$ 7.25 does seem a tad low

[rjwjr]

Re: $ 7.25 does seem a tad low

That was a rather glaring oversight on my part. I'm humbly sorry for it. The truth is, I don't know much about what happens across the border, and I read the data table wrong. It seemed to jive with what I heard from rwjr here, who operates a business in Mexico and said most people were paying $6/hr. But I was way off here.

You called yourself the resident Mexican in the thread I link to above. I for one am glad you're here to set the record straight.

Sorry for any confusion, but my figure was NOT base pay, it is "fully loaded" which includes benefits, employment taxes, etc. I look at the amount from the perspective of an employer (what I have to pay in total to employ an individual), not from the perspective of the worker (what they receive, minimum wage or other). Uncle Sam (y Tio Sam) is the expensive middle man.

For what it's worth, we should be producing in Mexico within 5 months.

[rjwjr]

Re: $ 7.25 does seem a tad low

I don't know how people can argue against a minimum wage. No minimum wage could work in a perfect world, but in a country where businesses already hold all the cards, how do you reckon it would turn out? Everyone would have a job. And another. And another. And another on top of that because they are now making 50 cents an hour.

Let's say you've been paying $5 for a joint (I don't know the going rate, but you probably do so don't let my marijuama ignorance negatively affect my overall point). Let's say I sell joints. Let's say I haven't raised prices in 10 years because of an abundance of other's selling joints at $5 also. Let's say my father becomes a congressman and he gets a law passed to raise the price of joints to $8 each because I haven't been able to raise prices myself for the last 10 years. You'd be pissed.

Same thing with jobs and the minimum wage in my opinion. If there are plenty of people willing to work for $7.25/hour then that's what the market will pay. It's not a result of evil business owners. During the housing boom and resulting low unemployment, I had to raise my starting pay to well above minimum wage because that's what the market required. I don't remember anybody proclaiming that it was unfair to business owners that they were being forced to pay over the minimum wage...not even business owners. That was simply the free market at work...and it was as fair as could be to all parties.

Today, there are plenty of people willing to work for $7.75/hour. Why is the government even involved? If I have a job at $7.75 and I have 5 people freely willing to work that job at $7.75, then that's all that matters. If I offered $6/hour, I may not get anybody interested. If I offer $15/hour, I'll likely have hundreds interested. If we polled this site, we'd also likely get answers from $0 to $20 and everything in between as to the "right" minimum wage. All of those would be merely opinion. The right answer is the agreed upon wage between worker and employer as determined by market forces.

[dcarrigg]

Re: $ 7.25 does seem a tad low

Sorry for any confusion, but my figure was NOT base pay, it is "fully loaded" which includes benefits, employment taxes, etc. I look at the amount from the perspective of an employer (what I have to pay in total to employ an individual), not from the perspective of the worker (what they receive, minimum wage or other). Uncle Sam (y Tio Sam) is the expensive middle man.

For what it's worth, we should be producing in Mexico within 5 months.

There should have been no confusion. You said that explicitly. Somehow, I didn't remember it that way though, that is, until I went back and found the thread.

[GRG55]

Re: $ 7.25 does seem a tad low

Sorry for any confusion, but my figure was NOT base pay, it is "fully loaded" which includes benefits, employment taxes, etc. I look at the amount from the perspective of an employer (what I have to pay in total to employ an individual), not from the perspective of the worker (what they receive, minimum wage or other). Uncle Sam (y Tio Sam) is the expensive middle man.

For what it's worth, we should be producing in Mexico within 5 months.

Elsewhere you made a comment that you felt that moving to Mexico was a "first step" and all the big boys (GM et al) had done the Mexico thing and moved on to China, Korea, Vietnam in search of lower labour input costs.

First observation: Don't underestimate how susceptible the executive management committees of big companies can be to fads. There is tremendous pressure put on them by investment analysts and their own institutional shareholders to do what their competitors are doing. If their competitors are downsizing then they better announce a "restructuring" program. If their competitors have started on a mergers and acquisition strategy, then buy golly it's time to fire up the spreadsheets and "run the ruler" over takeover prospects. If the folks down the street are outsourcing, then that must be the thing to do. Management consultants and investment bankers thrive on the fact that there are actually very few really independent thinking, strong willed executive teams that will go against the popular mythology of the day.

