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Material Handling Industry Expands Footprint

Globalization OverviewIn 1984, MHEDA held its first International Industry Exchange, a meeting of distributors and manufacturers from both sides of the Atlantic. Representatives from the United States, Canada and Holland gathered in London, England, for business seminars, plant visitations and social functions. The exchange proved to be a success, and material handling on a global scale became more of a priority.

Since that landmark meeting, the material handling industry has joined the rest of the business world in becoming more dependent on foreign customers, manufacturers and suppliers. It’s no longer enough to focus on North American and European markets, as Latin America and Asia have become major players in the global economy.

Myriad articles and books exist explaining the benefits, drawbacks and predictions for this trend. Statistics abound describing where the international economy is headed and how the United States is affected.

  • A February 2005 article in USA Today stated: “In a new type of offshoring, jobs aren’t leaving the U.S.A.: They were never here. Forty percent of start-ups employ engineers, marketers, analysts and others in jobs created in India and other nations. Many start-ups, speeding the pace of globalization, now bypass the United States for nations where customers and cheap labor are plentiful.”
  • In March 2005, The New York Times reported that the U.S. imported over $1.2 billion in textiles and apparel from China in January, up from $701 million in 2004. Imports of major apparel products jumped 546 percent and 12,200 U.S. textile and apparel jobs were lost.
  • In 2004, the U.S. trade deficit with China reached $162 billion, the largest trade imbalance ever recorded by the U.S. with a single country.
  • China had a trade surplus with the world of $33 billion in 2004. If trade with the United States is excluded, China actually ran a deficit of $47 billion.
  • China is projected to surpass France in GDP this year, the United Kingdom next year and Japan in 12 years. China will become the world’s dominant economy within 35 years.
  • China has as many students enrolled in college as each of the United States and the European Union, and this year Chinese schools will produce five times as many engineers as U.S. universities.
  • China now produces over 180 million tons of steel per year, nearly twice as much as any other country.

To be sure, these are compelling data. The impact of these new economies—particularly China—will be enormous on commerce in America. China’s inclusion in the World Trade Organization now allows foreign companies to have wholly owned subsidiaries rather than joint ventures. At the beginning of 2005, China activated the China B2B Hub, a Chinese government-endorsed standard for use by China-based small and medium-sized enterprises to effectively integrate with multinational corporations.

The material handling industry is not exempt from the globalization phenomenon. Over 1,000 competitors produce material handling equipment and systems around the world, although global output is dominated by a handful of firms headquartered primarily in the developed nations. The worldwide market for material handling equipment and systems has increased 6.2 percent per year from 2002 through 2006 (projected), to just under $108 billion. The fastest per-annum growth is expected in the Asia/Pacific region, where numerous countries are undergoing rapid industrialization. Again, China serves as the catalyst of that growth. Chinese demand for forklifts is expected to increase by 60 percent before the end of the decade, due to reasons ranging from new environmental legislations that will stimulate replacement of older models to increased demand for mechanization in factories and warehouses. In fact, some estimates say that automation in China is growing nearly 25 percent annually—three times the country’s already rapid GDP growth rate.

Of course, there are those who say that the Chinese economy will be unable to maintain this astronomical pace. A recent New York Times article reported that China is experiencing labor shortages of about 2 million workers in two of its most export-driven provinces. The piece went on to say, “No one thinks China is running out of workers, but young migrant workers coveted by factories are gaining bargaining power, and many are choosing to leave the low pay and often miserable conditions. Some analysts believe that the current shortfalls are the beginning of a long-term trend that is already bringing wage pressures and could eventually erode China’s position as the world’s dominant low-cost producer.”

If indeed that is the case, China will no longer have the “radically cheap” labor that currently makes it so popular, an opening for further globalization to places like Vietnam, India and Cambodia. If Chinese wages continue their current rise, businesses there may “face a fate familiar to many manufacturers in the United States—they would have to move to a country with cheaper workers.”

As the above New York Times article alludes, the United States has been experiencing a decline in its manufacturing base for many years as companies move plants to South and Central America and the Pacific Rim in pursuit of labor savings. As Barry Lawrence said in his article that appeared in the January 2005 issue of The MHEDA Journal, “The process is often called ‘island hopping,’ since, in its earlier stages, firms would build and operate plants in Taiwan until labor rates rose, then move to Malaysia, then on to the next island.” Lawrence provides the case of Guadalajara, Mexico, to illustrate the point. When NAFTA was enacted, U.S. electronics manufacturers relocated to Guadalajara and found a capable workforce at a wage rate well below that of the United States. As more and more companies moved there, the workforce became depleted. Costs to retain workers rose, and soon China came on line with wage rates well below those in Mexico. “Guadalajara experienced greater losses in manufacturing than the United States,” Lawrence concludes.

The advent of digital technologies like the Internet and wireless devices have made it easier than ever for all parts of the world to interact. As such, businesses can reach markets that they’ve never reached before, in all corners of the globe. Globalization is a very important issue affecting the landscape of many industries, particularly material handling. Read on for articles on antidumping laws, overseas product liability, manufacturer and distributor views on globalization and more.

Material Handling Equipment Distributors Association

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