North American plastics processors are succeeding in this new era of globalization, thanks to their efforts to cut costs and specialize in profitable niches.
But that alone won't be good enough.
Plastics processors need to review and reform their business models to take account of evolving comparative advantages in domestic and foreign markets, according to the author of a new study on the impact of globalization on the North American plastics industry.
Peter Mooney of Plastics Custom Research Services in Advance, N.C., said processors in North America are better off now than they were a few years ago. The plastics industry has stressed cost reduction through strategies such as downsized products, thinner walls and wood-flour compounds. Mooney recently authored the report, ``Globalization: Implications for the U.S. Plastics Industry.''
``These efficiency gains are important, but ultimately they will reach their limits,'' he said. ``Regional plastics processors need to recapture the creative, entrepreneurial `animal spirits' that drove growth in the past. The economic conditions of 2001-02 were admittedly difficult, but we survived them. Investment in new machinery slumped, and it has yet to regain its former level.''
Mooney surveyed processors in the United States, Canada and Mexico, but focused his report exclusively on the United States.
One conclusion, he said, is quite clear: The time is past for debating whether globalization is good or bad.
``Like global warming, it is here, and we need to cope with it,'' he said. ``Globalization is tremendously complex. But it's not going away. It's something that people have to reckon with.''
The future of U.S. plastics processing in an age of globalization requires responses from companies as complex as the concept itself. And that's no easy undertaking, as many firms can attest over years of dealing with a flattening world.
In Mooney's estimate, the future of U.S. plastics processing in an age of globalization relies in part on government policy in education, regulation, immigration, taxation, international trade and investment and the environment.
``It also relies in part on initiatives the processors themselves must undertake to hone their competitive positions vis-Ã -vis established foreign competitors [such as] Western Europe and Japan and new foreign competitors [like] China, India [and] Eastern Europe.''
For example, U.S. companies are awash with cash as a result of historically high profits, but U.S. plastics processors are holding back investing in next-generation machinery and technologies.
``As a result of a number of macroeconomic changes in the global economy, there is a lot of money floating around,'' Mooney said.
``Overall, are the plastics processing companies in better shape than they were a few years ago? I think they are. Despite the cost pressures they face, for the most part, U.S. plastics processors are not in very difficult straits,'' he said.
But processors need modern, fast, energy-efficient machinery to satisfy their core domestic customers and gain new clients beyond their borders, Mooney said.
Taking advantage of comparative advantages is a key to success and involves becoming a bigger player on the global stage.
``By the standards of most other developed countries, U.S. exports constitute a minor share of annual sales revenues, and U.S. plastics processors fare no better in this respect,'' Mooney wrote in the report. ``They need to track and take advantage of external market openings rather than simply searching for products `immune' from foreign competition to protect domestic markets.
``The appropriate response to globalization by the U.S. plastics industry - indeed by the whole U.S. economy - is not calls for protectionism and a level playing field, charges of currency manipulation and other faintly disguised neomercantilist policies,'' he said.
``Rather, we need to accept the world for what it has become and what it will become and constantly adapt to changing global supply and demand conditions. Our goal should be to improve the quantity of savings and the quality of investments and support multilateral efforts to promote prosperity abroad. The same people who compete against us with their imports are potential customers for our exports. Future U.S. economic growth will depend on greater international trade, not less.''
Hurts U.S. industry?
Not everyone agrees globalization has been good for plastics processors. For example, based on its import penetration rate research, the U.S. Business and Industry Council Educational Foundation says it has definitive evidence of a very worrisome competitive decline in U.S. manufacturing sectors across the board, including all segments of the U.S. plastics industry.
In 114 sectors evaluated from 1997 through 2005, in two-thirds of those cases, U.S. output levels either remained stagnant or they fell, said Alan Tonelson, research fellow with the USBIC Educational Foundation in Washington.
``These imports are driving U.S. production down and that should worry anybody who is concerned with the future of U.S. industries,'' Tonelson said. By his research, one of the main impacts of globalization has been reducing margins to the bones, if not lower.
``That means that U.S.-based producers increasingly lack profits that can be invested,'' he said in a July 16 telephone interview. ``It's difficult to see how they're going to stay ahead. The end result is that, even in capital- and technology-intensive industries, U.S.-based producers are being driven into price competition. That is competition that they can't possibly win.''