Ever wonder why, when an industry sector gets into serious financial difficulty, pretty well every major player is in the toilet at the same time? They are mostly all in the same situation at the exact same time because they all hire the same idiot management consultants and pay fees to listen to the same self-serving investment bankers for advice.

Unfortunately none of us will ever have access to the information to verify this, but I suspect that few, if any, of the North American companies that outsourced to China met their expectations, targets and investment costs that were projected when the decisions were made. A recent anecdote:

Mon Jan 28, 2013 3:49pm EST

(Reuters) - Caterpillar Inc (CAT.N), the world's largest maker of construction equipment, posted a 55 percent drop in quarterly profit on Monday and set a cautious tone for the year, citing weak demand and oversupply...

...Caterpillar still has an oversupply of products in China, and executives said they hope to sell some of it by June.

Quarterly results were hit by a charge of 87 cents per share after the company discovered accounting fraud at a Chinese coal mining supplier it bought last year.

In a somber note on the global economy, Caterpillar said the "most significant favorable factor" for 2013 profit will be the absence of the ERA accounting fraud writedown, not increased demand for its machines...

...Caterpillar closed the purchase of ERA Mining Machinery Ltd and its subsidiary Siwei, China's fourth-largest maker of hydraulic coal mine roof supports, last June for $653.4 million (HK$5.06 billion).

After the deal closed, Caterpillar found that physical inventory did not match accounting statements, a discovery that led to the charge...

...Citigroup Inc (C.N) and law firm Freshfields Bruckhaus Deringer LLP served as financial and legal advisers to Caterpillar on the transaction. Blackstone (BX.N) and DLA Piper acted as ERA's financial and legal advisers...

...A source directly involved with the Caterpillar deal previously told Reuters that RSM Nelson Wheeler was ERA's auditor, while Deloitte and Ernst & Young acted on Caterpillar's side...

Not one, but TWO auditors advising CAT on the deal, and apparently neither of them can count. Physical inventory shouldn't be rocket science to verify. So what has really happened may never be made public. Peoria starts to look pretty good as a place to own assets, conduct operations and have employees after all...

Second observation: I find your choice of Mexico interesting. I am hearing of more US and Canadian companies that are choosing to locate production to Mexico instead of Asia. The rising cost of labour in Asia, the increasing cost of energy to transport goods, the language difficulties, the lack of a secure legal structure to protect patents and proprietary information, and the levels of institutional corruption and fraud all seem to be playing a part in this (or it could be just the latest fad?).

However, if there is substance to these reports I wonder if this is another step down the path to breaking up global trade into the three regional trade/currency blocks (NAFTA, Eurozone, greater Asia) that jk has speculated about in a few posts during the past few years...

[radon]

Re: $ 7.25 does seem a tad low

I don't think there should be jobs that "American's won't do." That's part of the problem. If there continue to be jobs that "American's won't do" then how does it end? There shouldn't be jobs like that. Any job, even the most menial teaches responsibility, accountablilty and some type of skill, giving you knowlege to achieve the next stepping stone.

It isn't the nature of the work, it is the price point. I used to get a kick out of the supposed shortage of developers and calls for HB1 expansion. There were always plenty of experienced candidates, but they simply weren't willing to work for peanuts or stay in a dysfunctional environment for years.

Americans will do pretty much anything if it pays well. On the other hand it can be difficult to find people who are willing to tear shingles off a roof in 90 degree weather for 50 bucks a day, and not necessarily because they have an aversion to work, but that most have better prospects.

[aaron]

Re: $ 7.25 does seem a tad low

It isn't the nature of the work, it is the price point. I used to get a kick out of the supposed shortage of developers and calls for HB1 expansion. There were always plenty of experienced candidates, but they simply weren't willing to work for peanuts or stay in a dysfunctional environment for years.

Americans will do pretty much anything if it pays well. On the other hand it can be difficult to find people who are willing to tear shingles off a roof in 90 degree weather for 50 bucks a day, and not necessarily because they have an aversion to work, but that most have better prospects.

+1

It is called free markets. It is only bad when it works for people instead of corporations. Microsoft does not want to pay people what they are worth, nor do they want to spend money to train workers. So, they get Congress to OK further imports of workers. Problem solved.

