Globalization Strategies for 2002, Part 1

By Tom Dossenbach

Bobby Royce began working for a furniture manufacturer in the heart of furnitureland 35 years ago. His wife, Charlotte, had been a quality control inspector and supervisor at a veneer company in the same town for 18 years. This holiday season both of them were unemployed — their plants were permanently closed last year. The reason given for the closings was that imports had taken such a significant amount of market share from their employers that the companies could no longer operate profitably.

A small New England parts manufacturing firm owned by Phil has lost 60 percent of its business over the past two years. As a result, Phil had to lay off his superintendent along with over half of his company’s workforce during 2001. Now, Phil is spending time running between his office, where he is trying to generate new business, and the factory floor to keep production flowing. However, most of the companies Phil calls are now outsourcing their wood products from overseas. Unless something happens to turn this trend around, Phil will have to close the plant he has owned for 15 years and will lose his sole source of income, along with the 18 people employed there today.

Every one of you has heard of similar situations and I could fill this column with examples. It is a sad situation, and though it seems that this problem has just surfaced, it has been brewing for years. Globalization of the wood products industry is not new, but we are just now seeing its long-term effects. Some companies are closing plants because they have chosen to move offshore to manufacture and some because they are forced to by competition.

If you have not yet felt the effects of globalization, beware, because chances are you will this year or next. As I indicated in the August 2001 installment of Management Matters, I will continue to write on this subject to help you prepare for tomorrow.

Textiles

It doesn’t take a global economist to see what has been happening in the textile and apparel industries. Just a quick look in your closet will tell the story. How may labels do you see that indicate the garment is made in the United States? I sometimes accompany my wife on her shopping trips. While she is doing damage to the checking account, I like to browse the men’s department and look at labels. If you have never done this, you should try it. It is truly a lesson in geography. I suggest you take a pen and note pad because you will not be able to remember all of the countries of origin you will find represented on the shelves and racks.

You can also see the trend in the newspaper. Burlington Industries of Greensboro, NC, has gone from the world’s largest textile manufacturer to a company in Chapter 11. They announced in January that they would close an additional five plants. According to The Associated Press, the company said the major reorganization of its apparel fabrics business was largely due to foreign competition and would lead to 2,800 layoffs in the United States and 1,200 in Mexico.

Textile manufacturing has always followed low-cost labor. The industry began in New England and spread south during the 1930s where lower cost labor was abundant. That strategy continues today with more and more jobs going offshore where manufacturing costs are lower. Even plants in Mexico cannot compete with those in many developing countries.

   
 
Where Are You Vulnerable?

Rank your company and its products below:

YES = 3 SOME = 2 NO = 0

______ Build-to-stock or “cuttings”

______ Long product life-cycle

______ Common or simple designs

______ Long delivery times

______ High labor content

______ Skilled labor shortage

______ High employee benefit cost

______ High worker’s comp. cost

______ High regulatory cost

______ High factory waste

______ Uncontrolled costs

______ Old plants and machinery

______ Resistance to change

______ Management indifference

______ No globalization strategy

______ Total Score Here

See answer key at end of article.

   
       

According to Allen Breed of The A.P., more than 400,000 jobs have been lost in the apparel industry during the last decade; 148,000 last year alone. He correctly suggests that the next challenge will come in a few years when tariff and quota restrictions are lifted on China. Those who call the U.S. textile and apparel industry a dying one should not be criticized since a death knell appears imminent.

Henry County, VA

Henry County, VA, is located on the southern state line adjacent to North Carolina and has long been a center for textiles and woodworking. According to economic development director Tom Harned, the county used to have the nation’s largest percentage of its workforce in manufacturing jobs – 65 percent. Those jobs have been disappearing drastically with more than 9,000 lost during the past seven years.

In the late 1960s, the DuPont textile plant in this county had 5,000 employees and was the largest nylon factory in the world. In 1998, it closed its doors with only 400 employees. Today, the plant is being demolished. In 1999, the textile manufacturer Tultex eliminated 1,200 manufacturing jobs. VF Imagewear (Vanity Fare) has just announced it is closing its plant in this same community in April and 2,300 will lose their jobs.

Textiles is not the only industry being affected in Henry County by globalization. There is also a significant cluster of medium- and large-size furniture and wood products manufactures in Henry County. Among them are American of Martinsville, Bassett, Hooker, Ridgeway Clocks, Stanley and Pulaski. During the past two years, the combined loss of woodworking jobs in the county through downsizing and plant closings in these companies exceeded 1,200, according to the Virginia Employment Commission.

Woodworking factory jobs lost from these companies are not the only casualties during the periods of rapid change and downsizing such as the ones above. For example, an adhesives company serving these companies in this very same community also closed last year due to a loss of business from area manufacturers. Every supplier to these companies has been affected.

What Now?

By now you are probably tired of statistics — especially since they are not from your area or maybe you are not in furniture manufacturing.

Developing countries begin exporting products that do not require high capitalization but utilize hand labor. That is why the ready-to-wear textile industry has moved overseas. A sewing machine is the most expensive piece of equipment required in the process.

Generally, the simpler and more standard the wood product, the more vulnerable it is to imports. However, in some industry sectors like furniture manufacturing, the competition is becoming so sophisticated with modern plants and equipment that even the most detailed, high-quality products are at risk.

If you are a supplier to the industry, you could be in jeopardy regardless of the economy. If your customer decides to import finished products instead of manufacturing them in the United States, you are going to lose business rapidly. One day you are supplying all cabinet door requirements and a year later you are shipping none. You may be a producer of adhesives (as in the real-life example above) or veneers, and your customer no longer lays up panels because it is importing all its bedroom furniture. You have indirectly lost business to imports.

Neither this column nor the subjects covered are meant for large firms only and this topic is no exception. The majority of companies in our industry have less than 50 employees and are especially susceptible to the threats of offshore competition.

If you have not looked at your company closely in light of global competition, you need to do so now. If you are a manufacturer, answer the questions in the sidebar above and total your score. If you are a supplier, go through the exercise for your company and then for your major customers, as you perceive them, in order to determine your vulnerability as a result of them.

How you address the issue of globalization as it applies to your company is probably the single most important issue you will face this year. To ignore it will only number your days. To plan for it will extend the profitable life of your company. Begin today by discussing the subject with your colleagues. Analyze the vulnerabilities you found in the sidebar questions and ask some of your own that apply uniquely to you.

Next month we will look at potential globalization strategies for your consideration.

Key for Vunerability Survey

0 – 10 = Low Import Threat

11 – 25 = Moderate Import Threat

26 – 45 = High Import Threat

Have something to say? Share your thoughts with us in the comments below.