Tags: china | us | economy | manufacturing

Huānyíng (Mandarin for ‘Welcome’) Everyone

By    |   Wednesday, 25 April 2012 08:59 AM

Oh my, how times have changed. The hunted are now becoming the hunters. The capital of manufacturing for the globe in the past two decades (China) is now turning the table on the outsourcer (the United States).

There is a growing trend of Chinese companies coming to the United States to set up manufacturing facilities. Strange, but true.

There are some solid fundamentals of why this is happening. First, many of the companies that are starting manufacturing in the United States are the ones that have been slapped with huge fines under the antidumping laws. So while they are here for financial reasons, the fundamentals of their decision-making is sound.

The other major reason why these Chinese companies are here is to be near to their biggest buyers of their output. For example, Golden Dragon Precise Copper Tube Co. is a large producer of copper tubing for air conditioners, refrigerators and autos. Its largest customer is Goodman Manufacturing in Texas. So as a logical step, Golden Dragon has started work on a new manufacturing plant in Alabama. This is but one of dozens of such examples that are unfolding in the United States these days.

While this isn't yet a broad phenomenon, it is certainly a bright sign for the American economy. As the trend catches on and more and more Chinese companies determine the United States as a mainstay of their business operations, we will see a larger shift in Chinese companies manufacturing their products in America.

I'm not surprised to see such moves. A good student of history will never forget lessons such as this. Back in the 1980s, we had seen such moves in the United States. In those days, it was the Japanese businesses that had moved many of their factories to the United States for supporting the sales of their products to U.S. customers.

There was also significant buying of U.S. marquee real estate as well as general real estate buying by the Japanese.

This move has the makings of a real change in the otherwise depressing outlook of U.S. economic growth. If we start seeing a flood of Chinese companies making a beeline for the United States, we will see significant jobs growth and trickle-down growth in the economies where these plants get established.

Another significant event unfolding is the on-shoring of jobs that were being outsourced until a couple of years ago. The trend five years ago was to gain cost arbitrage by outsourcing jobs to India, Philippines, etc. But in the past couple of years, I am seeing more call centers being opened in Alabama, Louisiana and other southern states offering significant tax breaks and access to cheap and skilled labor. Once again, as this trend takes hold, we will see larger number of jobs get created in the United States.

While that is great for the U.S. economy, this trend will take some time to take hold. In the meantime, we should start investing in such Chinese and Indian companies that will be gaining significant benefits compared to their local competitors.

By investing in such companies in local currencies, we will achieve diversification as well as be investing in the choicest of foreign companies with a U.S. flavor.

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Wednesday, 25 April 2012 08:59 AM
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