Wednesday, February 1, 2012

Global Competition, Companies, Unions, Communities and Nations ... Seeing Things Differently

Unions impact local employment conditions, usually unfavorably. Their bargaining tactics often interfere with a company's competitiveness as they strive to leverage unions' short term bargaining clout to the fullest extent possible.

Short term gains by unions frequently result in long term pain for union members, the companies that employ those members and the local communities that enjoy the jobs and tax receipts that accompany those jobs, both directly and indirectly.

About the only stakeholders not impacted negatively are the union officials that drive the hard bargains initially and achieve the short term "wins" for the union members. These union leaders aren't employees of the company, usually don't live where the jobs are located and live off the dues paid by members rather than pay dues themselves.

Sovereign nations sometimes impact global markets by either helping or hindering their citizens and companies in their efforts to compete successfully in global markets. In the end, however, a sovereign's ability to favorably influence what companies do is actually quite limited. On the other hand, government can do considerable harm through its support of unions and the coercive work rules which act to the long range detriment of both workers and companies.

To the extent that unions and governments combine to make things difficult for companies, companies will become less competitive globally. As a result, companies then frequently choose to relocate to different geographical areas where conditions are less unfavorable for them competitively. Generally, employees have no such choices and end up the real losers. They can thank their union leadership for that ultimate act of permanent harm.

In other words, global companies compete globally, regardless of where the production is located or whether unions are involved. To the marketplace, those factors make no difference.

But in conducting business, companies often are required to deal with local unions and national sovereigns in order to do business in a particular geographic area and business climate.

Made in the World relates this three sided and fundamentally different view of the world between a union, company, country and the global market competitiveness story this way:

"There is today an enormous gap between the way many C.E.O.’s in America — not Wall Street-types, but the people who lead premier companies that make things and create real jobs — look at the world and how the average congressmen, senator or president looks at the world. They are literally looking at two different worlds — and this applies to both parties. . . .

Politicians see the world as blocs of voters living in specific geographies — and they see their job as maximizing the economic benefits for the voters in their geography. Many C.E.O.’s, though, increasingly see the world as a place where their products can be made anywhere through global supply chains (often assembled with nonunion-protected labor) and sold everywhere.

These C.E.O.’s rarely talk about “outsourcing” these days. Their world is now so integrated that there is no “out” and no “in” anymore. In their businesses, every product and many services now are imagined, designed, marketed and built through global supply chains that seek to access the best quality talent at the lowest cost, wherever it exists. They see more and more of their products today as “Made in the World” not “Made in America.” Therein lies the tension. So many of “our” companies actually see themselves now as citizens of the world. . . .

Victor Fung, the chairman of Li & Fung, one of Hong Kong’s oldest textile manufacturers, remarked to me last year that for many years his company operated on the rule: “You sourced in Asia, and you sold in America and Europe.” Now, said Fung, the rule is: “ ‘Source everywhere, manufacture everywhere, sell everywhere.’ The whole notion of an ‘export’ is really disappearing.”. . .

So the future will look quite different from the present. Does this mean that American companies and workers will necessarily be disadvantaged in this brave new globally competitive world? Absolutely not.

To the contrary, we have tremendous competitive advantages if we'll only engage them. Read on:

"This is the world we are living in. It is not going away. But America can thrive in this world, explained Yossi Sheffi, the M.I.T. logistics expert, if it empowers “as many of our workers as possible to participate” in different links of these global supply chains — either imagining products, designing products, marketing products, orchestrating the supply chain for products, manufacturing high-end products and retailing products. If we get our share, we’ll do fine.

And here’s the good news: We have a huge natural advantage to compete in this kind of world, if we just get our act together.

In a world where the biggest returns go to those who imagine and design a product, there is no higher imagination-enabling society than America. In a world where talent is the most important competitive advantage, there is no country that historically welcomed talented immigrants more than America. In a world in which protection for intellectual property and secure capital markets is highly prized by innovators and investors alike, there is no country safer than America. In a world in which the returns on innovation are staggering, our government funding of bioscience, new technology and clean energy is a great advantage. In a world where logistics will be the source of a huge number of middle-class jobs, we have FedEx and U.P.S.

If only — if only — we could come together on a national strategy to enhance and expand all of our natural advantages: more immigration, most post-secondary education, better infrastructure, more government research, smart incentives for spurring millions of start-ups — and a long-term plan to really fix our long-term debt problems — nobody could touch us. We’re that close."

But along with that, we have some very real close-in problems to address as well. Such as the coercive role and competitively debilitating nature of unions.

