Thursday, April 18, 2013

Manufacturing in London, ON: Lots of reasons for decline

This post has been attracting a lot of attention, but not from Londoners, from people surfing the net searching for information on why Southwest Ontario cities, and others, are fighting stubborn unemployment numbers. Here are the threats to employment noted in the following blog post:

  • outsourcing
  • obsolete technologies
  • business mergers
  • automation
  • reshoring

For more details, read the rambling post.

There was an interesting article in The London Free Press on the 9.6 percent unemployment rate in my Southwest Ontario city. To understand this distressing number, the article instructs us, "Look at your shoes." I did. Well actually, I looked at my granddaughter's — at her Crocs.

My granddaughter's Crocs cost $36.35. Why can't these be made in Canada?

The collapse of the shoe making industry, both locally and across the region, was being used by the writer to illustrate the implosion of local industry under the continuing pressure of outsourcing, the moving of jobs offshore. "Globalization happens," we're told.

The writer justifies the outsourcing, telling us, "Check out the rows of stitching . . . " Making shoes is labour-intensive piecework requiring workers to cut, stitch and glue materials.

Made in China. Why?
I looked again at my granddaughter's Crocs. I found them to be mainly one piece of molded, soft, pink plastic carrying a Disney fairy tale motif on the toes and a simple, white strap at the heel. Could this shoe not be made in Canada, I wondered.

I found the answer in The Free Press article itself, and the answer is yes. The writer tells us injection-molded footwear is a Canadian success story. Think of Kamik brand boots by Genfoot or the Kodiak brand boots under the control of Williamson-Dickie, Fort Worth, Texas. Some lines of both the Kamik and the Kodiak boot brands are made in Canada.

Made in China, full price of $39.99 only drops to $36.35 online. Incredible!

Did you notice an American company owns the Kodiak brand today? Buy a Canadian made Kodiak boot and support a company in Texas. Makes you think.

I started this post to investigate outsourcing. Globalization may happen but should it? We're told companies outsource to stay competitive. The resulting globalization keeps prices low, making products cheaper to buy by those consumers who still have jobs.

I think of my granddaughter's Crocs again: $40. And I think the argument that outsourcing is done to help the consumer may also be a crock.

There are, of course, more examples of stuff made offshore but still selling at a premium price. I am sure you, the reader, can think of some. We're all familiar with stuff like shirts, pants and sweaters now made in China or Bangladesh or Mauritius which seem to cost just about what they did when they were made in Canada.

I googled the idea that globalization is not all it is cracked up to be. I discovered Yunchuan "Frank" Liu, a professor of business administration at the University of Illinois. Liu says consumers are paying artificially higher prices for many goods thanks to outsourcing. Liu was quoted by the university News Bureau:

"Outsourcing is a topic that affects just about everyone, and the general consensus is that it's bad because American workers will lose jobs because of it," he said. "Most people only focus on the job-displacement angle, but very few people have questioned how it affects consumers and competition in the marketplace."

Liu discovered some firms "are unwilling to pass along the savings they've reaped from outsourcing production and labor . . . " If you want to know more, click the link: Study.

While outsourcing may not always provide the promised benefits, it always delivers the promised pain. And outsourcing does not always mean moving jobs offshore. Sometimes it can mean moving jobs from say London to another place in the province.

For instance, there was a time when a subscriber calling The London Free Press to report a missed paper reached a circulation employee working out of the York St. building. I believe London lost more than a dozen jobs when the paper outsourced that work to a group in Ottawa.

The newspaper graphics department didn't go as far when it was outsourced. The in-house department was closed, the work moved to Woodstock and the staff offered their old jobs back but at a reduced wage with reduced benefits.

Sometimes outsourcing can be done simply by firing staff and finding others willing to perform the same work for less. At one time The London Free Press owned a fleet of trucks for delivering the paper. The drivers were all Free Press staff, the trucks were maintained on site by company mechanics working in The Free Press garage. Today, the trucks and their drivers are outsourced, the company garage is closed and all the mechanics are gone. Again, high paid jobs have been eliminated and the jobs that remain are poorly paid in comparison with the past.

But outsourcing, be it local or global, is not the only thing killing jobs in London. To outsourcing, we can add the following:
  • obsolete technologies
  • business mergers
  • automation
  • reshoring

The Free Press can be used to illustrate the next two job killers.

When I started in the newspaper business a huge back shop brimming with staff was required to put out a daily paper. For instance, there were Linotype operators tapping out stories in molten lead. The computer made the Linotype machines obsolete and then, almost overnight, made almost every other job in the back shop obsolete. Today you can count on your fingers the people left working in The Free Press back shop. Dozens of jobs have been lost and they won't be coming back; They're obsolete — gone like the buggy whip.

The next job killer is the company take-over. This merging of businesses, often competitors, is always claimed to offer the benefit of synergies. The Free Press was taken over by Sun Media. The Free Press suffered a layoff. Sun Media was absorbed by Quebecor. The Free Press and Sun Media suffered layoffs. Sometimes I think synergy is just a fancy name for job cutbacks, layoffs.

Then there is automation. More and more robots are showing up on the factory floor. They paint, they weld, they lift, move and mix. These jobs are also gone for good. Some were dangerous, many were tedious, all are done better by machine. A robot now wields the spray-gun in electro-static spray booths and even some old-time painters are glad to see that job taken over by a machine.

Reshoring is the last cause of job loss and it is especially prevalent in London. Electro-Motive Diesel is a prime example of reshoring. EMD moved a lot of jobs from La Grange, Illinois, to London in the about two decades back. To the thousands and thousands of La Grange workers left unemployed by the move, London represented an outsourcing destination. With the U.S. in the midst of a "Buy American" movement, and with the Canadian dollar trading at par with the greenback, the time was right for the reshoring of EMD.

London wants to attract new businesses to the community. To this end, depending upon whose numbers you believe, up to $19 million in taxpayer money has been used to entice Dr. Oetker into setting up shop in London.

Funny, isn't it? Dr. Oetker, with reported revenue of €7.7 billion and with 23,000 employees worldwide, needed $19 million to be coaxed into locating in London. I recall a time when London businesses located in London because the business owners lived here. They didn't have to be paid to build their plant in their hometown; they just did it. It as logical. And they didn't demand to be paid to locate here but they gave, and gave generously, in support of their hometown.

The closed McCormick biscuit and candy factory in London.
Think of Thomas McCormick, founder of McCormick's Biscuits and Cookies. The word philanthropist comes to mind as one recalls the McCormick Home also founded by Thomas McCormick.

Now, think of Marc Leder, the fellow many claim closed the McCormick plant leaving the remaining staff unpaid, their pensions unhonoured. The word philanthropist, at least here in London, does not come to mind.

Many Londoners don't realize McCormicks brand candy is now made in Brazil.

The McCormick plant is closed, damaged by fire a few months ago it may well be demolished. But the McCormick brand of candies is still going; The candies are made in Brazil and imported into Canada by a company in Laval, Quebec. Some bags show a picture of the old London plant and others carry a write-up detailing the McCormick history.

London's biscuit and candy factory died from changes in ownership and the resulting supposed synergies. It died from outsourcing. And there are those who would argue one more cause must be added to the list: greed.

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