One reason why U.S. unemployment remains as high as it is
By PALLAVI GOGOI
updated
2 hours 7 minutes ago
2010-12-28T13:51:15
Corporate profits are up. Stock prices are up. So why isn't anyone hiring?
Actually, many American companies are — just maybe not in your town.
They're hiring overseas, where sales are surging and the pipeline of
orders is fat.
More than half of the 15,000 people that Caterpillar Inc.
has hired this year were outside the U.S. UPS is also hiring at a faster
clip overseas. For both companies, sales in international markets are
growing at least twice as fast as domestically.
The trend helps explain why unemployment remains high in the United
States, edging up to 9.8 percent last month, even though companies are
performing well: All but 4 percent of the top 500 U.S. corporations
reported profits this year, and the stock market is close to its highest
point since the 2008 financial meltdown.
But the jobs are going elsewhere. The Economic Policy Institute, a
Washington think tank, says American companies have created 1.4 million
jobs overseas this year, compared with less than 1 million in the U.S.
The additional 1.4 million jobs would have lowered the U.S. unemployment
rate to 8.9 percent, says Robert Scott, the institute's senior
international economist.
"There's a huge difference between what is good for American
companies versus what is good for the American economy," says Scott.
American jobs have been moving overseas for more than two decades. In
recent years, though, those jobs have become more sophisticated — think
semiconductors and software, not toys and clothes.
And now many of the products being made overseas aren't coming back
to the United States. Demand has grown dramatically this year in
emerging markets like India, China and Brazil.
Meanwhile, consumer demand in the U.S. has been subdued. Despite a
strong holiday shopping season, Americans are still spending 3 percent
less than before the recession on essential items like clothing and more
than 10 percent less on jewelry, furniture, electronics, and big
appliances, according to MasterCard's SpendingPulse.
"Companies will go where there are fast-growing markets and big
profits," says Jeffrey Sachs, globalization expert and economist at
Columbia University. "What's changed is that companies today are getting
top talent in emerging economies, and the U.S. has to really watch
out."
With the future looking brighter overseas, companies are building
there, too. Caterpillar, maker of the signature yellow bulldozers and
tractors, has invested in three new plants in China in just the last two
months to design and manufacture equipment. The decision is based on
demand: Asia-Pacific sales soared 38 percent in the first nine months of
the year, compared with 16 percent in the U.S. Caterpillar stock is up
65 percent this year.
"There is a shift in economic power that's going on and will
continue. China just became the world's second-largest economy," says
David Wyss, chief economist at Standard & Poor's, who notes that
half of the revenue for companies in the S&P 500 in the last couple
of years has come from outside the U.S.
Take the example of DuPont, which wowed the world in 1938 with nylon
stockings. Known as one of the most innovative American companies of the
20th century, DuPont now sells less than a third of its products in the
U.S. In the first nine months of this year, sales to the Asia-Pacific
region grew 50 percent, triple the U.S. rate. Its stock is up 47 percent
this year.
DuPont's work force reflects the shift in its growth: In a
presentation on emerging markets, the company said its number of
employees in the U.S. shrank by 9 percent between January 2005 and
October 2009. In the same period, its work force grew 54 percent in the
Asia-Pacific countries.
"We are a global player out to succeed in any geography where we
participate in," says Thomas M. Connelly, chief innovation officer at
DuPont. "We want our resources close to where our customers are, to
tailor products to their needs."
While most of DuPont's research labs are still stateside, Connelly
says he's impressed with the company's overseas talent. The company
opened a large research facility in Hyderabad, India, in 2008.
Rising middle class
A key factor behind this runaway international growth is
the rise of the middle class in these emerging countries. By 2015, for
the first time, the number of consumers in Asia's middle class will
equal those in Europe and North America combined.
"All of the growth over the next 10 years is happening in Asia," says
Homi Kharas, a senior fellow at the Brookings Institute and formerly
the World Bank's chief economist for East Asia and the Pacific.
Coca-Cola CEO Muhtar Kent often points out that a billion consumers
will enter the middle class during the coming decade, mostly in Africa,
China and India. He is aggressively targeting those markets. Of Coke's
93,000 global employees, less than 13 percent were in the U.S. in 2009,
down from 19 percent five years ago.
The company would not say how many new U.S. hires it has made in
2010. But its latest new investments are overseas, including $240
million for three bottling plants in Inner Mongolia as part of a
three-year, $2 billion investment in China. The three plants will create
2,000 new jobs in the area. In September, Coca-Cola pledged $1 billion
to the Philippines over five years.
The strategy isn't restricted to just the largest American companies.
Entrepreneurs, whether in technology, retail or in manufacturing, today
hire globally from the start.
Consider Vast.com, which powers the search engines of sites like
Yahoo Travel and Aol Autos. The company was founded in 2005 with
employees based in San Francisco and Serbia.
Harvard Business School Dean Nitin Nohria worries that the trend
could be dangerous. In an article in the November issue of the Harvard
Business Review, he says that if U.S. businesses keep prospering while
Americans are struggling, business leaders will lose legitimacy in
society. He exhorted business leaders to find a way to link growth with
job creation at home.
Other economists, like Columbia University's Sachs, say multinational
corporations have no choice, especially now that the quality of the
global work force has improved. Sachs points out that the U.S. is
falling in most global rankings for higher education while others are
rising.
"We are not fulfilling the educational needs of our young
people," says Sachs. "In a globalized world, there are serious
consequences to that."
http://www.msnbc.msn.com/id/40827123/ns/business-us_business/