CONSEQUENCES
OF MARKET GLOBALIZATION
In
pursuit of expanding markets, decreasing costs and
ultimately increasing the bottom line U.S.
Corporations are currently ramping up manufacturing
operations in China and India and to a lesser extent
are outsourcing service related jobs.
From
an accounting perspective the two major costs of doing
business in the United States are labor and insurance
in general and specifically wages, salaries, employer
payroll taxes, worker’s compensation, vacation pay,
overtime pay, sick leave, pensions, medical, dental,
personal liability, errors and omissions insurance,
performance bonds and property insurance. As a rough
estimate of the actual expenditures required to employ
a single individual (labor burden) multiple your gross
wages by a factor of two and if we add government
regulation it
does not take an imagination to come to the conclusion
that the costs savings associated with the exportation
of manufacturing jobs compounded by foreign currency
translations is enormous.
As domestic corporations move manufacturing to
foreign nations individuals prosper to the extent of
their stock ownership and rights to the income. Growth
of the global economy will be driven by volume not
price as the costs per unit of production declines.
The
process is in motion and should be greeted with
enthusiasm and optimism. The new world economy
(globalization) a new frontier offers opportunity but
requires adjustments.
From action comes reaction, from victory comes
defeat, from the ying comes the yang and from flow
comes the ebb all natural forces that may not be
disrupted by intervention. The fact is that
China and India are going to become the manufacturing
centers of the world and that globalization will
change the market dynamics in ways never before
experienced. Developed countries will shift from
manufacturing to service and economies of innovation.
Inflation will result in China and India as the
standard of living improves and developed countries
will be affected by deflation as lower product prices,
competition and market equilibrium dictates.
Prevailing wage, supply and demand will dictate
relative profit percentages or foreign markets will
not expand. Competition
will exert downward pressure on prices as corporations
attempt to gain greater global market share and growth
through volume and relative profit.
This phenomenon does not equate to a lower
standard of living in developed countries but does
result in increasing standards of living in
underdeveloped nations and ultimately results in
revaluation of the currencies and lower wages in
developed countries along with decreasing prices for
everything. From
a relative perspective all remains the same the
television that used to cost $200.00 now cost $100.00,
the house that used to cost 250,000.00 now costs
$125,000.00 etc… opportunity expands, rates of
return and purchasing power remain constant.
We
have recently experienced the effects of globalization
and declining prices. The American public is outraged
that foreign competitors are dumping products for less
than the cost of production in this country.
The reaction seems to be one of tariffs and
protectionism which leads to retaliation,
isolationism and declining standards of living unless
you believe all of the following: that individuals
elsewhere in the world will not respond to lower
prices for the same products, that the stamp Made in
USA is worth a $100.00 more for the same product, that
the economy may be sustained and grown through
domestic markets in a country with the least
population or that non-exportation of jobs is going to
cease the sale of product in other countries by
foreign competitors. If
United States domestic corporations do not reduce
their costs of production to be specific the cost of
labor, insurance and government regulation and thereby
become price competitive and participate they will
soon find themselves with excessive inventory and
bankrupt. The exportation of jobs is occurring
not as a result of greed per-se but survival and those
that say it is the greedy corporation should look at
themselves and their own stock ownership from which
they benefit then, determine the consequences that
non-participation will have upon their pension,
foreign investment and the cost to attract additional
capital for investment and maintenance of the national
debt.
The
question is not weather China and India will become
the manufacturing centers of the world but weather the
United States will capitulate, participate and adjust
before crisis?
China
artificially controls the value of their currency and
does not allow market forces to dictate the value
through equilibrium, supply and demand this creates an
unfair competitive advantage that will eventually
bring compliance and conformity or sanction by
developed nations and harmony, will be restored by
market forces, supply and demand.
We
encourage everyone to voice their concerns,
suggestions and comments with State Representatives
and demand that the World
Trade Organization take action and require China
to allow their currency to float.
