Are Businesses Making a Move Out of China? The Future of International Manufacturing by Kane Minks

by Kane Minks

Business has been around ever since one person provided something another was willing to pay for.  As basic as this is, it is to the core of what happens around the globe even to this day.  Not only are businesses providing goods and services to others wanting or needing them, but there is a lot of research and theory to build stronger, more streamlined, businesses.  Businesses are sprawling around the world to reach the needs of as many individuals as possible.  The decision to move around the world may not only be to cut costs but also to tap into new markets.  This globalization requires international managers capable of assessing their political, economic, legal, and technological environments.

There is a lot to consider when planning to reduce manufacturing costs and increase profits by moving manufacturing offshore.  It’s usually always safe to stay put as long as the business is profitable and there are no other large hindrances of doing business in the home country.  The strategy to move manufacturing offshore makes sense when businesses can greatly increase profits while maintaining a high quality product without any delays.

After reviewing some of the top countries for business around the world it may be worthwhile for businesses to look further into an international move.  China, the United States, India, Brazil, Germany, Mexico, and Canada are all top countries to consider.  A few countries stand out in manufacturing more than others.  China, the United States, and Mexico are the best options for U.S. companies.

CHINA

It is hard to buy anything that doesn’t have a “Made in China” sticker or stamp on the back of it.  For many years China has been the number one choice for many manufacturing companies.  They rate highest in foreign direct investment in a 2010 Kearney study.

China will continue drop as a favorite manufacturing locale since their emerging economy is outgrowing their long-lasting manufacturing identity.  The disadvantages of manufacturing in China include language and cultural differences, work-in-progress commercial laws, high intellectual property protection costs, long start-up times, quality issues, long supply chains, increasing labor costs, and delays.  Taking into consideration the high cost of fuel and transportation, shipping from China to outside markets can be significant and may climb even higher.

2 solid and emerging manufacturing countries are the United States and Mexico.  I know it sounds odd, but research suggests these countries have the highest potential to excel.

UNITED STATES

Rated second highest on an A.T. Kearney survey, the United States is definitely a top contender for manufacturing companies wanting to make a sound investment.  As far as “Reshoring”, there may be many reasons for businesses to return to the U.S.

Some advantages of manufacturing in the United States include more control over quality and intellectual property, shorter supply chains, and lower costs of shipping goods.  Some of the disadvantages are high corporate taxes, tough environmental and safety laws, and high labor rates.

MEXICO

Possibly developing as the world’s premier power player, Mexico has a lot of potential.  Many large corporations are already manufacturing here with great success. A foreign company can do business with Mexico in order to minimize tax and regulatory consequences of doing business in their home country.  According to North American Product Sharing Incorporated in 2011, the advantages of manufacturing in Mexico include a growing population that is young, highly educated and motivated, an affordable workforce with hourly wages starting at $2.10, proximity to the United States to expedite shipment time to offer advantages for companies looking to sell to the United States, intellectual property protection, excellent infrastructure, world-class facilities, and multiple Free-Trade Agreements.  The North American Free Trade Agreement (NAFTA) has also lifted many of the complications of setting up and conducting business in Mexico.

New manufacturing markets are opening around the world.  Manufacturing trends are on the move and should allow companies to seize more control over their operations.

Further reading:

Manufacturing Trends in the U.S.

…………………..more in the U.S.

Kane Minks

Airline Regulation or Deregulation…the Great Debate?! A Quick Good, Bad, and Ugly by Kane Minks

by Kane Minks

Regulated or not, the airline industry has many intense and relentless pressures always bearing down on it.  Deregulation was a success by many calculations, including increased efficiency, lower prices, and increased service.  The evolution of the airline industry is what some experts point to as the best proof of why deregulation, for all its troubles, ultimately is better than a regulated environment.  While more regulation may have increased stability to an extent, the industry would have never grown as much as it did if the tight regulations of the past remained.

Back before 1978, the CAB had control (to a large extent) of the winners and the losers, as far as who could compete and how they competed.  After deregulation, just as in any other free-market industry or company, winners and losers are based on the decisions they make and how they run their businesses.  The airline industry and airlines figure themselves out based on what customers demand and what customers are willing to pay for.  Despite the era of airline deregulation, the U.S. federal government still regulates safety and the air traffic control system, and steps in whenever either seems threatened.

Further Reading: Did ending regulation help fliers?

Kane Minks

The Foundation of Low-Cost Air Carrier Price Structures prior to Airline Deregulation in the United States by Kane Minks

by Kane Minks

The U.S airline industry has come a long way from the days of government regulation and oversight.  In the November 1964 Air Transport World article “Let’s not give the store away!” many of the top minds in aviation at that time shared ideas and viewpoints on what the future may hold for aviation.  They may have speculated, but really had no idea what was to come.

Before U.S. airline deregulation, those in the aviation world continued to wonder what might become of their ever-changing industry, in the age of airline regulation.  Many domestic and international airline fare structure strategies were considered, including the implications of price elasticity.  The thought of overzealous marketers moving toward low-cost structures had many in the U.S. fearing the industry would head in the wrong direction.

The domestic and international markets were headed in two totally different directions.  The low-cost fares of the international airline market made sense since these fares provided greater load factor by increasing passenger volume.  At the same time, the U.S. domestic market was not yet convinced since they could not find the optimal point of price elasticity; whether or not fares should be increased or lowered and the point where passenger traffic would be reduced.

Many airlines grew frustrated with dull and unproductive fare structures in a regulated environment.  Low-cost and special advanced fares seemed to be the rational direction for airlines.  Passengers may have been paying different fares, but airlines could expand the market to price-sensitive passengers and others not flying.

The fears of discounted fares were largely based on what happened after the U.S. World Wars in the electronic housewares industry.  Americans were war-weary and found a new ability to buy.  There was a huge demand for goods.  Companies sought to beat out competitors by expanding production.  Supply outgrew demand and sales began to drop.  Conventional and discount retailers alike began to suffer.  Price wars erupted to capture as much of the remaining demand as possible, which slashed company profits.  Similarly, airlines had an over-supply of seats to fill, but adjusting fare structures set to reshape the airline industry for good.

The low cost fares and price wars of today are making flying increasingly accessible to people around the world.  Airlines that cannot afford to wage price-wars have to find new and unique ways of attracting business.  Customer-service, incentives, technology, and the overall travel experience are ways some airlines are gaining steam to retake market share from low-cost airlines. Some of these strategies have proven successful in regaining market shares.  Many things will continue to change.  The highly dynamic world of aviation around the globe will further shift and evolve as new strategies and factors appear. What the future holds for airline price structures may rely more on fees and less on volume.  Only time will tell.

Delta DC-6

A retrospective from Air Transport World’s “Let’s not give the store away!” November 1964

Kane Minks