BUSINESS

We're in the middle of presidential primary season and hearing a lot about how 'bad' American businesses are moving their manufacturing plants overseas and/or using  foreign suppliers.  Here's what you need to keep in mind when you hear this..

We're talking about large businesses now.  Businesses that do manufacturing.  These businesses are public entities owned by stockholders.   Thousands of people will hold some interest in any single company - through stocks or their 401-K or IRA or pension fund.  Of course, the stockholders allow executives to manage and oversee the business for them.  These people are charged with the goal of making money - giving everyone a return on the investment they made.  Stockholders give money to the company when they buy the stock and they want to get more money back when they sell their stock - it's that simple.  The company uses the money (the money the stock buyers gave them) to finance the business; buy land and facilities, buy machinery and equipment, buy raw materials and pay people to work - all the things a business does.

All businesses have competition.  Since people are apt to buy the less expensive of two items of perceived equal quality, each business must strive to produce their product at least as cheaply as their competitor.  Being the low-priced producer insures a business that it can survive in the marketplace.  To be that low-priced producer, a business must have competitive facilities, cost-effective manufacturing machinery, low price raw materials and a competitively priced work force.

Now, when one business in an industry decides to go out of the country to lower it's cost in one of those areas, it can gain a price advantage over all its competitors.  The other businesses must find a way to lower the cost of some part of their business or make less money to stay competitive (be careful you're not lowering the quality of your product).  If a business starts making less money, the value of the stock goes down - the business has less money to work with - stockholders are angry - executives get fired.  It happens every day.

If you were the executive in charge of a business like this, what would you do?  Plead to your customers to pay more for your product because it is made in the USA or go outside the country in search of less expensive facilities, machinery, raw materials or workforce?  Good luck.

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