It's easy to
identify the casualties of free trade in North Carolina. But who's
winning? Who has benefited, so far, from a global economy?
Anyone who wears clothes, for one.
The price of men's clothing in the United States has dropped 8
percent since 1997, as the average price of all goods and services
rose 11 percent.
The Research Triangle is another winner, with its concentration
of pharmaceuticals and high tech. Trade agreements provide patent
protection for drug, software and other knowledge-based products, to
the benefit of such companies as GlaxoSmithKline and SAS Institute,
which derives 50 percent of its revenue from overseas.
Some traditional companies in North Carolina have also adapted,
although it has meant changing drastically.
Agile garment companies that can deliver products within weeks of
an order will have a leg up on producers in Asia or Central America,
where orders may take months to arrive. As will specialized
factories, such as the Brooks Brothers plant in Clinton that sews
fitted shirts for customers who have had their bodies digitally
mapped in three dimensions at the company's flagship store on Fifth
Avenue in Manhattan.
One of the most agile companies is VF Corp. of Greensboro, the
country's biggest maker of jeans (Lee, Wrangler, Rustler, Brittania
and others) and a big supplier of intimate apparel, swimsuits and
outdoor wear.
"VF is in a class all its own," said Kay Norwood, a longtime
textile and apparel analyst. "It stands apart for its brand
management and technology."
To survive in a world where the clothing prices are dropping and
the competition -- in style, variety and price --is fierce, VF has
turned to savvy marketing, advertising and a strategy it calls
"retail-floor management." VF employs massive databases and clever
software to track sales and stock product on a store-by-store basis,
whether it's J.C. Penney or Wal-Mart or Dillard's.
"When consumers walk in the door, the product they want is
waiting for them," said Cindy Knoebel, VF vice president for finance
and public relations.
But smart technology goes only so far in the apparel business.
"At the end of the day, the largest component to making apparel
is labor," Knoebel said.
VF has closed or plans to close 21 high-cost North American
factories in 2001 and 2002 and continues to shift production to
lower-cost factories in Mexico, the Caribbean and Asia. At least
2,500 VF workers have lost their jobs in North Carolina. When those
plant closings are final, VF expects that just 15 percent of the
products it sells in the United States will be made domestically,
down from 70 percent in 1996.
"Nobody likes to shut down a U.S. plant," Knoebel said. "If there
is a better alternative, we'd like to keep it here."
VF's biggest customer, Wal-Mart, maintains constant pressure on
VF to deliver jeans and shirts at the lowest prices.
Wal-Mart may be the United States' biggest winner in the realm of
global free trade.
Wal-Mart is the world's largest retailer and the nation's largest
employer. If founder Sam Walton were still alive, he'd be the
richest man in the world. Forbes magazine ranks his widow and each
of his four children among the world's 10 wealthiest people.
VF developed its retail-floor-management capability in tandem
with Wal-Mart in the 1980s. In effect, VF sets up and manages
Wal-Mart apparel departments.
"Pressure on prices, that's their credo," Knoebel said. "That's
what they offer consumers, and it keeps us sharp. We don't always
like it, but ... "
In February, Wal-Mart moved its global purchasing center to
Shenzen, a boomtown in southern China near Hong Kong. Wal-Mart buys
about $10 billion worth of goods from China a year.
One huge winner from free trade agreements is China, which was
admitted to the World Trade Organization in 2001. Multinational
corporations have flocked to invest in or buy goods from China,
drawn by its massive pool of inexpensive labor.
The World Bank estimates that China will control 47 percent of
the world's clothing exports in 2005, up from from 18 percent in
1995.
Among the U.S. industries scrambling to adapt to the Chinese
challenge is furniture manufacturing. North Carolina is the nation's
largest furniture producer, and the industry employs about 65,000
workers in the state (down more than 10,000 from two years ago).
Over the past five years, China's furniture imports to the United
States have grown by 36 percent each year, and China is now the
biggest exporter of furniture to the United States.
The corporate owner of much of North Carolina's furniture
industry, Furniture Brands International, has placed its bet firmly
on China. Furniture Brands sells its wares under the names Broyhill,
Thomasville, Drexel Heritage, Lane and Henredon.
Last year, Furniture Brands closed 12 U.S. plants and cut 20
percent of its U.S. work force, including more than 1,300 workers at
plants in Drexel, Black Mountain, Morganton and West Jefferson.
Meanwhile, the company has contracted with five furniture companies
in China and Taiwan to supply parts and finished furniture.
Part of China's appeal is that its factories are modern and
efficient, Furniture Brands' chief executive officer, Mickey
Holliman, told the financial weekly Barron's last year.
But, he added, "Lower labor costs are the main reason for the
attractiveness of imports. Over there, laborers make 30 to 40 cents
an hour, live in dormitories and work seven days a week."
And Chinese companies don't bear other costs that American
companies do: air- and water-pollution rules, worker-safety
standards, Social Security taxes and the like, furniture industry
analyst Jerry Epperson said.
Epperson also said China has different economic priorities. In
the United States, a company's goal is profit. Layoffs are part of
doing business.
In China, one of the government's main goals is to support job
creation to head off social unrest: Unemployment is expected to top
15 percent in the coming years, according to the Chinese Academy of
Social Services.
"They need industry, they want to employ people," Epperson said.
Tom Culbreth, a furniture industry expert at N.C. State
University, said that despite the threat from foreign competition,
North Carolina's furniture industry has some advantages that he
thinks will help it survive.
"We've got proximity to raw materials, we've got proximity to
consumer market, and imports are now as cheap as they are ever going
to be," Culbreth said. "The furniture industry will diminish, it
will not disappear."
Workers will lose jobs, he said, but companies will remain
profitable.
"What is clear is that they continue to operate profitably, but
they shift operations overseas," he said. "This is not a phenomenon
restricted to furniture. All manufacturers are shifting product
overseas."
China's challenge to U.S. workers is not limited, however, to
traditional manufacturing sectors such as textiles, apparel and
furniture.
General Electric, IBM, Motorola and Microsoft have all opened
research centers in China recently. Intel is assembling its Pentium
4 chips there, and Dell Computer is building computers. DuPont,
Emerson Electric and dozens of other Fortune 500 companies have
moved production to China.
The steady move of manufacturing operations offshore troubles
many experts in the United States. Discussions with engineers or
analysts or academics about the effects of free trade invariably
lead to the question of whether the United States is hollowing out
its industrial economy.
"We are, rightly or wrongly, a country of haves and have-nots,"
said Norwood, the textile analyst. "We are creating service-industry
jobs. I don't know what will happen to this country if we rely on
other countries for our manufactured products."
Russ King, an industrial engineering professor at N.C. State,
also finds the trends worrisome. "How much of the manufacturing base
can we afford to give away?" he asked. "The country as a whole
cannot be a service economy. We need to make things."
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Photo gallery: No end in sight to
N.C. job losses.gif){kind=spacer}
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