Thursday, 5 February 2009

What is “American goods” anyway ?

Barack Obama’s $825bn stimulus package seems to have raised howls of protests, especially in Europe for the “Buy American” clause. Dangers to free trade have been espoused. Similar concepts are being propagated in other countries as well – the other day Alan Sugar was waxing eloquently on “Buy British” (presumably from his company).

Without commenting on the implication on free trade, I am asking the question, What does “Buy American” or “Buy British” really mean ?

Does it mean buy from an American company ? If so what is an American company ? A company headquartered in the US ? A company that is listed in a US Stock exchange ? A company that has a majority of its shareholders as US entities or citizens ? A company that pays taxes in the US ? Its quite easy to construct a corporate structure that satisfies all of the above criteria without it being really viewed by the public as "American”.

A more common definition is “Manufactured in America”. But is it OK for all components to be manufactured elsewhere and simply assembled in America ? These days supply chains are global. Its very unlikely that every raw material or component is manufactured in the same country as the finished product is. What about industries like pharmaceuticals, where the mere manufacture of the drug is a small component of the value chain – the bigger component is the Research . Is it OK for all the research to be done in say Japan, and the drug formulation alone to be mixed in the US to be considered ‘American” ? Why is manufacturing sacred anyway? Its presumably because of the jobs it creates. But in the value chain of a product, jobs are created elsewhere too ; in research, in design, in management, in finance, in HR, etc etc. In many industries jobs created in these areas are more than the jobs created in manufacturing – the relentless onslaught of automation is probably the highest in manufacturing. So can just the act of manufacturing define the “citizenship” of the product or the company ?

Or is an “American” company one that has a majority of its workforce as American , a definition that would be more politically acceptable because of the focus on jobs. But this would again be conky – it would simply be a disincentive to American companies to go global. IBM has more than 70,000 employees in India . Does that make it any less “American” ? What about the composition of the Board or management ? Alcatel Lucent is a French-American company headquartered in Paris with a Dutch CEO. Does this make the legendary Bell Labs “un American” ? Or is it history - where the company was founded ?

This just goes to show that in business , there are no nationalities. All businesses are global. Economics has gone much farther down the road to create a world citizen than politics has. America does indeed have a “Buy American Act”. It was passed in 1933. In today’s business world, its an oxymoron.


Vinod said...

Hi Ramesh

Great to see that you have started blogging as mentioned. It sure is interesting reading and will look frward to more and more blos from your end. Have a good time blogging.



athivas said...

Ramesh, my business teacher, I wish I could listen to you with notebook and paper, as you take your classes on 'non-abstract' business....I will read and absorb than commenting and wasting your time :)

Ramesh said...

@savitha - Oh you read my first ever post. I am totally floored. Oh no - if you allow me to lecture, I won't stop at all !!!

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