[lektrode]

Re: $ 7.25 does seem a tad low

+1

Microsoft does not want to pay people what they are worth, nor do they want to spend money to train workers. So, they get Congress to OK further imports of workers. Problem solved.

+2
guess its good to be a FOB

[littleshark]

Re: $ 7.25 does seem a tad low

While it's possible, I don't think it's likely. The various athletic shoe companies moved all of their manufacturing to Asia many years ago and I don't recall ever seeing any substantial cost savings. In fact, if you don't buy the absolute lowest end junk, you'll find that the prices for the Asian-made shoes are about as expensive as American-made shoes (I'm using New Balance as a point of reference because they're the only company I know of that makes athletic shoes in the U.S.)

.

Check out page page B1 of the Marketplace section of the WSJ today, about NewBalance manufacturing in the US. I don't have subscription online so can't send the story here, but here's a link to the video online. Relevant to our discussion here.

http://online.wsj.com/article/SB1000...leTabs%3Dvideo

[Milton Kuo]

Re: $ 7.25 does seem a tad low

Check out page page B1 of the Marketplace section of the WSJ today, about NewBalance manufacturing in the US. I don't have subscription online so can't send the story here, but here's a link to the video online. Relevant to our discussion here.

http://online.wsj.com/article/SB1000...leTabs%3Dvideo

I've posted this elsewhere but I'll post it here again. The Wall Street Journal can be read for free by using Google News (the company that owns the WSJ has some sort of business agreement with Google). Just go to https://news.google.com/ and search for the title of the news article you want to read. When the search results come up, click the link to the article and you'll be able to read the entire article. This trick also works for Barron's.

Time may be running out for the last American-made running shoes.
New Balance Athletic Shoe Inc., owned by former marathoner Jim Davis and his wife Ann, is the sole athletic-shoe maker that still has factories in the U.S. Those plants churn out about a quarter of the shoes it sells domestically. The rest are imported.
The company has continued to make shoes in the U.S., even though that means settling for less profit. New Balance says the flexibility of its U.S. factories and turnaround times counted in days, rather than weeks, help make up for the higher cost. But a push by rivals to do away with tariffs on imported running shoes, as part of a larger trade deal, could finally tip the scales against its American strategy."A rapid reduction of the existing [tariff] agreements would put our factories here at significant risk," says Robert DeMartini, CEO of the Boston-based company, which is fighting to keep the tariffs in place.
Enlarge Image





The Wall Street Journal


There's a long tradition of American companies, including auto makers, fighting for trade barriers to fend off foreign competition. What's unusual in New Balance's case is that the same tariffs that benefit its U.S. plants boost the cost of the much larger share of the company's shoes that are made outside the U.S.Enlarge Image





Tim Aeppel/The Wall Street JournalWorkers at New Balance's factory in Skowhegan, Maine.



