proudlymadeinamerica.com

Oops

I want to apologize to everyone that made comments. In the handoff of the site to me, I did not glean that I needed to approve comments before they were added. I thought that I was to check the comments to remove any that were offensive. Now that I am aware of my need to, and how to, approve the comments I will be timelier in the approvals. If you have added a comment(s) and do not see it yet, I am starting to work through them, so please be patient.

I am also starting to work on getting the email straightened out. For now, if you have any questions, suggestions for a future topic, or ideas about the site you can email me at ProudlyMadeInAmerica@gmail.com.

Follow the Money

If you read the news and believe many economists, it seems that America does not need to have a strong manufacturing base to be a viable economy. The argument is that as long as we are a center of innovation the economy will be fine. There are different components of an innovation economy, but how do you show its value. To explore the innovation economy, I decided to look at the electronic and specifically the iPod. I decided on the iPod for several reasons; The iPod is the innovation of an America company, but it is manufactured in the pacific rim. The iPod has excellent market share in both the domestic and international markets. There is a great deal of data available about the iPod. The majority of information about the value distribution is taken from the paper Who Captures Value in a Global Innovation System? The case of Apple’s iPod, at http://pcic.merage.uci.edu/papers/2007/AppleiPod.pdf.

The 30GB 5th-generation iPod has a retail price of $299, with $190 of that cost being gross margin for Apple ($80), retailer ($45), distributor ($30), major component manufacturers ($34), and minor component manufacturers ($1). If the product is sold in America, then up to $163 of the gross margin goes to American companies, or about 54.5% of the retail cost. The numbers change if the distributor and/or retailer are foreign owned. The hard numbers for American companies are the $80 for apple and the $7 for the “chips”, or about 29%. This number could rise if some of the minor components had ties to American companies.

Let’s look at some numbers, if $1,000,000 worth of iPods is sold in America about $455,000 (45.5%) of those dollars leave America. To make up those dollars, Apple has to sell $1,569,000 worth of iPod in other countries to bring in 29% needed to match money leaving the country. To put it another way, Apple has to get 63% or more of their iPod sales internationally for the product to be a net positive for the American economy.

Since the point of this post is not to determine whether the iPod itself is a net negative or positive on the American economy, I will not delve into the domestic verse international sales numbers. The point is to get a “high-end” number to work with when discussing manufactured electronics. The iPod represents the “high-end” due to the relatively high gross margin they command due to name recognition.

Even with a higher gross margin, the iPod still requires almost a two to one ratio of international to domestic sales to be a net positive for the economy. I can only speculate what the ratio is for lower margin items, such as cellular telephones.

American Assumption

How many times have your heard the phrase; Never assume, it will only make an ASS out of U and ME. I have heard it more times then I could count, but I still do it. As I was doing research for this entry, I discovered that an assumption I made about two years ago was wrong. First a little background.

In 1995, the Federal Trade Commission (FTC) was considering the requirement that automobile companies mention the domestic content of vehicles in advertisements. The following year, in comments to the FTC regarding “Made in the USA” advertising claims, the American Automobile Manufacturers Association (AAMA) confirmed that there was confusion in the market place about what “Made in the USA” actually means, but suggested that no specific action should be taken. See the complete comments at
http://www.ftc.gov/opp/jointvent/madeusa/ftp/usa/103.txt.

A couple of things about the comments shocked me; first, after all these years there is still the same confusion. Second, the AAMA seemed to want to play on that confusion. From the comments, “Moreover, we note that consumers’ contextual understanding of a “Made in the USA” claim may vary greatly from product to product and, for our industry, has changed in recent years and may continue to evolve. Therefore, we suggest that the Commission reject setting rigid standards that may soon become obsolete or cause more confusion than they resolve.” In other words, the AAMA agrees that there is a problem, but suggests that nothing be done.

Why would the AAMA object to regulations that would highlight “Made in the USA” product content? One answer comes later in the same comments. “During the 1970s, American companies began to offer imported products under American nameplates (“captive imports”), allowing consumers to choose, from Buicks and Fords built in Germany, or Plymouths from Japan. Today, captive imports continue to provide retailers with products, and manufacturers with sales outlets, that otherwise would be unavailable.” The AAMA wants to play on the confusion since it is more likely that the American consumer will ASS-U-ME an American nameplate has more domestic content then a foreign nameplate. Another reason is that the domestic content of the American nameplates is decreasing. This is confirmed by the AAMA comment “Next, domestic manufacturers began utilizing imported components, especially power train equipment, to fill voids in their own product lines.”

I have to admit that I was the kind of person they were thinking about. This is evident in my decision to buy a Ford Escape. I wanted to buy American and the Escape seemed like a good choice. In my research, I learned that the Mazda Tribute was really an Escape with a different body. I think that I made an assumption that most people would make: The Escape has the same domestic content, or more, domestic content then the Tribute. Turns out I was wrong. According to a USA Today article, see the following link http://www.usatoday.com/money/autos/2007-03-21-car-content-chart_N.htm, the 2008 Escape has only 65% domestic content while the Tribute has 75% domestic content.

In my buying decision the domestic content difference probably would not have affected my choice, since I purchased the Escape Hybrid. The issue is that I thought I could make an assumption on a topic I thought was a no brainer. Obviously I was wrong.

My wrong assumption only opens the door to a bigger question. Which would have been better for the overall domestic economy, buying the Escape or the Tribute? Is it the foreign nameplate Tribute, at 75% domestic content, or the domestic nameplate Escape, at 65% domestic content? In time I expect we will be able to know easily, just not today.

Welcome to ProudlyMadeInAmerica.com

Welcome to my blog. My intent for this blog is to discuss all issues surrounding the term “made in America”. The issue of “made in America” has two main components; should we buy American, and what factors cause companies to move their businesses to foreign countries?

Some buy American decisions can be made easily. On a recent shopping trip I wanted to buy socks that were made in the U.S.A. During my search for “Made in the U.S.A.” socks, I found socks made solely in another country, socks made in another country from material of another country, socks made in the U.S.A. with material from another country, and socks that were made in the U.S.A with domestic materials. Overall, it was relatively easy to determine which socks were made in America.

Some buy American decisions, such as an automobile, can not be made so easily. Is it possible to buy a foreign nameplate car that has more American made content then a car with a Ford or GM nameplate? This is not as straightforward as it seems. Do we exclude Mexican and Canadian parts? If most of the parts are manufactured on foreign soil, but the design, engineering and assembly are done in the U.S.A. does this affect the American content? I could go on, but I am sure that you already see that there is no easy answer.

In a nutshell, it is possible to buy a foreign nameplate car that has more American content then an American nameplate car. The problem is that if you wanted to get information on the exact American content you can not get good information. The information you get is only good for the extreme cases. For example, there is a Mazda that is built in Kansas City by Ford and a GM car imported from Europe. If you happen to be looking to buy one of these two specific vehicles then you have your answer. Most car buying decisions are not that straightforward.

The issue of why companies move parts, or all, of their business to other countries is complex. It is not always due to cheaper costs. I know of companies that have moved business units to other countries even though they knew that the overall cost of operations would be more. The sole purpose was to open up the market. They believed that the added revenue from the new market would more then make up for higher cost due to the lower productivity created by the move. To the shareholders of the company this might be a good move. The employees that lost their jobs probably did not see it the same way.

In the coming months, I plan to add forums and product information that will allow visitors to find and discuss the information they need to make their decision on buying American. For now, I hope that you will find this site to be both interesting and informative. I hope that this site will help you look at the issues more closely and with a better understanding.

-Michael Scholnick