One assignment in an undergraduate course on globalisation requires my students to visit an electronics or apparel store, pick any five items, see where they are made, and comment on the decision of the company to manufacture or import from that location.
The responses are always interesting. A majority of the students discover that almost all the items they pick up are made in countries other than the US and are surprised by it. They realise that it is not just rhetoric that is reported in the newspapers about how few goods are made in the US.
They usually conclude that it is a good idea for businesses to do this, since they are scouring the world for materials and low-cost locations, and consumers benefit. I would not have expected otherwise from business students, who are constantly fed with ideas of free trade, free markets, and profit maximisation.
Yet, a few do comment on how they would like to buy stuff made in the US to keep jobs home, but that there are so few of such goods around.
Status symbol
This view, in fact, seems to be more widespread. In a survey conducted by the Consumer Reports National Research Center, an independent agency, 78 per cent of Americans are reported to have said that they would rather buy a product made in the US than an identical one from overseas. As many as 80 per cent put the reason for their choice down to retaining manufacturing jobs at home and supporting the domestic manufacturing sector.
About 60 per cent are said to have given their reason as concern about use of child workers overseas, or that they saw American-made products to be of higher quality. Even if nationalism is on the rise, there isn’t enough supply to match it.
All products in the US need to be identified as to their country of origin when made available for sale. The Federal Trade Commission, a government agency, which regulates use of the Made in USA label only stipulates that automobile, textiles, wool and fur goods must identify whether all or substantially all of the product is made in the US. An effort to define ‘substantially all’ as 75 per cent failed in 1997. The Buy American Act, on the other hand, stipulates that if 50 per cent parts are made in the country, it satisfies a Made in US label for government procurement purposes.
The Made in USA label, while rare in the country, is valuable outside the country where it can be seen as an indicator of quality and status. A rising middle class in China, for example, reportedly looks for such a label on stuff they buy. Now, isn’t that a marriage made in heaven — US middle-classes that go to Walmart to buy Made in China products considered low cost, while Chinese consumers look for a Made in the USA label as a status symbol?
Best of both
Marketing studies show that country of origin makes an impact on the buying decision, all else remaining equal. Hence, Apple, which does the bulk of its manufacturing through contractors overseas, and mostly in China, prefers to say on its products, ‘Designed by Apple in California, Assembled in China.’ There, you are getting the best of both!
American Apparel, a company based in Los Angeles, California, has made location part of its appeal. As the name indicates, it makes all its apparel in the US and is an activist. Its Web site touts the fact that its garment worker is paid about 50 times more than the one in Bangladesh, and that it pays its workers fairly and is yet profitable, a dig against all those who claim that they are shifting manufacturing to lower cost locations to survive. And the company says that half of its 250 stores are overseas, so it is carrying the Made in USA label for others to buy.
While we are all aware of how most consumer electronics manufacture has left US shores for some time now, it isn’t different in the case of athletic footwear. Yet, tariffs have been levied on imported footwear although the US imports nearly 99 per cent of its footwear. In a new trade deal being negotiated with many of the nations from where the US imports it shoes, those tariffs may go.
New Balance is perhaps the last of the manufacturers that still has some manufacturing in the US, although it is estimated to cost 25-35 per cent more than making it overseas. Local manufacturing gives it shorter lead times and some flexibility in responding to market needs. Also, it has a thriving business in custom-made shoes and it makes the pricier brands in the US, which add to the cachet when it exports them.
Walmart strategy
With efforts to take advantage of global markets, seeking to maintain preferences based on a national identity would seem to be a counter-productive effort. In the early days of Walmart, it tried to tout its promotion of local manufacture, till it found that it could make more money by importing products from cheaper locations.
Walmart, which can take credit for being a significant contributor to China’s growth, would reportedly pressurise its suppliers to establish a China manufacturing base to remain as a competitive supplier to Walmart. That created a flood of US consumer product manufacturers moving to China as a production base.
But as Walmart begins to stagnate in the US and seeks to grow overseas, countries such as Mexico and India will also become important sourcing centres as local governments pressure them to buy local.
(The author is professor of International Business and Strategic Management at Suffolk University, Boston, US. >blfeedback@thehindu.co.in )