Firms adapt ways
How are processors dealing with globalization? One stressed the changes his company has made to deal with rising resin and energy costs - a critical issue the past few years.
``I believe in globalization,'' said Jim Medalie, president of Allen Extruders Inc. in Holland, Mich., and sister company Kleerdex Co. LLC in Bloomsburg, Pa. ``However, I think there should be a level playing field for wages [and] safety, for example. Allen and Kleerdex can compete globally as long as it's a comparable playing field.''
Kleerdex is a unit of Tokyo-based Sekisui Chemical Co. Ltd. Earlier this year, Sekisui acquired Allen.
``I wouldn't rule out putting plants in Asia and Europe in the future to service those markets,'' Medalie said of planned growth. ``Being owned by Sekisui is a definite plus in that regard.''
Medalie's companies have experienced significant growth over the past few years. Allen has grown 25-30 percent over the past two years in terms of sales. Kleerdex has grown 50 percent in those same years.
Medalie's goal is to keep capacity ahead of the curve. Kleerdex recently added new equipment, including a lamination machine that will allow it to offer more customized products.
``Kleerdex has made an investment in a [Milacron] extruder,'' Medalie said. ``That will be our sixth line at Kleerdex. We expect that to start in the first-quarter 2008. We're not at the point yet with Allen where we need to invest in new capacity.''
Kleerdex also announced an agreement in May with Plastic Team GmbH of Kleve, Germany, which will distribute Kleerdex's line of Kydex thermoplastic sheet products.
Efficiency gains are necessary to keep up with rising energy costs, Medalie said.
``We're still seeing increases in resin pricing for both companies,'' he said. ``We're all realizing the impact of energy costs. That's affecting resin prices. We keep trying to be as efficient as possible. I don't know where we're going to end up with energy costs. Those seem like they continue to rise.''
Nypro Inc. has long been an advocate of participating in the global economy. The Clinton, Mass.-based injection and blow molder has been operating outside the United States since 1973, spokesman Al Cotton said in a July 2 telephone interview.
The net effect for Nypro now is that two-thirds of its employment is outside the U.S. Still, cumulatively, the company has expanded its research, engineering and offices in the United States.
``We pretty much agree with him,'' Cotton said of Mooney's report conclusions. ``The way we look at it is that you need to be able to satisfy your customers. In general, that means that you have to be in more than one country to do it. You have to look at your niche from a global perspective. Does my niche serve a global need?
``One thing that we have learned is that going overseas does create jobs here. When the cash register rings in China, someone has to [record] it here.''
In each country in which your firm operates, Cotton said, you have to explore and know what those comparative advantages are and make the most of them.
Tonelson disagreed. In his view, as manufacturing production migrates overseas, service jobs associated with that production will migrate overseas, too.
``This should trouble anyone who wants the United States to remain a technology superpower and thus a First World country,'' he said.
``People who say that we can watch with equanimity as our manufacturing sector is steadily replaced by the service sector, that's a formula for exchanging high-wage jobs for low-wage jobs; higher-productivity for lower-productivity industries; and it's a formula for exchanging dynamic industries for less-innovative industries.
``I would describe it as very similar to trading in sports teams, where they would be trading superstars for mediocre players. This notion that we cannot worry, to me, that shouldn't hold any water for any thinking person.''
One plastics industry consultant said the past 10 years have not been easy for North American plastics processors. Companies have had to rationalize their businesses and adapt.
``It really is kind of a specialty approach now rather than the Model T approach where everybody gets the same thing,'' the source said. ``The Model T's are gone now.''
Another consultant, Andrew Reynolds, research director with Applied Market Information LLC in Wyomissing, Pa., said the U.S. lives in an era of global capital movements and global investment decisions by major corporations.
``This means they source products from wherever the best deal arises,'' Reynolds wrote in a June 22 e-mail response. ``China benefits from low-labor rates, an efficient work force, a centrally planned economy and a highly entrepreneurial and motivated population. Global companies are seduced by the idea of, at some stage, servicing 1.3 billion customers and accessing highly competitive manufacturing.
``Is it `China bashing' to attack the growth of the Chinese economy? Absolutely. However, it is also reasonable to say that China has achieved some of its success on the back of a manipulated exchange rate, a politically led economic policy, failure to adhere to safety standards we have imposed in the West, and bank lending practices which have resulted in a significant number of unsustainable loans,'' he said.
``Thus the American plastics processor could argue that he has not had the benefit of loans at unnaturally low rates while he has to have a strong commitment to worker safety or else he will find himself undergoing an expensive legal process and he certainly has not had the government manipulating the exchange rate to ensure he remains competitive.''
Still, Reynolds said, competition makes American manufacturers keen and drives efficiency.
``In the final analysis if you have benefited from importing products at reasonable prices from China and sustained a lifestyle on that business, you are probably happy,'' he said.
``If you have lost your job and livelihood, you are discontented and want to indulge in `China bashing.' At what point does the decline in the size and strength of the manufacturing sector, resulting in the loss of technology, jobs and intellectual capital, adversely affect the sustainability of the whole plastics industry? The answer is we are in a process of permanent change and revolution in the economy, uncertainty and a rapidly changing global environment is the result.''
Plastics Custom Research Services' Mooney said ``China bashing'' is totally unwarranted.
``Viewed objectively, the transformation of Chinese society and its economy has been spectacularly successful. Chinese [gross domestic product] has been growing for roughly a decade at around 10 percent per year; industrial production in 2006 is estimated to have grown by 14 percent; the efficiency of its export industries has resulted in a $163 billion balance of trade surplus, and its foreign reserves top $1 billion. This has been the goal of international institutions since the end of [World War II], to raise the economic welfare of less-developed countries in order to eradicate global poverty,'' he wrote.
U.S.-based companies need to realize that thanks to globalization, the plastics industry as a whole is gaining customers.
North American processors lost 3.5 percent of total sales from import penetration in 2006 and an additional 3.2 percent from customers relocating manufacturing operations offshore. That combined loss of 6.7 percent is significant, Mooney said. However, that has to be set against the combined gain from exports and the relocation of foreign operations to North America, which figures in at between 7.7 and 8.7 percent.
``The net effect of globalization for these plastics processors as of 2006 was a positive 1 percent to 2 percent,'' he said. ``This is probably the most important finding of this research program.''
Mooney also said U.S. businesses need to remember relocation and in-sourcing that has resulted from globalization.
``Balance what has come in for the U.S. industry,'' he said. ``Japanese and Chinese design firms are setting up in the United States.''
Globalization, in Mooney's estimation, is positive over the long term.
``All fundamentally benefit from it,'' he said. ``It's said that a rising tide will lift all. Many boats are lifting. Some are sinking, but you'll have that.''