Lockout Tests Union's Clout makes the point about a Canadian union's inability to control global markets when it says this:

"Caterpillar (CFO) . . . said in an interview that the company can make the locomotives it needs to deliver this year by using other plants, including new ones in Muncie, Ind., and Brazil. . . .

Caterpillar also has an agreement with Bombardier Inc. under which that Canadian company builds locomotives for it at a plant in SahagĂșn, Mexico. That agreement predates the lockout."

Thus, Caterpillar has several choices concerning where it will produce locomotives. It can continue to use Canada or move production to Brazil, Indiana or Mexico.

Of course, the union has choices, too. It can forever refuse to accept Cat's terms, stay on the picket line and see the factory closed, or it can return to work and see its members employed making locomotives again.

Who will win? That's easy. Customers will win, because they have the only real clout.

Here's why the union leaders may be willing to forfeit Caterpillar's Canadian jobs:

"Employers across Canada are "watching what Cat is doing," said Rolf Gerstenberger, president of a United Steelworkers of America local union that represents workers at a plant in Hamilton, Ontario, owned by U.S. Steel Corp. Mr. Gerstenberger and workers from the Hamilton plant drove 75 miles to London last week to wave flags in front of the locked plant.

"This Caterpillar lockout is an absolute test case of the union's resolve," said Mike Moffatt, an economist at the University of Western Ontario in London. . .

About 32% of Canadian employees are represented by unions, compared with 12% in the U.S. Excluding government employees, the percentage of Canadian workers represented by unions has dropped to about 18% from 21% in 1997, according to Statistics Canada.

One factor in the decline has been a trend since the mid-1990s for Canadian provinces, including Ontario, to provide for secret ballots by workers on whether to certify unions rather than having workers merely check a box on a card, said Benjamin Dachis, an analyst at the C.D. Howe Institute, a Toronto-based conservative think tank. Unions are less likely to win support in secret ballots.

"We face an incredibly hostile environment both economically and politically," said Jim Stanford, an economist at the CAW, adding that accepting the wage cut Caterpillar wants "would be a horrible, horrible precedent." Workers note that Caterpillar is demanding concessions even as it trumpets record profit.

Caterpillar has said wage cuts and other contractual changes are needed because the plant isn't "sufficiently flexible and cost-competitive."

The dispute may boil down to whether Caterpillar believes it can do without the Ontario plant, its main assembly center for locomotives. The CAW notes that the Muncie plant is still gearing up to produce on a larger scale. "Brazil is not even up and running yet," said Bob Scott, the CAW's plant chairman in London.

Workers at the Ontario plant say Caterpillar last year hired some of their retired colleagues to help train employees at the new Muncie plant, where workers aren't represented by a union. Caterpillar has advertised jobs there at wages ranging from $12 to $18.50 an hour. Wages for most workers at the Ontario plant are 35 Canadian dollars (US$34.94) an hour, the CAW says.

Caterpillar declined to discuss the prior wage at the Canadian plant.

The Canadian workers say it will be hard for Caterpillar to find enough workers in Indiana, Brazil or Mexico with the skills needed for the intricacies of such tasks as welding train parts together. "It takes time" to learn those skills, said Shaun Oliver, who has worked as a welder at the plant for six years and was standing near a scrap-wood fire in a steel drum outside the plant one recent evening. His union flag snapped in a prairie gale as sparks swirled around half a dozen workers. "You have to know what you're doing," Mr. Oliver said. "It's not a Lego piece.""

I've heard that one before. It's simply untrue.

All too often union leadership will tell its members that nobody else can do the work they do, so they urge them to hang tough and stay off the job. The real reason is that unions don't want wages to decrease in the area. That would make the union's job that much harder and the justification for the union's existence that much harder as well.

Now here's the truth of the matter. Other people can do that welding and related work, and will happily do so if given an opportunity.

Unfortunately, all too often employees don't realize their fate until the work has been moved and the plant has been closed. Then it's too late.

Unions have far too much power in some nations, cities and workplaces. But they don't have that power over global companies like Caterpillar.

So what will happen? Where will Cat produce locomotives?

We'll see. One thing's for sure, however.

Caterpillar will continue to sell lots of cost competitive and quality locomotives throughout the world. And workers will be paid well to make those locomotives.

And whether those workers are Canadian workers or belong to a union won't matter in the slightest to the marketplace.

But it will matter to thousands of workers and several communities, both those where the work is and where it used to be.

When will unions and governments receive that simple but profound message from the marketplace?

Soon, I hope.

Thanks. Bob.

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