newjerseynewsroom.com

BY ROY NERSESIAN

COMMENTARY

I wish someone would answer this question, which has been nagging me for some time. By law, the days of the incandescent light bulb are numbered. Around 2012 they will not be allowed to be sold in the United States replaced by more energy efficient fluorescent bulbs. So the market for fluorescent bulbs is guaranteed by government fiat. A light bulb is machine made with extremely limited labor input. So why are there no American manufacturers of fluorescent bulbs? Certainly China's cheap labor has no noticeable impact on the price of the bulb, and they have to be shipped halfway around the world.

The question is rhetorical, so I can answer it. This decision is a knee-jerk reaction to the Walmart fairy tale of insisting that American manufacturers switch to Chinese manufacturers as a requirement to be a Walmart supplier. Obviously substituting $2 per day for labor for $20 per hour will lower prices for Walmart stores and incidentally wipe out all Mom and Pop department stores. One of the chief beneficiaries of Walmart's low, low prices are those collecting unemployment checks from factory closings as a consequence of outsourcing. Since everything else is made in China, no one thought of the alternative of making fluorescent bulbs in America. I bet anything that the only analysis was comparing costs from various Chinese suppliers: a straight knee-jerk reaction of a myopic manager.

China still cannot get an industrial fluid out of their milk supplies which gives false readings on protein content. They have poisoned Panamanians with industrial fluids in their toothpaste. Fumes from Chinese-made drywall are sickening occupants. Children are licking lead-based paints on toys. The toy distributors had to take these toys back from retail outlets, but were unable to return the toys to the Chinese manufacturers because they could not identify which toy came from which factory. These toy distributors took one well-deserved financial bath.

The irony of the Walmart fairy tale and all the American manufacturers who believe in it is that there has been a counter-movement, most visibly seen by Japanese, Korean and German automobile manufacturers setting up operations in the United States. They employ several hundred thousand American workers who make quality cars that cannot be differentiated from the foreign made cars. These companies have done their homework and decided that making automobiles in the United States for sale in the United States is preferable over foreign production. If it's true for automobile companies, would this not be true for others?

A major risk faced by Walmart Believers is the currency exchange risk. China's yuan (renminbi) exchange rate with the dollar is fixed by China's monetary authorities. It is widely accepted as being extremely undervalued, which makes Chinese exports cheaper than what they really should be. China has purposely kept the renminbi undervalued to build its manufacturing base - but now frets about drowning in excess dollars. China seems to be awakening to the fact that its own population is triple that of the United States and represents a huge market for its goods. With U.S. exports down and China's domestic market slowly developing, keeping the renminbi undervalued may lose some of its luster.

The driving force behind Supply Chain Management is customer satisfaction. For commodity type goods, customer satisfaction can be realized even when factories are located halfway around the world. But for niche markets, and for products that have to be tailored to the specifications of the customer, waiting 6-8 weeks for trans-Pacific shipments may not keep a customer entirely satisfied. These products are moving back into the U.S. with little fanfare. Moreover companies are taking advantage of free trade zones (FTZs) within the United States to reduce duties, yet promote employment of U.S. workers. More than 2,700 and over 300,000 workers are employed in 250 general purpose zones and over 500 subzones in the United States.

Manufacturers are also finding that China provides no proprietary rights and has no reluctance in giving proprietary information to a company's competitors to enhance its manufacturing activities. Putting one's eggs into the China basket may come back to haunt U.S. manufacturers. I hope that day is not far off.

Roy Nersesian, a resident of Maplewood, teaches at the Leon Hess School of Business at Monmouth University in West Long Branch and also at the Center for Energy and Marine Transportation at Columbia University. He has authored several books, the last on Energy for the 21st Century published by M.E. Sharpe.

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