Enlarge Image





Tim Aeppel/The Wall Street Journal


Shoe tariffs have been around since the 1930s, when the U.S. still had a large domestic shoe industry that it wanted to protect from foreign competition. But today, the U.S. imports 99% of its shoes, mostly from Asia.
New Balance, with sales last year of $2.4 billion, views tariffs as one of several factors that keep its U.S. operations viable. The company has invested in new machines and cut out waste at its U.S. plants, which together employ 1,350 people. It also helps that the company's American-made shoes tend to be pricey, retailing for as much as $275, and include designs first made popular decades ago that have been revived mainly as fashion accessories.
But even in its most streamlined form, shoe making remains relatively labor-intensive. The upshot, New Balance says, is that it still costs 25% to 35% more to produce shoes in the U.S. than it does in Asia.Shoe tariffs, which vary widely depending on things like the materials involved, add about $3 to $5 to the cost of a pair of midprice imported running shoes. While that might not seem much, New Balance says the loss of that buffer would make the economics of its American-made strategy that much harder.
If the tariffs go away, "it puts our competitors in a position to realize an even greater margin than we are," says Matthew LeBretton, a New Balance spokesman, "and they can then reinvest that in their business."The fight over tariffs comes as American manufacturing appears on the cusp of a revival, driven by forces expected to favor companies like New Balance. Wages in China have risen nearly 20% a year since 2007—prompting many producers to shift labor-intensive work to lower-cost countries, such as Vietnam. But costs are rising in other parts of Asia, as well.
A recent study by the Boston Consulting Group predicts that by 2015 there will be only about a 10% cost difference between China and the U.S. in making products such as machinery, furniture and plastics. But shoes aren't among them.Hal Sirkin, the BCG consultant behind the study, says too much labor is required to justify making all but the most-customized or expensive shoes in the U.S. "It's unlikely you'll see mass amounts of shoes made in the U.S. again," he says, adding that even two years from now it will be 17% to 20% cheaper to make shoes in China than in the U.S. The cost advantage will be even greater in Vietnam, America's second-largest shoe supplier.
Opponents of the tariffs say that the proposed trade deal would affect only a small share of U.S. shoe imports. That's mostly because China isn't one of the 10 other Pacific Rim nations, along with the U.S., that would be included in the deal. But the move would benefit Vietnam, which supplies just over 8% of America's imported shoes.Among those fighting the tariffs is New Balance rival Nike Inc., NKE +0.06% based in Beaverton, Ore. "Lower duties would let us reinvest savings in innovation and in maintaining our global competitiveness, resulting in high-paying jobs in the U.S.," says Greg Rossiter, a company spokesman. It would also help offset rising foreign labor and material costs.
Matt Priest, president of the Footwear Distributors and Retailers of America, an industry trade group, says cutting tariffs would set the stage for lower consumer prices. "There's also a fairness issue," he says. "We're taxing Americans to protect jobs that are no longer here."Carol Guthrie, a spokeswoman for U.S. Trade Representative Ron Kirk, says the Obama administration is seeking an outcome that serves "the broadest possible range of American businesses and workers." The next round of the trade talks take place next month in Singapore.
New Balance says its U.S. factories give it some advantages that help justify their higher costs. For instance, the company has developed a growing business in U.S.-made custom shoes. By going to the company's website, customers can order shoes in any combination of 26 colors of leather and five colors of fabric for nine different parts of a shoe. They also can order embroidered slogans. The custom shoes cost $115 a pair and can be delivered in four or five business days, which the company says would be impossible to do from Asia.Mr. DeMartini, the CEO, says New Balance's U.S. plants—all of them in New England—also are "twice as productive" as any of the company's Asian shoe suppliers. "We learned a lot because we had to in order to survive."
The cachet of its pricey U.S.-made shoes at least partly accounts for New Balance's surprising success in exporting from the U.S. Last year, it sold almost 10% of its U.S. production—about 700,000 pairs of shoes—abroad, up 29% from two years earlier. One of its fastest-growing markets is China, where the company has 673 retail stores and plans to open 500 more this year."The type of shoes we make here [in the U.S.] are some of the most craft-dependent and least widget-like, with premium leather and hand stitching," says Mr. DeMartini.
To be sure, few companies are as committed to U.S. manufacturing as New Balance, which the Davises bought in 1972, but which traces its origins to 1906, when it started out as a maker of arch supports. At the company's plant in Norridgewock, Maine, a sign near the entrance reads in part: "We were brought up as a manufacturing company. It is our culture."New Balance's factory in Skowhegan, Maine, is typical of its U.S. operations. Spread out over five floors, workers operate machines that cut and stitch fabric and leather. In one section, large automated stitching machines are embroidering the words "Made in USA" on shoe tongues. Many of the plant's 335 workers are refugees from other shoe companies that have closed in the region.
Ricky Eaton, 66 years old, has worked at the plant for two decades, cutting leather and synthetic materials. "It's been leather all my life," he says. "I'm a firm believer in working for a one-man owner," he says. "Otherwise we wouldn't be here now."Like many of the plant's other workers, Mr. Eaton is convinced that what is saving jobs like his is New Balance's status as a privately owned company, less susceptible to some of the pressures of global business. "Once the corporations get it," he says, "it's all about numbers."Write to Timothy Aeppel at timothy.aeppel@wsj.com

[Milton Kuo]

Re: $ 7.25 does seem a tad low

Some of the comments from shoe manufacturers that make all of their products in Asian countries are rather disingenuous. From a Nike: "Lower duties would let us reinvest in savings in innovation and in maintaining our global competitiveness, resulting in high-paying jobs in the U.S." I guess the high-paying jobs are for professional athletes who endorse the shoes and Nike's executive management team? This dynamic is a key driver behind the tremendous wealth disparity in this country. The people who are displaced from such jobs can't just emigrate to a less expensive country. Meanwhile, the quality of Nike's products are rather poor and the price of the shoes are hardly what I would call low.

