To celebrate Plastics News' 20th anniversary, we continue a weekly countdown of the Top 20 issues of lasting impact, as reported in our pages. The series ends this week.
This week: No. 1: Globalization changes North America's plastics industry
Plastics News was born into the rising trend of globalization of the plastics manufacturing industry. Our very first issue, published March 6, 1989, had ample coverage that reflected international angles and elements, from the U.S. embargo on Toshiba machines to South Korea's monomer resin demand, from a U.K. molder building an Illinois plant to DuPont expanding in Singapore.
Globalization, a term that just gained popularity in the latter half of the 1980s, wasn't deemed a top issue of the industry. But regional integration was quickly taking shape. Cross-border investment was increasing both within the industrialized world and into emerging economies.
The North American Free Trade Agreement was sealed in 1993, despite concerns about businesses moving to Mexico. Today, most economists agree that NAFTA encouraged the offshoring of U.S. manufacturing that sent goods back to America. Asian molders also took advantage of the trade policy by establishing production in Mexico and exporting to the U.S.
In 1995, a 40 percent devaluation of the peso caused inflation in Mexico, increased the local labor cost, hurt smaller molders, but also benefited U.S. firms that outsourced from their southern neighbor. History is an upward spiral: A similar situation happened in 2008 in Vietnam, another destination for American sourcing and investment.
As trade barriers fell and shipping became more efficient, global sourcing boomed. Meantime, larger corporations were rapidly spearheading a trend to establish and expand their presence in emerging economies in Asia, South America and central and Eastern Europe, to gain competitive advantages lower costs, better margins, faster growth and potentially local market share. The global positioning of major corporations accelerated the flow of goods, capital, technologies and skills across regions.
Plastics processors and suppliers quickly followed customers overseas, particularly in the automotive, electronics and appliances sectors. In 1993, injection molder Nypro Inc. opened its first factory in China.
During that time, the U.S. was attracting foreign investment. Taiwan's Formosa Plastics Corp., for instance, started producing resin and PVC pipe in the United States.
While some U.S. plastics companies reaped the rewards of globalization, others saw their businesses squeezed by outsourcing and offshore manufacturing. Plants shut, jobs were lost and supply chains hollowed out. These problems became more severe and more publicized in the new century.
Overheated foreign investment and globalization cooled down a bit in 1997, when the Asian financial crisis reminded the world that new markets offer a mix of opportunities and risk, and that an interconnected global economy is vulnerable to change in any one given country or region.
China walked away from that meltdown less affected than many of its competitors. The nation's currency devaluation since 1994 came to a halt. Instead, with a fixed currency, four years (1998-2002) of massive fiscal expansion revived China's economy and put it in a more central position on the world map of manufacturing. Economists suspect China is implementing similar measures today, in response to the global economic crisis.
China's dependence on exports increased only after the 1997 crisis, especially after it joined the World Trade Organization in 2001. In the plastics industry, we witnessed more U.S. businesses setting up local alliances or wholly owned subsidiaries there, and an aggressive influx of cheap Chinese products molds, machinery, parts, you name it. China also overtook the U.S. as the world's largest destination of foreign direct investment in 2003.
Quickly, China became a sore spot in international trade relations and was held culpable for driving the world into a bargain-based mode with its legendary ability to undercut prices. The world's factory processed imported raw materials, added value for razor-thin profits, and sent finished products back to every corner of the globe.
China's hunger for commodity materials and energy brought an unprecedented price drive for oil, feedstock, resin, metal (for molds and machinery) and shipping, fueling a resin-capacity race in the Middle East and hitting home for molders.
Before the U.S. financial meltdown dragged the world into the current crisis, foreign investors started to frown on China's rising costs and rushed to shift manufacturing to lower-cost countries like India and Vietnam. The ongoing crisis, however, has turned everything upside down. Commodity and energy prices plummeted, millions of jobless Chinese workers lowered labor costs the only missing element now is sustainable world demand. A rising wave of protectionism threatens a collaborative recovery.
After decades of battling foreign competition, North American plastics manufacturing has become more automated, efficient and diversified. Firms have survived and thrived on strengths like large parts, niche markets, vertical expansion, improved sales and marketing, and careful integration into the global business.
Love it and hate it, globalization will continue to direct our industry's future. A downturn usually is a good time to look at issues like the harmonization of international quality standards and enforcement. The message for the industry is to relentlessly sharpen core competencies, absorb changes and fight through these tough times.