Everything changes15 September 2003
Throughout time, changes occur. This is a natural phenomenon. But lately things have been happening at an accelerated rate. The ups and downs of the leather industry seemed to have merged into an almost constant down. Globalisation has become rampant. When the Iraq war appeared to be imminent, Prime Tanning, who had announced closure in the USA, along with a number of other footwear upper leather tanners, decided to retain a much smaller tanning capacity to enable them to make military leathers if the need arose. As we were going to press with the last issue, news broke that one of the biggest hide traders in the states, Seton, had decided to stop processing and move their trading business to Costa Rica. It is a widely held belief that the only real profits in tanning these days is in the automotive upholstery market but, at the same time, the 'big three' car makers in Detroit are struggling with declining profits and intense competition from the likes of Toyota and Honda. Japanese car makers have done very well for themselves in the past due to their grasp of technology, superior working practices and the reliability of their cars. However, it is not just the bulk of the tanning and footwear industries which have been moving inexorably towards China, but China's central government has drafted a policy requiring local car makers with proprietary technology to account for more than half of domestic car sales by 2010. Currently, stand-alone Chinese manufacturers make a large percentage of the truck and light vehicles but account for less than 10% of the car market. When you consider that the Chinese market saw sales grow by a huge 88% in just five months to May, year-on-year, it becomes only a matter of time before China will overtake Germany to become the third largest market for cars after the USA and Japan. Sales in China are dominated by joint ventures with overseas companies. The Chinese strategy is to use the technology and management skills of their overseas partners and to benefit from their research and experience. China's largest vehicle company, First Auto Works, have forged links with VW, Toyota, Mazda, and plan to increase their present 800,000 capacity to two million, possibly three million by the end of the decade. According to the Financial Times, the company have said that: 'After absorbing the technology of Audi Cars and Chrysler engines, we have been able to rely mainly on our own strengths to develop the Little Red Flag car with 100% ownership.' While the automotive joint ventures are currently proving profitable, there are no guarantees that some time in the future the Chinese companies will not decide to discard their foreign partners and go it alone. Lear Corporation, the world's fifth biggest automotive parts suppliers, plan to raise their revenues from Asian car makers from 7-8% currently to 18% in the next 3-4 years. Having relied upon General Motors, Ford and Chrysler for most of their business for so long, the company say that around 25% of their $4 billion new orders booked up to 2007 come from Asia. In the US, Japanese car makers and recent Korean entrants such as Hyundai and Kia continue to steal market share from the US giants. In the second quarter of this year, General Motors earned three times as much from selling mortgages as they did selling cars. Of the $879 million profit generated, only $83 million came from selling cars. Over at Ford, only $3 million came from their auto division, while $175 million was raised by financial services. There is a constant flight from western shores, as manufacturers send production offshore. They are also relocating call centres as far away as India. At what point will the developed countries find there is nothing left at home, no manufacturing capacity for any of the basics which will be crucial at times of war, and no-one left earning any money to pay for the basic needs in life?