion dollars worth of shoes online last year.
    Thats more than every single hot dog cart in the US combined, I would guess.

    So, even though Gary and Seymore are not buying any shoes on the internet, somebody must be....
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    Quote Originally Posted by ions82 View Post
    I certainly don't have a definitive answer on how to go about finding the key to prosperity. My goal is to just try and find it within my personal circumstances.
    Don't under-rate that.

    It might be the ever-so-obvious key we have overlooked.

    "With all thy getting, get thee understanding"
    B.C. Forbes

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    I'm a bit late to this party, and someone might have mentined it, but for me from Europe it looks something like this:

    The US have low prices, highly qualified people and companies, usually quick and good service, huge industry distributors with pretty much everything you might want, and excellent logistics. (To my continous amazement and frustration I can usually get things faster from the US than from my own country!)

    So why then don't I order more from the US? It is basically three reasons.

    1. Lots and lots of US companies just will not export. I kid you not. US companies seems to be more than happy with just US business. I don't know if it fear of exports, tons of paperwork on the US side, or that our money isn't good enough. Either way, I've learned my lesson and by now usually try elsewhere first - even though US prices and services are top notch.

    2. Inch standard. It just wont fit. By the time you've made it metric it is somewhat "exotic" and not competitive on price. It is a nice trade barrier, but it cuts both ways.

    3. And of course, often I can get what I want other places. But it seems to me that too many US companies simply wont even compete internationally, and that gives others an easier time and less options for us as a customer.

    Quote Originally Posted by Gordon B. Clarke View Post
    As an example I'll use the part of the world I know best, the northern half of Europe. Countries like Norway, Sweden, Finland, Denmark, Germany, The Netherlands, Switzerland, France etc. certainly aren't where you'll find low paid workers especially within engineering.
    Well, actually northern Europe is relatively inexpensive for exactly highly educated workers. The combination of rather equilitarian societies, combined with free education, means that people with high education are relatively inexpensive to hire here. I know high tech start-up companies have located to Norway for exactly that reason.

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    Quote Originally Posted by BadBeta View Post
    1. Lots and lots of US companies just will not export. I kid you not. US companies seems to be more than happy with just US business. I don't know if it fear of exports, tons of paperwork on the US side, or that our money isn't good enough.
    Sheer ignorance, even 'fear of the unknown' and being too lazy to fix that, for the most part.

    Safety and industrial standards are published.

    The paperwork is ridiculously simple for most products.

    The shipping quite reasonable

    .. and IBANN or SWIFT EFT or Telegraphic Transfer or 'plastic' work just fine for settlement.

    It isn't even hard to 'vet' an overseas customer or work with LC's if the value justifies that.

    The only complication is duties and VAT on arrival, and anyone who bothers to negotiate that and any other destination-end vagaries with the recipient finds .... they have the answers already, 'coz it ain't their first non-local purchase..

    No one to blame but ourselves for not taking better advantage of that wider market.

    Bill
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    PDW
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    Quote Originally Posted by BadBeta View Post
    I'm a bit late to this party, and someone might have mentined it, but for me from Europe it looks something like this:

    The US have low prices, highly qualified people and companies, usually quick and good service, huge industry distributors with pretty much everything you might want, and excellent logistics. (To my continous amazement and frustration I can usually get things faster from the US than from my own country!)

    So why then don't I order more from the US? It is basically three reasons.

    1. Lots and lots of US companies just will not export. I kid you not. US companies seems to be more than happy with just US business. I don't know if it fear of exports, tons of paperwork on the US side, or that our money isn't good enough. Either way, I've learned my lesson and by now usually try elsewhere first - even though US prices and services are top notch.

    2. Inch standard. It just wont fit. By the time you've made it metric it is somewhat "exotic" and not competitive on price. It is a nice trade barrier, but it cuts both ways.

    3. And of course, often I can get what I want other places. But it seems to me that too many US companies simply wont even compete internationally, and that gives others an easier time and less options for us as a customer.
    Agree 100%

    Recent experience trying to buy acrylic cloth for sail covers etc. I wanted 2 bolts or 100m (OK, yards, see point 2 above). Find a supplier online, no mention of shipping outside the USA & Canada. I email them anyway. Start a dialogue.

    In the end I gave up. Can't pay by wire transfer because I'd need to set up as a dealer with them before they'll tell me their banking details. Anyone in Australia, NZ, the UK or Europe knows bank to bank money transfers are dead simple, fast & cheap but it's impossible with the USA, all too hard. Don't take PayPal (I hate paypal anyway so no big loss). Don't want to deal with 'foreign' credit cards when the shipping address is to a freight company in IN (this due to the cost of any other method of freight). Keep in mind I'd already offered to pay by wire transfer to eliminate the risk of them getting ripped off.

    All too hard. I'm looking at an Ebay supplier but it's 20% more expensive, or pursuing other options.

    Metric. Let's not go there, it's been thrashed to death. Suffice to say, if it's a manufactured product more complex than cloth or the like, if it's not made to SI measurement standards, I will not buy it. I recently bought a Danish Bukh marine diesel for quite a lot of money. Couldn't even consider a US made engine like this because you don't make any. At least all my spanners etc fit the Bukh.

    Seems to me that while US manufacturing is hurting, it's not hurting *enough* yet to take exports seriously. Too many of your companies are inward looking, comfortable with the rich local market and simply can't be bothered. OK, fine, but you're paying for it and it's going to get a lot worse. Meanwhile people like me get comfortable buying tools & machines from other places, it works fine, so guess where my first port of call is next time? Do not tell me that China can't make good stuff, if you don't see it, refer to the rapacity and bottom feeding profit-seeking of your own importers as the cause, not China.

    As for raw materials costs, on micro scale stuff like Kevin does, someone in Pakistan might have steel etc basically for free so their raw materials costs are significantly lower. On a global manufacturing scale, this is crap. Metals are listed on the LME, if you're paying way over the odds then it's the distribution chain or local taxes that are screwing you over and that frankly is YOUR problem, not India, China, Denmark or Germany. Do you think Australia has a special lower price on iron ore for China, for example? No way.

    As for Kevin's issues, quality tells. I'd keep right on making & selling direct. A distributor making 80-90% is ridiculous. If that's what they've come to expect as a reasonable markup, the faster they go broke the better for everyone. You could think of employing some kid as a part-time piecework job to do the packing & shipping for you at far less cost than that markup.

    PDW

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    Quote Originally Posted by BadBeta View Post
    Well, actually northern Europe is relatively inexpensive for exactly highly educated workers. The combination of rather equilitarian societies, combined with free education, means that people with high education are relatively inexpensive to hire here. I know high tech start-up companies have located to Norway for exactly that reason.
    OK you aren't wrong. Will it help if I add that northern European machinists probably make more an hour than their American counterparts?

    To entice highly qualified people to Denmark they are given special tax "reductions" for at least a year.

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    Quote Originally Posted by PDW View Post
    Agree 100%

    PDW
    I'm sitting with my mouth open as to how much I agree with you Even down to your opinion on Paypal.

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    Quote Originally Posted by coyotekid View Post
    I take it you guys aren't familiar with Zappos: Shoes, Clothing, and More | Zappos.com

    I think they'd kindly argue that their business model is working just fine.
    Note that their product lineup is also available just about everywhere else.
    Which also means that folks can go to the brick and mortar, get the feel for the product and then turn around and buy from online.
    It might just be my own feet, but there is no way in hell I'd ever attempt to buy shoes untested. Pants, socks, jackets, bras .... maybe. Definitely not shoes tough.

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