March 29, 2024

Economix Blog: When Cheap Foreign Labor Gets Less Cheap

CATHERINE RAMPELL

CATHERINE RAMPELL

Dollars to doughnuts.

Nick Wingfield and I had an article in Friday’s paper about how some American companies are “re-shoring” manufacturing they had previously sent abroad. The scale of these efforts is still more anecdotal than widespread at this point. Still, it’s worth examining why the United States might be a more attractive place to locate your plant today than in the past.

Cheap energy costs in the United States (thanks to shale gas extraction), concerns about keeping the supply chain close to the American consumer base, quality control issues and intellectual property concerns have all encouraged American companies to produce at least some of their products at home. But so have rising wages in some manufacturing bases abroad.

Inflation-adjusted average wages in China, for example, more than tripled over the decade from 2000 to 2010, according to a report released Friday by the International Labor Organization.

This table, taken from the report, shows that in Asia, inflation-adjusted average wages have about doubled since 2000. In Eastern Europe and Central Asia, average wages almost tripled:

 

Growth rates published as “Provisional estimates” (based on coverage of c. 75%). ** Growth rates published as “Tentative estimates” (based on coverage of c. 40%– c. 74%). *** Growth rates published but likely to change (based on coverage of less than 40%). Source: ILO Global Wage Database.


In the developed world, wages are just barely higher than they were in 2000. In the United States, other studies have shown that median household income is lower today than it was in 2000.

That does not mean that American wages are anywhere close to those in countries in East Asia or other places where American imports come from. As of 2010 (the latest year available), hourly compensation costs for manufacturing in the United States were about four times those in Taiwan, and 20 times those in the Philippines, according to the Labor Department.

But the narrowing of that wage gap does mean that the labor cost advantage some of these other countries have enjoyed is eroding a little, particularly if there are other cost-based advantages to producing in the United States (like access to cheap natural gas or being closer to your consumers).

“I’m going to sound like an economist talking here, but in a way it’s good news that U.S. wages are going down, because that’s making us more competitive year to year,” said Torsten Slok, chief international economist at Deutsche Bank Securities.

On the other hand, as wages in many developing countries rise, companies also have a big incentive to automate more of their production.

The most valuable part of each computer, a motherboard loaded with microprocessors and memory, is already largely made with robots, according to my colleague Quentin Hardy. People do things like fitting in batteries and snapping on screens.

As more robots are built, largely by other robots, “assembly can be done here as well as anywhere else,” said Rob Enderle, an analyst based in San Jose, Calif., who has been following the computer electronics industry for a quarter-century. “That will replace most of the workers, though you will need a few people to manage the robots.”

Article source: http://economix.blogs.nytimes.com/2012/12/07/when-cheap-foreign-labor-gets-less-cheap/?partner=rss&emc=rss

Wallace McCain Dies at 81; Fed the World Frozen Fries

The directors of Maple Leaf Foods, Mr. McCain’s latest business venture, said in a statement that the cause was pancreatic cancer.

Mr. McCain’s hometown, Florenceville, New Brunswick, has long been associated with potato farming, but not until he and his brother Harrison formed a food company under their family name in 1956 did it become a corporate center.

McCain Foods, the world’s largest producer of “frozen potato specialties,” as they are known in the industry, has 50 plants in 15 countries. The plants produce frozen French fries, or local variations, and churn out a million pounds of frozen French fries and similar products an hour. The fries at McDonald’s, Wendy’s and KFC outlets around the world often come from a McCain factory.

While Mr. McCain and his brother Harrison are sometimes described as the sons of a potato farmer, that understates their family’s position. Early in the 20th century their father, Andrew Dean McCain, established a prosperous seed potato business with an emphasis on international exports.

G. Wallace F. McCain was born in Florenceville on April 9, 1930. After obtaining a degree in mathematics and economics, which meant attending three universities over several years, Wallace joined Harrison in trying to start a business. A third brother, Robert, noted that although frozen fast food was quickly becoming popular in Canada, there was no locally owned producer. For perhaps obvious reasons, French fries became McCain’s first product.

McCain fries were cooked longer before being frozen, making them darker and richer tasting than American imports.

Within four years the company was successful enough to expand to Britain, a nation known for its love of deep-fried potatoes and with close trade links to Canada at the time. In what would become a model for its foreign businesses, McCain’s British operation was given considerable autonomy in the hopes that consumers there would view it as a local company.

Over time, the business expanded into pizza and other frozen foods.

But the brothers’ personal relationship frayed. During the 1990s they became estranged when Harrison McCain wanted outside managers to assume the top executive positions at the company, while Wallace McCain favored his son, Michael. After prolonged litigation, at estimated legal costs of $20 million, Wallace McCain resigned as president and co-chief executive and left Florenceville, although he retained one-third ownership of McCain Foods, which has annual sales of about $6 billion.

“The biggest thing that happened to me in the past 25 years — and in my life — was being unceremoniously dumped from McCain Foods,” Mr. McCain told The Globe and Mail in 2009.

After moving to Toronto, he took control of Maple Leaf Foods, a processed food company with several valuable brands that had fallen on hard times. He made his son Michael Maple Leaf’s president and, eventually, its chief executive. Wallace McCain remained chairman.

After modernization and several acquisitions, Maple Leaf became Canada’s dominant processed food supplier, particularly in meats. It had a serious setback in 2008 when some of its cold cuts, infected with the listeriosis bacteria, caused several deaths.

In his final years, Mr. McCain became entangled in another corporate battle. Outside investors in Maple Leaf have opposed the family’s plan to invest heavily in the company to improve its efficiency and to compete better with American imports.

Mr. McCain is survived by his wife of 56 years, the former Margaret Norrie; two sons, Michael and Scott; two daughters, Eleanor and Martha; and nine grandchildren.

Article source: http://feeds.nytimes.com/click.phdo?i=932947aac87b509189a262c49cee6319