How to Deal With Your Foreign Competition

Indiana is about a lose a plant to Mexico. Lately, Mexico has been scooping up its share of business investment deals. Maytag headed south of the border not long ago. Many others have made similar decisions because of cost advantages offered by a Mexican location, especially for manufacturing.

Let's look at the Indiana deal.

Alpine Electronics Manufacturing in Greenwood, Indiana announced earlier this week that it will move its production lines next year to a plant in Reynosa, Mexico, eliminating 195 local jobs.

One way to compete with low-priced foreign labor is to boost productivity, but Alpine executives said they had increased efficiency for several years and still had to cut costs further to ensure the company’s survival. This is an important point that we should be listening to--productivity growth itself is not enough.

The wage difference is so great that tax breaks and other common incentives offered to businesses are not sufficient to make up the difference. According to various sources, a manufacturing job that pays $10 per hour or more in the United States might pay the equivalent of less than $2 in Mexico and less than $1 in China and other Asian countries.

Some of these losses are inevitable. We can never lower our costs enough to hold onto some projects. Moreover, we shouldn't even waste our scarce incentive dollars are projects that have Mexico or China written on them. There are many projects that we can keep and attract though. These are deals where quality, technical service, market access, security, political stability, and image matter. There are still many of these deals out there.

Here is a new idea for your consideration. I think we should be considering a strategy in every state that rewards companies that continue to produce in U.S. communities. Maybe it's a new shared tax credit by state goverments and the Federal Government for manufacturing companies that retain and expand existing operations or invest in new ones. The shared credit could be quite powerful if we can convince the states and Washington to work together on it.