Competition

21 May 2002




That is the thing we love when it puts us ahead of those who perform the same job as we do, and it's what we fear when the others do that job better than we do. In order to compete we are prepared to go to great lengths even to the point of compromising our own national economy, or let us say part of that economy. Competition is so simple and so incredibly complicated at the same time that it occupies our minds for a large part of our working day. You have constantly to find a way to bring a newer, better and cheaper product on the market, something that makes people prefer your product over that of your colleagues. Innovation, quality and price are the main factors in the process. By innovating you produce a product that others don't have and if the market is receptive, you have got yourself a winner. If you produce a better type of leather and market it at the same price as the guy next door, again you are going to be top dog. But if you offer goods similar to other's at a higher price you are in trouble. A decade or so ago, the leather trade was one of the industries that featured double-digit profit percentages, whereas today producers are anxious about what happens behind the comma and each tenth of a percent more or less makes a difference. Solutions have been sought to make productions more efficient, resulting in more automation, more computerisation, less people engaged in the actual working process. Since manpower plays a very important role in the leather industry we see a continuous closing down of tanneries and leathergoods factories in the so-called industrialised countries with high wages, western Europe and north America in particular. The same companies, however, open up brand new plants in Eastern Europe and the Far East, countries that notoriously feature a work force that requires low wages. Similar moves are performed by branches of the chemical industry that services the leather industry with ever more factories opening in the east, filling the gaps of closed productions in the west. Easier environmental laws play their own role, and these are closely connected to the costing factor. How clever are these moves, how clever is it to close down an industry in America and open up the same industry in China? From an egoistic point of view it is a natural move, because you close down a generally old small plant with an expensive work force and in its place open up a large modern plant with an extremely cheap work force. On top of that the host country generally offers substantial tax incentives, whereas Uncle Sam's Internal Revenue Service, the German Finanzamt and the Guardia di Finanza in Italy want each and every dime that is due to them. The same happens with shoe factories opening up in Albania, Bulgaria and Romania, which are in fact German, Italian, French and Spanish shoe factories that have sent their own work force home on the dole in order to produce their full line cheaper abroad. The result of these transfers of whole factory productions is that the leather or leather products thus generated are cheaper, and hence more competitive, until of course your competitor makes the same move, which takes you back to square one. The opening up of a production in cheap labour force countries may seem a clever move, but in the end one shoots oneself in the foot. By firing a well-trained work force in consumer areas such as America and Western Europe you create an army of unemployed middle class workers whose household budget becomes so stretched that in the long run they will have to save on a variety of products. First they'll renounce buying luxury goods, then the expensive consumer goods, something the automobile industry can tell everybody something about. Then come accessories which for us means fewer leather bags, fewer leather portfolios and instead of three pairs of shoes, people will buy only one pair or no leather shoes at all. So where are those cheaply produced leathers and shoes going to be sold, and to whom? Certainly not to the fired workers in the US and Europe! Charles Myers of the LIA mentioned in his annual address this year that the US is transforming itself from a producing community to a consuming community and we should all wonder whether, if the process is being stretched to its limit, there will be enough consumers left capable of spending, because people without work have little or no money to spare. Of course, there are a billion Indians and almost one and a half billion Chinese, with another billion of Africans in reserve, who all need the proverbial pair of shoes, but right now they have other priorities. Therefore, at least for the moment, factories in Albania, Romania, China, Korea, Taiwan and India are now practically only producing for Western Europe and America, marketing the lower quality items or rejects in their own country for the local population. Hence if demand in the consumer countries would decrease there would be an excess in production and production capacity in Eastern Europe and the Far East resulting in factory closures, something that China has started to experience right now, becoming the country with the largest number of bankruptcies, especially where it concerns the electronic and toy sector which shifted their production eastwards at a very early stage. The second reflection is more moral than practical but in my view just as valid as the consideration of the almighty bottom line. Many industries have received some form of incentive from their home country in order to set up a particular factory. Europe and the US have various such financing schemes devised on purpose to create jobs. By firing their work force and by idling an existing factory in favour of starting a similar company in cheap labour countries, tanneries, shoe factories, or chemical companies provoke a double negative effect on the economy of their own country because the country loses an income and has to maintain the fired workers. On top of that the trade balance is also negatively affected, because the know-how to set up a shoe factory is generally provided free of charge by the mother company. This is a crazy situation because cheap labour countries on their part attract foreign industries and investments with multi-year mouth watering tax incentives in order to create jobs for their millions of poor, the very same jobs that the consumer countries just lost!!!! Sam Setter [email protected]



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