Footwear Distributors and Retailers of America: "We're taxing Americans to protect jobs that are no longer here." It would seem to me that putting a tariff on shoes should encourage more jobs to migrate to the U.S. If the Asian manufacturers are to compete, force them do so on quality rather than race-to-zero, coolie labor.

I wouldn't have a problem with off-shoring if the countries to which we off-shore did things as well as or better than us. However, it has been my my experience that every product that has had its manufacturing sent to the nations who are famous for low labor costs (and little else) results in a product that is so cheaply-made that I will no longer buy from that company unless there is no high-quality substitute.

Going back to New Balance, I have purchased New Balance shoes that are made in the U.S.A. and one pair that was not. The pair that was not made in the U.S.A. had a quirk that I have never encountered in my life before: the stated size is not consistent with every other shoe from every other manufacturer. It has been my experience, especially with sneakers, that if a person wears a size 8, he can buy a size 8 shoe from any manufacturer and have it fit. The foreign-made New Balance shoe was a full size smaller than it should be. Meanwhile, the American-made New Balance shoes fit exactly as they should have.

Likewise, I have (or rather, had) a pair of Levi's made somewhere in Asia (probably China.) It is the first pair of jeans I have ever purchased where the length of the jeans was too short even though I purchased for the correct inseam and did not yet wash the jeans.

The low quality of products made in low-cost Asian countries annoys me so much that I've been forced to buy fairly expensive, high-end stuff just avoid the inevitability of having crappy Asian product fall apart on me. I'm currently in the market for a pair of good shoes and have decided to go with Maglis or Ferragamos; everything else I saw seemed to be made in India and the quality was abysmal.

[littleshark]

Re: $ 7.25 does seem a tad low

Some of the comments from shoe manufacturers that make all of their products in Asian countries are rather disingenuous. From a Nike: "Lower duties would let us reinvest in savings in innovation and in maintaining our global competitiveness, resulting in high-paying jobs in the U.S." I guess the high-paying jobs are for professional athletes who endorse the shoes and Nike's executive management team? This dynamic is a key driver behind the tremendous wealth disparity in this country. The people who are displaced from such jobs can't just emigrate to a less expensive country. Meanwhile, the quality of Nike's products are rather poor and the price of the shoes are hardly what I would call low.

Footwear Distributors and Retailers of America: "We're taxing Americans to protect jobs that are no longer here." It would seem to me that putting a tariff on shoes should encourage more jobs to migrate to the U.S. If the Asian manufacturers are to compete, force them do so on quality rather than race-to-zero, coolie labor.

I wouldn't have a problem with off-shoring if the countries to which we off-shore did things as well as or better than us. However, it has been my my experience that every product that has had its manufacturing sent to the nations who are famous for low labor costs (and little else) results in a product that is so cheaply-made that I will no longer buy from that company unless there is no high-quality substitute.

Going back to New Balance, I have purchased New Balance shoes that are made in the U.S.A. and one pair that was not. The pair that was not made in the U.S.A. had a quirk that I have never encountered in my life before: the stated size is not consistent with every other shoe from every other manufacturer. It has been my experience, especially with sneakers, that if a person wears a size 8, he can buy a size 8 shoe from any manufacturer and have it fit. The foreign-made New Balance shoe was a full size smaller than it should be. Meanwhile, the American-made New Balance shoes fit exactly as they should have.

Likewise, I have (or rather, had) a pair of Levi's made somewhere in Asia (probably China.) It is the first pair of jeans I have ever purchased where the length of the jeans was too short even though I purchased for the correct inseam and did not yet wash the jeans.

The low quality of products made in low-cost Asian countries annoys me so much that I've been forced to buy fairly expensive, high-end stuff just avoid the inevitability of having crappy Asian product fall apart on me. I'm currently in the market for a pair of good shoes and have decided to go with Maglis or Ferragamos; everything else I saw seemed to be made in India and the quality was abysmal.

