Bye-Bye To 'Buy American'?

Today's U.S. consumer marketplace is a melting pot of people, products and paychecks. Manufacturers need to ask: Does 'Made in America' matter to their customers anymore?

Editor's Note: This is the fourth installment of a seven-part series that details the strategic and often gut-wrenching shifts taking place in manufacturing. It appears in the September 2003 issue of IndustryWeek. IW will introduce a new installment each month throughout the remainder of 2003. Wal-Mart's story is as all-American as they come. It grew from a regional chain in the 1960s to $245 billion in revenues as of January 31, 2003 -- quadrupling sales in the past 10 years alone. Leadership, culture and logistical skills aside, the privately held company did it by giving customers the "best deal." Frequently overlooked in this saga, Wal-Mart's astonishing growth corresponded with rapid globalization and the fall of many trade barriers. In recent decades the Bentonville, Ark., company has found more and more of its own best deals overseas. Measured in 20-foot ocean containers (291,900), Wal-Mart imported 60% more than The Home Depot in 2002 and 68% more than rival retailer Target. The $12 billion in goods that the world's largest company imported into the U.S. from China last year would make it that country's 8th largest trading partner if it were a sovereign nation , according to Bloomberg News. To some in the United States, this sounds like bad news all around. But consider that Wal-Mart is the largest employer in this country, issuing paychecks to 1.3 million people, more than triple McDonalds' food franchises and corporation, the next largest employer at 413,000. Wal-Mart's deep-discount prices also give consumers a greater ability to purchase goods, thereby creating more wealth, as observed by Adam Smith in his 1776 opus, An Inquiry into the Nature and Causes of the Wealth of Nations: "It is a maxim of every prudent master of a family, never to attempt to make at home what it will cost him more to make than to buy." And so, Wal-Mart represents both the good, and the bad, of global capitalism. "Wal-mart sells Chinese goods and tons of it and people buy it because it's cheap. If I can get something for $5 less and I have four kids, that's where I'm going," says Jim Altfeld, a strategic-planning consultant based in Burbank, Calif., who is deeply concerned about the exodus of manufacturing from the United States. "With the consumer it is strictly price, and they're not going to pay more if it's an American-made good. They don't care." Considering these points, U.S. manufacturers pinning their hopes on a "Made In America" slogan to see them through this time of globalization and fickle consumers may be in for an uphill battle. When asked, most U.S. consumers today will say they prefer to buy American brands and U.S.-made products, but with the influx of foreign goods -- U.S. imports totaled $1.2 trillion in 2002, 11% of U.S. GDP -- buying American is no longer practical in some instances and impossible in many others. Other priorities, such as quality, durability, style and price -- especially price -- often take precedence. This is plainly evident in the automotive market, where it's impossible to guess where many vehicles have been assembled, let alone where the parts came from. To help buyers, Congress passed the American Automobile Labeling Act in October of 1992, which requires manufacturers to identify a vehicle's final assembly point and components by country of origin. By making consumers aware of where their cars and trucks are made, the proponents of the automobile labeling requirements hoped to spur buy-American sentiment. That hasn't happened. The market share of the traditional big three -- Ford Motor Co., General Motors Corp. and DaimlerChrysler's U.S. operations -- has been slowly declining since the 1950s, and has continued to fall since 1994, when the Labeling Act went into effect. It fell 1.4% to 60.6% in 2002, according to Automotive News. In 10 years, industry analysts predict that imports and foreign brands will account for over half of all cars and trucks sold in the United States. Should anyone be concerned? "No one gives a hoot," says Jim Hossack, a senior consultant with AutoPacific Inc., an automotive industry research firm based in Tustin, Calif. They're not concerned about brand, and they don't care where they're made. "At one time there was a perception that assembled in Japan was better than assembled in the U.S. I think the Japanese have demonstrated that Japanese vehicles assembled in the U.S. are just as good as Japanese vehicles assembled in Japan." He says that American manufacturers overcame the same quality perception with regard to American vehicles assembled in Mexico, which today include the Buick Rendezvous and Chrysler's PT Cruiser. "Real patriotic people like to think they're buying their Ford Crown Victoria, but they fail to understand that it isn't made in the U.S. It's made in Canada," Hossack notes. Within the automotive market, observers attribute some of the decline in buy-American sentiment to the steady drop in union membership, which now stands at 13.2% of the U.S. workforce. As the so-called automotive transplants have built assembly facilities in the United States, some of them have hired union workforces, including General Motors' and Toyota's New United Motor Manufacturing, Inc. (NUMMI) joint venture in Fremont, Calif., established in 1984. As unions' memberships have changed, they've shifted their emphasis to "union-made" products such as the Toyota Tacoma and Mitsubishi Eclipse. "Consumers are a lot more educated these days and realize that what appears to be a domestic car may well be built outside of the U.S. What may appear to be a foreign car may be built in your own neighborhood," says Xavier Dominicis, a North American spokesman for Toyota Motor Corp. "We're such a part of the fabric, dare I say, part of Americana," he says, aware that some people still bristle at the notion. As evidence, he refers to Georgetown, Ky., where the company has been assembling its Camry model for 15 years. "If you go to Kentucky and talk about Toyota, it's like apple pie." Toyota has been selling cars in the U.S. since 1957. Although Dominicis says the company's Japanese heritage is no longer an issue for most consumers, it does promote its contributions to the U.S. economy, which include direct employment of 34,394 people as of December 2002, total direct North American investment of $13.7 billion, and $15 billion in annual purchases from U.S. parts