Hershey's outsourcing

[OhioChick]

Wednesday, March 07, 2007
We are told that The Hershey Co. has been late responding to globalization.

And what with everyone agreeing as New York Times columnist Thomas Friedman summed it up in the title of his best-selling book, that The World is Flat, the all-American chocolate company needs to outsource its production or face the prospect of some future calamity of unknown properties and origin that could threaten its franchise.

But what if all this is wrong?

What if globalization is a short-term phenomenon? What if the world actually turns lumpy? What if the place to manufacture for the American market becomes the United States, something Toyota and other foreign companies are anticipating? What if Hershey outsources its production at the exact moment when Americans have finally had enough of home-grown companies moving their jobs overseas while still expecting Americans to remain loyal customers? What if Hershey can't return to its roots because it destroyed them and there is no "Chocolate Town" to come back to, no chocolate workers around to restore the essence to "the sweetest place on Earth?"

Everyone understands that change is the one constant. And yet so many people assume that the current change is a constant, that the world is flat and will stay flat, that globalization is permanent. That may be the present reality. But it is virtually guaranteed not to be the next reality -- the future.

There are several things at work here. Every time I hear of another plant closing and outsourcing of labor, I think of industrialist Henry Ford, who said one of the best cost-cutting moves he ever made was doubling the pay of Ford workers in 1914 to $5 for an eight-hour day. Combined with improvements in mass production, Ford fulfilled his vow to "democratize the automobile" -- and doubled the company's profit. In the process, he helped build the great American middle class that today's corporate executives are busy dismantling, a consequence of their inability to see beyond next quarter's financial statement, their lack of vision and absence of worthy goals beyond themselves and the corporation.

If corporations keep downsizing the middle class, who is going to purchase their goods? Can we maintain a viable middle class based on selling each other services, entertainment, gambling, trucking and other nonmanufacturing enterprises? I have my doubts.

Critical to the globalization of production is cheap energy. But how long can that last? Indeed, it could be history by the time Hershey has its planned Monterrey, Mexico, production plant up and running a few years hence. Many Americans, including corporate executives, may think cheap energy is a birthright, but oil is limited by geology and technology. And while we are getting better at extracting it from existing formations and from deep-water sites once thought unreachable, our appetite for oil is on the cusp of outpacing the world's capacity to produce additional petroleum product, which heralds the end of cheap oil.

When that occurs, and there are knowledgeable individuals who believe the production of what is known as "conventional oil" has peaked, or will before the decade is out, it will soon become clear that the most cost-effective location for producing for the American market is America. WHY DO THE executives at Toyota and Honda understand this, both at the level of product development and manufacturing? This suggests that the one area American companies should be looking to outsource is management. Or at least the management that can no longer figure out how to pay American workers a living wage and still make a respectable profit.

http://www.pennlive.com/columns/patriotnews/field/index.ssf?/base/columnists/1173223503127670.xml&coll=1

[hootinholler]

1. This move is the antithesis of Milton's vison

In the age of robber barons, Milton Hershey was very concerned with the welfare of his community. He understood what his company provided and profits were used to better the world.

-Hoot

[brokensymmetry]

2. Kick! n/t

.

[The Backlash Cometh]

3. I already know the answer to the question:

If the American middle class is not here to consume products, and it won't, then look to India and China where a new rising middle class will be the new consumers.

I mean, we already have three computers in every household in America. We're saturated here in some markets. So, look overseas for the new consumerism.

[Canuckistanian]

4. Face it - downsizing and outsourcing only improve one thing - the stock price

It doesn't expand the market for your product, nor does it improve the quality of your product.

So, who reaps the benefits? Stockholders and investors, yes, but mostly the EXECUTIVES of said company.

Couple that with the demands from retail giants such as Walmart and pretty soon there's a desperate race to the bottom in terms of labor costs and wages.

And the American worker? SOL.

[lostinacause]

6. There are a number of advantages to having low barriers to trade if the policies are

implemented correctly. Global trade generates a significant amount of additional wealth. Like the wealth generated by many other efficiency enhancing programs that get implemented, the additional wealth is concentrated to the wealthy. The implementation of good policies would make it so that the benefits are more widely dispersed. Bad policies also make the cost of hiring labor significantly higher then it has to be, in particular by improving education and skill development, making employment regulations more efficient, and tweaking the legal system would improve the job opportunities available.

A major benefit to outsourcing is that it allows a more flexible economy. For example if America had put into place a good education system then America could focus on jobs that require higher skill while outsourcing the jobs that "no one wants". Also the cost of pollution restrictions on the economy should be quite a bit lower in a free trade environment. In this sense it is possible to outsource pollution to countries who value the economic gains more relative to the social costs of pollution.

Certain things such as electronics recycling have also become feasible because of outsourcing. It is too costly to hire North American workers remove the parts but in developing economies it is feasible.

You also have to remember in the past 20 years there has been a shift in policy towards policies that concentrate wealth. When looking at the current circumstances some of the increasing income inequality that is being associated with free trade is partially a result of other policies. Loss aversion may also lead to a more sour taste in people's mouth then there ought to be.

Given this I believe the primary goal of liberal policy makers should be to put into place systems that keep trade liberalized but at the same time implement policies that make it so that everyone is better off then in the absence of the policies. What good is growth if only a select portion of the population get to be the primary beneficiaries of it?

[Demeter]

5. What Happens If People Die of Salmonella Contaminated Chocolate?

Bye-bye Hershey!

It's such an asinine idea, it had to come from a Republican.

[sarcasmo]

7. Kick, we are now a third world Country. Taking my pension and moving to Sweden.

[camero]

8. All of this would end

If we just slapped a duty on all US corp products made in other countries and shipped back to the US. Make it more expensive for them to outsource and if they want to play overseas they would have to sell in that market, i.e., expand.