Posted by In-Cog-Nito on January 19th, 2004 (All posts by In-Cog-Nito)
My last client was for a spin out of a small manufacturing business of an oil equipment giant. This subsidiary’s business isn’t really related to the parent’s, so they’re trying to create value through an IPO. I was there for the diligence part of “due diligence”, so really got to know the operations inside out. (The cynic in me says the partners are there for the “due” part, which is to collect the bills due, but that’s another story in itself.)
One thing that really stuck out in my mind through this assignment was that this was one of the last great American manufacturing jobs left. By which I mean a relatively uneducated employee could start on the company’s manufacturing line with a salary of around $22,000 a year, and work their way up. With hard work and patience, they could eventually work their way into a skilled job up the line with a respectable annual salary of $50,000 – $70,000 a year. Granted it would take many years, but it’s an accessible on-ramp into middle class for literally someone with a high school education. If the person were really dynamic and had the brains, they could even swing themselves into a management position at some point. The company had good benefits, including retirement and all the usual goodies. In a nutshell, a worker’s paradise for lack of a better term.
Looking over what they do and what they make, there isn’t really anything – save social responsibility on the company’s part – to stop them if they wanted to transplant their entire operations to China or India. They would save a bundle on labor costs, and given the highly automated nature of their machines, you really don’t need that much skill on the part of the workers. At the very least, none of the skills involved are above the aptitude of an eager Chinese or Indian. The double edge sword of modernization is also that since you want to make everything automated and dumb it down to the n-th degree to maintain high quality, you get to a point where you can literally take the brain out of the equation. So pay a Chinese or Indian $100 a month, and you decrease your biggest operating expense by more than 90%.