Friday, January 21, 2011

The Hiring Is Happening.... Overseas

BusinessWeek offers an analysis of "Why the Private Sector Still Isn't Hiring", claiming,
"I'm not going to bet on the economy," says Merchant, 47, Hope Global's CEO since 1999. "I'm not putting in people believing it's going to happen. It's got to happen first." Meantime, she's "taking care of the people who are here" by restoring a 5 percent pay cut and benefits such as paid holidays.

Merchant's attitude mirrors those of CEOs across the country. They want to make sure the economy is growing robustly before they commit to new hiring. Yet the economy won't achieve liftoff unless consumer demand picks up, and that won't happen until unemployment falls.
The article continues by discussing what it means for Hope Global to "not be hiring":
Hope's advantage is its ability to shift production to low-cost countries when price is a big issue. It does that now with the SUV cargo nets. Workers at the Rhode Island plant, who earn more than $11 per hour, produce the basic material, then send that to a plant in Leon, Mexico, where workers making about $3 an hour hand-weave the finishing touches. The nets are then sold to auto parts suppliers.

If Merchant hires this year, it will be largely at Hope Global's plants abroad. She added 20 workers in Mexico in December. If the economy picks up, she hopes to open a plant in Shanghai to make knitted steel that's used to reinforce the rubber seals of car doors and trunk.
In other words, her company is hiring - just not in the U.S. - and contrary to the article's thesis a strong rebound of the U.S. economy won't cause it to hire domestically but instead it will open a new plant in China.

That approach is far from a surprise in this era of globalization. She can produce products with a much higher margin in her foreign factories, and hopes to sell those products in the domestic market. If she's lucky, her products will find growth markets overseas, and she will be able to generate significant profits for her company even if the U.S. market remains stagnant. Her company may be small, but large companies think the same way. If their biggest opportunities for expansion and higher margin sales lie overseas, odds are that's where they'll do most of their hiring and expansion.

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