suppliers. Several years after the auto-labeling law was enacted, the National Highway Traffic Safety Administration conducted a study to determine the impact. Its survey of people who had recently purchased or planned to purchase a new vehicle found that relatively few consumers, one of every six, considered it important that their vehicle be manufactured in the U.S. or Canada. Despite such inclinations, only one out of 20 buyers said the information had influenced their purchase. Asked to rate their priorities when purchasing a vehicle, survey respondents said their top concerns were reliability, drive quality, safety, price and styling. The rising tide of Japanese automobiles in the late 1970s and 1980s may have been turning point in consumer sentiment toward imports in general. In many segments Toyota, Honda and Nissan offered superior quality and reliability (and better fuel mileage) at competitive prices that eventually translated into superior resale values. Seeking redemption from American consumers, a recent advertising campaign by General Motors admitted to and apologized for producing poor quality cars 20 years ago. "I'm not going to buy another General Motors car until they send me a personal letter of apology for the 1984 Buick Century I bought," says Ian Williamson, a consultant and former owner of a Cleveland-based forging company. Selling U.S.-built forging equipment, he vividly remembers going to a Chrysler plant in Indiana during the early 1990s and having to park his Lexus across the street. They may have frowned on his automobile, he recalls, but the plant managers there were buying German and Japanese equipment. "I've been on both sides, selling foreign equipment and selling U.S.-made equipment. When it gets down to it, people buy on price," Williamson observes. "If you want people to buy American products, they have to be the best and they have to be the lowest price. It's as simple as that. If you can't produce the best at the lowest price, they're not going to be sold." People who care enough about buying American can still "vote with their wallets," says Roger Simmermaker, author of How Americans Can Buy American, a book that lists product categories, major brands and where they are produced. "We should not only be supporting American-made products, but products from American-owned companies," says Simmermaker, who by day works for one of the country's largest defense contractors. "It is our tax dollars that are going to fund our fathers, brothers, sisters and children to fight and defend freedom in the U.S. and the rest of the world. "The Constitution essentially is a protectionist document. It protects those who abide by American laws from those who do not abide by American laws. What free trade does is it allows companies their own sort of protectionism, should they choose to exempt themselves from costly U.S. laws, and it victimizes the companies who stay behind to produce in America who do not voluntarily choose to exempt themselves from those same laws." A number of Internet sites also make it easier for U.S. consumers to shop for American-made products. Established in 1999, BuyAmerican.com, Pittsfield, Pa., had 50 vendors offering their goods through its Web site by the end of that year. Receiving a boost following 9/11, the site currently represents more than 600 U.S. manufacturers selling over 27,000 American-made products. "Daily inquiries indicate that there is a core group of American people who are very passionate about purchasing American-made products," notes Don Probst, who's in charge of day-to-day operations. "Many other Americans show a preference for American products when given a choice." One company listing its products on BuyAmerican.com is Step2, Streetsboro, Ohio, a privately owned manufacturer of plastic products for children, the home and garden, and one of the largest rotational molders in the world with around $100 million in annual sales. "In the industry that we're in, about 70% of it is sourced from overseas," says Dotti Foltz, a company spokesperson. On product literature the company prominently features the fact that its products are produced in the United States at factories in Ohio, Georgia, and California. In such a competitive industry, Step2 will take any edge it can get. "There are many who do try to find products made in America by Americans," Foltz asserts. One of the issues that buy-American proponents frequently raise are taxes. Foreign companies don't contribute as much to the country to pay for roads, schools and national defense as domestically headquartered companies do. James R. Hines Jr., Professor of Economics, Public Policy, and Business Economics at the University of Michigan, laughs at that assertion. "The law is the same. If you have a company in America, and it's owned by Americans, they pay their taxes. If you have the same company in America, but it happens to be owned by foreigners, they pay the same taxes. There's no difference," says Hines. All companies pay between 30% and 35% of profits in taxes. Dividends paid to foreign owners are taxed at a similar rate, although they are reduced by treaty in some instances. Younger people who grew up shopping at the Wal-Mart on the outskirts of town may be the least likely to care if the label on their MP3 player says it was made in the U.S.A. or China. They've grown up with the global economy. With ongoing factory closures and layoffs it's increasingly unlikely that they or their parents work for a manufacturing company. Especially considering that less than 15 million people in United States (approximately 10% of the workforce) are employed in manufacturing today. Also, one wonders if it is even possible for a company to rely entirely on U.S.-based suppliers when so much of machinery, telecommunications equipment, packaging, uniforms and other commonplace supplies are coming from overseas. Still, the general uneasiness about the economic changes wrought by rapid globalization goes all the way to the White House. This past January when President Bush presented his economic plan at a trucking-company warehouse in St. Louis he spoke before a painted backdrop of boxes emblazoned "Made in U.S.A." Worried about the impression it would make, the "Made in China" labels on the real cardboard boxes nearby had all been taped over by volunteers. Global realities aren't so easy to disguise. Top Five Importing Countries In 2002

Country Imports
$U.S. Billions
Canada 209.00
Mexico 134.62
China 125.19
Japan 121.43
Germany 62.51
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