Tuesday, October 2, 2012

Our Changing World ... Globally, Where Will the Jobs Come From? ... And Enough Money for Consumers to Buy the Goods Produced, Too?

Globalization is a big word full of complexities. And it's a largely misunderstood word as well.

For example, today Nissan announced that it intends to be able to build and sell a car for ~$3,000 in emerging markets. At almost the same time, Toyota announced that its September sales in the U.S. increased by 42%. No $3,000 cars involved in Toyota's numbers, of course.

Developed and emerging markets consist of two entirely separate markets, two different sets of consumers and two wholly distinct sets of workers, pay and productivity systems.

The U.S. market is the most developed and sophisticated in the entire world. Emerging markets are just that --- emerging and by no means developed or sophisticated. Yet both markets share one very important thing in common --- free to choose customers who always want the most value that they can get for their hard earned money. Wanting the most value for the least money, in other words, is a universal desire of consumers everywhere.

So let's begin the discussion by looking at Nissan's plans to develop an extremely low cost car for emerging market customers. Later we'll briefly address the much broader and complex globalization story.

For Datsun Revival, Nissan Gambles on $3,000 Model has this to say in part:

"It is the car that baby boomers may remember as much for its compact chic as for its slogan ("Datsun, We Are Driven!"). Now, a new version of this storied brand may get more attention for something else: its price tag.

In a bold move into the auto industry's fastest-growing category—emerging-market countries—Nissan Motor Co. is planning a revival to this Beatles-era star that might surprise its fans.

According to interviews with Nissan's CEO, Carlos Ghosn, and other company executives, the rebooted car will appear in these countries as bare-boned as any rival has tried. And Nissan is hoping to set new lows for pricing for a global auto maker, offering the cheapest Datsun model for about $3,000 to $5,000. The lowest price is nearly a third the price of its most inexpensive car, the $8,000 Tsuru compact sold in Mexico. . . .

He portrayed the relaunch as much as a life's mission as a business strategy, with the goal of providing poorer populations a greater chance at car ownership. No major car company has yet figured out how to penetrate profitably the lowest price segment in emerging markets, even though these countries already make up nearly half of all global vehicle sales.

But both the overall strategy and selection of Datsun to lead the cut-rate charge has already faced some opposition within the company and is likely to cause concern among some analysts and car buffs. In its heyday, Datsun was a much-beloved brand, an economy car that was nonetheless prized for classy designs and innovative touches. But to have a shot at keeping the price at $3,000 for the lowest-priced model—which even Nissan officials concede will be hard to pull off—the company will have to jettison features that have long been standard in the U.S. but not in developing markets, from automatic transmissions to a full supply of air bags. . . .

Now, the 58-year-old Mr. Ghosn, who came to Nissan 13 years ago to rescue it from the brink of bankruptcy, has decided to stake his reputation on this very brand. Born in Brazil and raised in Lebanon, he is the only head of a major car maker raised in the developing world, a fact that he says has deeply influenced the legacy he wants to leave at Nissan. He himself didn't own a car until he was 18, and in many underdeveloped countries, car ownership at any age remains more of a dream than a reality. In India, only 38 people out of 1,000 owned a car in 2010, compared with 808 people per 1,000 in the U.S., according to one study....

To do that, the car maker plans to boost sales in emerging economies, which it expects to account for 60% of all auto industry sales in five years, up from 43% today. Mr. Ghosn claims that with enough first-time buyers, Datsun could capture one-third to one-half of total car sales in these countries. . . .

What is more, in the quest to make a profit despite charging rock-bottom prices, Nissan officials say they will have to take a bare-bones approach to comfort and safety, tailoring to societies less coddled than developed markets. For example, the cars will only offer manual transmissions and their exhaust systems will be noisier and vibrate more, much as they did before the addition of silencers and stabilizers, according to people familiar with Nissan's plans. . . .

For that reason—and because Nissan has no interest in cannibalizing its existing sales—the company says Datsun cars won't be sold in the U.S. or other industrialized nations, at least not initially. In those markets, regulatory and safety issues alone would virtually eliminate the company's super low-pricing strategy. "If you go to the U.S., it's not going to end up being $3,000," Mr. Ghosn said."


Just today car sales in the U.S. were reported as reasonably strong. Toyota and its non-union U.S. facilities outperformed both GM and Ford and their UAW represented factories. Of course, both GM and Ford have higher labor costs and lower productivity than the non-union foreign "transplants" manufacturing in the U.S. The transplants also have a much younger U.S. work force and therefore lower pension and health care retirement costs than their U.S. competitors.

So what will globalization mean to the high cost UAW represented U.S. based facilities that GM and Ford have?

That, my friends, is a great and unanswered question. It also gives us a small taste of the many difficult issues globalization is bringing to the world in the 21st century.

World Bank Sees Long Crisis Effect paints the bigger picture of globalization and its challenges:

"WASHINGTON—The European debt crisis could weigh on the world economy for years, forcing policy makers to rethink their approaches to restoring growth and boosting job creation, the World Bank's new chief economist said in an interview Monday.

The global economy is "is not doing well," said Kaushik Basu, a former top Indian government official who on Monday became the bank's top economist. "The difficult phase will live with us for a while." . . .

Countries such as Brazil, China and India are addressing homegrown problems in their domestic economies just as their overseas markets weaken, Mr. Basu said. "When you do that in a rush, yes, you're making some blunders as well." . . .

The global upheaval of recent years should force policy makers to re-evaluate how their policies affect other countries.

"The global economy is becoming one economy," Mr. Basu said. "We have to do a lot of rethinking. Globalization has come upon us more rapidly than we had anticipated."

The World Bank's major annual development report, released Monday night, found that 200 million people are unemployed and actively seeking work across the globe. About 620 million youth—most of them women—are neither working nor looking for work. Of the more than three billion people working world-wide, almost half are farmers or self-employed. The report highlights the importance of jobs as a driver for development around the world.

The forces that have unleashed cheap labor, pulling people out of poverty in developing countries, have created new tensions in advanced economies and "challenges that are absolutely huge," Mr. Basu said.

"One must not diminish the problems of industrialized-country labor as well, where they are suddenly coming under competition from a segment that earlier they did not have to think about," he said. 

"That restructuring whereby industrialized country labor has to be employed in different ways needs a lot of thinking.""

Summing Up 

The world is becoming more similar and dissimilar at the same time.

Those citizens in developed countries such as the U.S. have long enjoyed high standards of living, high wages and countless so-called creature comforts. Our impoverished would be counted among the rich in many parts of the world.

Simply stated, those living in emerging markets often have a standard of living similar to what the citizens of developed countries had many decades ago.

How these two worlds will converge and provide a better world for all, including ample employment opportunities and relative prosperity, is the question globalization must answer in the future.

All humans want to enjoy a decent standard of living, personal freedoms, an opportunity to receive a good education and the chance to live comfortably in our retirement years.

What all that means in different countries at different times is unique to the society and time in which the individual lives.

Globalization and its effects will be a tough one to solve for sure, but it's an issue that must be resolved satisfactorily in order that future generations of different societies can live alongside each other in peace and prosperity.

At this point, of course, we're barely beginning to scratch the surface of understanding the relevant questions to ask, and we're certainly not anywhere close to answering those important questions.

But at least we've begun to think about it. That's in and of itself a good thing.

Thanks. Bob.

No comments:

Post a Comment