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Why the U.S. has trouble competing: when U.S. companies are forced to pay more for raw materials, equipment, and labor, they have to figure out other ways to compete.

The United States has been making steady progress in overall productivity over the past several years. Unfortunately, even with these productivity improvements, our ability to compete in world markets remains severely constrained because of the pricing of goods and services. Simply stated, U.S. based companies often are forced to pay more for needed goods and services than our competitors overseas.

Business travel is one example. Consider the cost of airline tickets. Managers from Alcan Packaging (formerly called Pechiney Plastic Packaging) in the United States periodically travel to our corporate headquarters ill Paris. A round-trip business class seat between Chicago and Paris costs an average of $5,200. By comparison, our French colleagues pay only $2,600 for the same seat on the same airline. There undoubtedly may be some minor differences in taxes between the two) countries but nothing to justify a doubling in the price.

From a product standpoint, there are other notable examples. Several states are now attempting to purchase U.S.-made prescription drugs from Canada because these medications are sold at sharply lower prices in that country. Similarly, motorists can cross the border from Detroit to Windsor, Ontario to purchase a vehicle at a savings of 10 to 20 percent. There is something wrong with the system when a product made in this country can be shipped to Canada, and then purchased by a U.S. customer for less than it would cost if bought in the United States.

Recent experiences at our own company further illustrate the depth of the problem. One involved the purchase of a new printing press scheduled for installation at one of our operations in 2003. The average price quoted in the United States for the press was $3.2 million. However, our purchasing department in Argentina was quoted a price 10 percent under that average, and our European division was quoted a price 15 percent below. That's for the identical machine from the same supplier!

When we questioned the price differential, the vendor responded "America can afford the difference." In other words, some companies and individuals around the world apparently view the United States as a nation of prosperity that is willing and able to pay any price for the goods and services we consume. That's wrong. And, it puts our company and other American manufacturers at a severe disadvantage when we attempt to sell our products in world markets.

Probably the most blatant example of the inequity can be found in the prices of polyethylene resins here as compared to China. As a manufacturer of flexible plastic packaging and bottles for food, health care, and specialty markets, we're a big user of this commodity. Alcan Packaging has discovered that companies such as ExxonMobil and Dow Chemical sell the same resins in China for 20 percent less than they do in the United States. The resin companies will deny they are "dumping," instead saying they are "meeting local competition."

However you characterize the pricing practice, these resins are identical to, and come out of the same reactors as, the resins we purchase to make our packaging materials. Our products then have to compete in the marketplace against packaging produced in China.

A situation in South America provides another example. In that part of the world, Alcan Packaging competes head-on with foreign producers in the production of film. The problem is that major resin producers are selling resin to our competitors in South America at sizable discounts to what they're charging us. So in effect, they are subsidizing exports to compete against us here in the U. S. marketplace.

Add the disparity in pricing of raw materials and equipment to the already existing wage differential ($22 an hour average in the United States vs. $.50 in China) and it becomes increasingly difficult for our company and other U. S. manufacturers to produce end products that can compete against imports from China and other emerging nations. The net effect of all this can be seen in certain developments taking place across a broad spectrum of out economy. It was certainly evident, for instance, in Wal-Mart's reported increase in purchases from China from $12 billion from $15 billion in 2003. (1)

What's the answer to this growing problem? How can we compete when we are paying substantially higher prices for raw materials, equipment, and labor? The solution has to be based on the quality of the products we sell, the efficiencies in our manufacturing and distribution processes, and the service we provide to our customers. Certainly supply chain professionals can make a considerable impact in each of these areas--and it's imperative for us to do so.

But there's something else that would help, too: A level playing field where no one country is singled out for higher prices on goods and services based on the unfounded assumption that they can afford it.


(1) "Wal-Mart's Procurement in China to Reach $15B in 2003," Business Daily Update, February 2003.

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David Harrison is Vice President Procurement-Americas for Alcan Packaging
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Title Annotation:Global Links
Author:Harrison, David
Publication:Supply Chain Management Review
Geographic Code:9CHIN
Date:Apr 1, 2004
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