Overseas production

It’s well known that many U.S. companies have shifted some of their production to other countries, and there’s a general assumption that this has been done to reduce labor costs. Does this appear to be the actual major reason? N.C. State University economist Mike Walden responds.

“Well, let’s look at the numbers. If we look at U.S. companies that have facilities both here in the U.S. as well as worldwide, what we find is that the bulk of these so-called multi-national companies that are headquartered in the U.S. still have most of their operations here in the U.S.

In fact 70 percent of their operations are still here in the U.S. The second highest percentage of multi-national corporations that have their production in other high wage countries — and I would include Europe and Japan — and here that’s about 20 percent of their operations.

Only one percent of their production is in low-wage countries. So really, the answer  is no we don’t see the bulk; in fact, we see a very miniscule amount of production of U.S. multi-national companies having production in low-wage countries.

And you might say, ‘well, why, why wouldn’t they take advantage of that cheap labor?’ Well, I think that the reason is because there are a lot of other things that attract a company to set up operations in a particular country — not just what they have to pay the labor — but also how well those workers work, their productivity, the infrastructure. That is, are there railroads? Are there good bridges? Are there good airports they can use to move their products out of the country as well as access to their suppliers and access to their buyers?

So, yes we have seen a change in the world where companies do have operations around the world. But cheap labor — at least based on these statistics — doesn’t seem to be the big drawing factor.”