The economic disparity between nations today is not an isolated concern. Where once upon a time the east and the west knew nothing of each other or it would then be reasonable to say that both sides of our planet were independent of each other. But today the economic relationships between nations have become a dependency. No reasonable person could maintain the untenable position that an isolationist country or state could flourish, let alone survive.
In the United States this dependency is acute and I believe has come to a point where it’s beginning to compromise the economic future of this great county. I will not belabor the point but I think a brief history of what economic factors have contributed to the overwhelming amount of outsourced manufacturing.
Two factors are critical; the first is the rising of the minimum wage and the second is increasing taxation on small businesses. Regardless of all of the political banter the bottom line for business owners today is that is simply a better financial decision to get your products manufactures oversees. This is not to say the people oversees are taking their afternoon naps on piles of gold. They are astonishingly poor but the ability for foreign entrepreneurs to get cheap labor gives them the ability to produce product for much less than any American company.
All of the theoretical ideas aside, and I am mindful that you might not agree with my opinions, you will be happy to know that International Competition Examples there is a way for manufacturing in America to be more economical. This portion of the article is one of my own experiences.
I sell mannequins wholesale to retailers across the country. For many years I had my merchandise produced in China. My reasoning was that per item it was much cheaper which it was but I also have to admit that it was a trend. Everyone I knew in business was having their products Apprenticeship Programs In Michigan produced in foreign countries and in my inexperience I followed the trend. What I did not realize, and what I the most valuable idea I have to put forward today is that manufacturing in a forging country is only worth it if you are doing tens of millions of dollars is sales.
With my mannequin business I thought that I would be saving a great deal of money by producing the mannequins in China but what I did not factor in was that the dishonesty and corner cutting that I would have to go through was not worth the effort. I had to fly out there so many time to resolve issues I was literally aging prematurely.
So I went into business with a close to bankrupt plastic manufacturer here in the United States and it has mad the world of a difference.…
Tag: domestic
Break Even Point For The US Domestic Auto Industry
In April 2009 Ford declared that it would not need government aid and claimed that it had a plan to break even in two years. Ford has been ahead of its main rival General Motors in scaling down its business by selling Aston Martin, Land Rover Strategic Issues In Manufacturing Industry and Jaguar over the past two years. GM, meanwhile, went through a massive reorganization after filing for Chapter 11 bankruptcy proceedings. GM is temporarily majority owned by US government after it invested $57.6 billion in the company.
Per the plan GM executives presented in congressional hearings the company would reach the break-even point by 2011. They further declared that they would cut costs by eliminating 47,000 jobs, closing five more unprofitable factories and cut at least $18 billion in debt from its balance sheet. It was expected that these cost cuts would allow the company to break even when the U.S. auto market returned to between 11.5 million to 12 million vehicles sold per year.
J.D Power and Associates, a global marketing information services firm, announced its projections about the new automotive industry break-even point. According to Gary Dilts, senior vice president of U.S. automotive at J.D. Power and Associates, due to cost-cutting measures such as renegotiation of union and supplier contracts, the break-even point for the domestic automotive industry will decrease by more than 2 million units when comparing current industry conditions to those forecast in 2010. Dilts explains the reason for this decrease due to the significant declines in the auto industry which resulted in lost sales volume of more than 7 million units between 2000 and 2009. This sales volume makes $175 billion in net revenue.
In automobile industry fixed costs make up a greater portion of total costs. The manufacturing plants, assembly lines and technology invested to build vehicles are some of the items forming the fixed costs. Compared to fixed costs, variable costs form a relatively smaller portion of the total costs. This puts the auto industry into a risky situation due to high operating leverage.
The definition of the operating leverage is the ratio of fixed costs to total costs. The higher a firm’s fixed costs, the higher its operating leverage. In firms having high operating leverage, small percentage changes in sales volumes result in large percentage changes in profits. This variability or sensitivity of profits to changes in sales volume put the firm into a risky position. Per the “Greater Risk, Greater Return” rule this also means more profit if demand and therefore sales volume is high.
In automobile industry since fixed costs are relatively high, during the recession times, as the demand and sales volume go down the likelihood of earnings to cover the fixed costs will decrease, i.e. it will be more difficult for the automobile companies to break even. Therefore the automobile companies start cutting the costs, especially fixed costs, like closing the unprofitable facilities, eliminating jobs. For example, GM sold its unprofitable Hummer to a Chinese company.
The …