All my shoes are Ferragamos, so I highly reccomend their product!
And my running shoes are New Balance! (not to say I haven't had good Nike product over time as well)

From reading the story and watching the video, it seems that a private company like New Balance has to choose to make some product in the US and face lower profits on that stuff and they're able to do that because they don't have impatient stockholders looking only at profits and margins.
I agree the comments from Nike creating high paying jobs here with lower tariffs seems disingenuous at best. (Nike wants lower tariffs because they are facing increased costs for labor and need to be compensated somehow, why not go to your politicians for it, right?)

Seems like the workers at NewBalance have competed by much improved productivity with innovation in their manuf process. The question is at some point wage inflation abroad with less efficient employess shifts the balance of power back to US manufacturing who because they have to compete against this have become much more productive. It's a long process, many years, in fact. The race to the bottom in wages, where China is now losing out to places like Vietnam, will create an environment where unless they develop some domestic demand for their product they lose, and the circle goes back to higher paid Americans who are much more productive and we have a manufacturing renassaince. I think it's possible. But the competition is good as long as there isn't massive protectionism by one side or the other. Capitalism works even globally over time I beleive, but the governments involved on both sides along with massive cronyism create huge distortions which makes the process of losing jobs and then reclaiming them longer than they need to be. The minimum wage is part of this govt involvement lengthening the process I beleive.

[GRG55]

Re: $ 7.25 does seem a tad low

...However, it has been my my experience that every product that has had its manufacturing sent to the nations who are famous for low labor costs (and little else) results in a product that is so cheaply-made that I will no longer buy from that company unless there is no high-quality substitute...

...Likewise, I have (or rather, had) a pair of Levi's made somewhere in Asia (probably China.) It is the first pair of jeans I have ever purchased where the length of the jeans was too short even though I purchased for the correct inseam and did not yet wash the jeans...

What you are witnessing with the Levi's is the corruption and fraud that manufacturers are having to deal with in Asia, especially China. It's not possible to inspect every pair of jeans in every container-load that arrives at Port of Long Beach. So the Chinese suppliers short the shipments, and play other games to increase their own margins. It's rampant, and almost everyone who has a business that deals with the Chinese will have a story like this to tell (including me). Running a "third shift" to make knock-off copies of designer clothes is common and these clothes are shipped to retail stores in countries where the franchise holders are equally corrupt and won't hesitate to buy the knockoffs and put them on their racks (Middle East, Africa, Central Asia, etc).

Japan, and later South Korea, figured out that they had to improve the quality of their products or they couldn't sell into western markets. Today's Toyota or Hyundai automobile is of far greater quality than what those companies were exporting in the 1960s or '70s. China and the rest of SE Asia has to go through the same learning and growth curves. The question is whether China does it in one-third the time it took Japan, or if the corrupt behavior which starts at the top of their political food chain is so deeply engrained in their entire society that they take decades to grow out of it...

[radon]

Re: $ 7.25 does seem a tad low

The low quality of products made in low-cost Asian countries annoys me so much that I've been forced to buy fairly expensive, high-end stuff just avoid the inevitability of having crappy Asian product fall apart on me. I'm currently in the market for a pair of good shoes and have decided to go with Maglis or Ferragamos; everything else I saw seemed to be made in India and the quality was abysmal.

This is a similar story to Xtratufs. Once production went to asia quality plummeted and everyone began to look for alternatives. It might cost them more than they think as I don't know anyone who is planning on buying another pair at this point.

[astonas]

Re: $ 7.25 does seem a tad low

Ever wonder why, when an industry sector gets into serious financial difficulty, pretty well every major player is in the toilet at the same time? They are mostly all in the same situation at the exact same time because they all hire the same idiot management consultants and pay fees to listen to the same self-serving investment bankers for advice.

Sorry to hijack this thread, but I've noticed this as well, and would love to hear if you think this is a necessarily emergent property of being accountable to shareholders, with a focus on risk-minimization through external (consultant) verification, and short-term, rather than long-term accountability. Do you see a path that a distributed-stakeholder corporation can take to avoid this behavior, other than "never go public?" I could really use some advice on this point.

[aaron]

Re: $ 7.25 does seem a tad low

Chinese are profit driven to the bone. It does not matter how they get there. If Westerners stop buying poor quality items, they will just make and promote higher quality ones. In fact, I do believe the government is taking steps in that direction. They have already promoted the idea of moving higher up on the value chain.