In Global Economy, U.S. Job Gains, Losses Know No Borders

At first glance, the stream of layoff notices reads like a eulogy for the American worker: 11,500 jobs at Delphi Automotive Systems Corp., 9,600 at Procter & Gamble Co., 8,200 at Solectron Corp. However, many of those pink slips will be delivered in places such as Ande, France, and Guadalajara, Mexico.

Which raises the question: Is America exporting its slowdown?

The simple answer is yes. As the U.S. economy starts to show signs of retrenchment, companies are spreading the pain by reaching across their global networks to cut costs and improve profitability.

But dig further, and you discover that these cross-border layoffs mask a more significant economic transformation, one in which workers everywhere are cogs in a complex network that has its markets, its loyalties and its vulnerabilities spread all over the world.

Economists say it is too early in this economic downturn to know how these global dynamics will play out and whether this export of job losses--the great sucking sound in reverse--is helping to keep the U.S. unemployment rate from rising faster as the economy ratchets back.

While it is not yet clear what regions will bear the brunt of a U.S.-inspired slowdown, anecdotal evidence suggests firms are cutting more deeply in Europe and Latin America than Asia, which already suffered a major contraction after its 1997 financial crisis.

“The increasing globalization of our economy is changing the way these slowdowns hit us and hit everybody else,” said James Glassman, chief U.S. economist at J.P. Morgan & Co.

Even for those who believe the United States has been a huge beneficiary of economic liberalization--whether it means more customers for U.S. auto makers and Hollywood studios or a greater abundance of cheap imported goods--this global churn is disquieting.

“We’ve been fortunate to be in a business that’s been very successful, and we’re making a profit,” said a disappointed employee of Creative Labs in Malvern, Pa., who will soon be joining the ranks of the high-tech unemployed. “But you can’t do anything when corporate makes a decision.”

In this case, “corporate” is the very distant Singapore-based Creative Technologies, the producer of the popular SoundBlaster computer sound cards. Faced with a drastic decline in orders from U.S.-based computer makers such as Dell and Compaq, the Asian firm recently announced a 10% reduction in its global work force--including the 150-plus employees at the Pennsylvania plant it bought just three years earlier.

A World Labor Market

But being close to the home office doesn’t necessarily provide safety in a global storm either, as the employees of Delphi’s Plant No. 2 in Saginaw, Mich., learned last week. Those assemblers of truck steering-wheel systems were among the 11,500 employees whose jobs are disappearing as part of a global production overhaul.

Companies are looking not only for lower wages and proximity to their customers but also places where they can “move their work force up and down in reaction to changing conditions,” said John Challenger, president and chief executive of Challenger, Gray & Christmas, a Chicago-based employee outplacement firm. “We are moving into a world labor market.”

There is no question that the web of economic interdependency has increased dramatically. In the last two decades, U.S. direct investment abroad and foreign investment in the U.S. have increased more than fivefold. The U.S. has been a huge beneficiary of job growth, but at the same time, labor-intensive work has migrated abroad.

Manufacturing is the most global sector. Of all worldwide production, the share produced by workers employed by a foreign firm increased from 11.6% in 1977 to 16.3% in 1990, according to the National Bureau of Economic Research.

Whatever benefit the U.S. derives from exporting its job cuts obviously reflects the loss of those jobs in the first place as corporations increased their foreign presence in the last decade. As the global economy recovers and hiring resumes, the lost jobs also could be restored abroad.

In recent weeks, cost-cutting pressure has led some U.S. firms, including DuPont Co. and Mattel Inc., to reduce jobs in the U.S. and shift production to lower-cost facilities in other parts of the world. El Segundo-based Mattel announced this week that it was closing its last U.S. plant in Kentucky, laying off 980 workers and moving that production of Fisher-Price toys to Mexico.

Other companies are reducing operations overseas and pulling back to the U.S., where they can respond more quickly to their key customers. One attraction: Less restrictive labor policies make it easier to lay off workers here than in many parts of Europe and Asia.

Foreign firms, who employed 5.6 million Americans in 1998, also are retreating to their home markets. Marks & Spencer, the ailing British retailer, has put its Brooks Brothers clothing division and Kings Super Markets chain up for sale in the U.S. and announced the elimination of 4,000 jobs worldwide. Alcatel, the French telecommunications-equipment manufacturer, just announced plans to cut back 1,100 U.S. jobs, including 93 workers in Petaluma, Calif.

But faced with a slowdown in the U.S. and slumping financial markets, America’s increasingly internationalized firms believe their first loyalty must be to their customers, regardless of where they reside. To do that, they are shifting production, exiting less-profitable businesses and rethinking their core strategies.

“Most of these decisions are being made more on the basis of the economics of the situation rather than what would be a more traditional concern of protecting the local community,” said Tom Duesterberg, president and chief executive of the Manufacturers Alliance, a Washington group representing 450 of America’s leading manufacturers. He estimates that more than half of U.S. manufacturers are operating globally.

Work-Force Flexibility

In a world of just-in-time inventory and made-to-order products, companies face increased pressure to be the fastest, the nearest and the cheapest.

Technology has made it possible for some jobs--such as software engineering or callback centers--to be done more cheaply in Bangalore, India, or Manila than in Silicon Valley. But suppliers also are expected to follow their customers wherever they go to reduce shipping costs and delivery time.

For auto-parts giant Delphi, which was spun off from General Motors Corp. in 1999, that has meant adjusting its production and work force to the demands of an increasingly global industry with fickle customers.

When the U.S. auto industry transferred a huge amount of its production to Mexico to take advantage of the trade benefits offered by the 1994 North American Free Trade Agreement, Delphi followed. The Troy, Mich.-based firm is now the largest private employer in Mexico, with 75,000 workers.

As the Big Three’s automobile sales began to slow last year, Delphi reduced its Mexican work force by 7,600 workers, largely through attrition. In addition, the company initiated short-term layoffs of 4,000 to 7,000 workers a week in the United States.

By the beginning of this year, the auto-parts maker could see that it needed to take more drastic action, explained Alan Dawes, Delphi’s chief financial officer. That led to this month’s announcement of 11,500 layoffs worldwide, including the closure or consolidation of six plants in France, Italy, Germany, Britain and Brazil and three in the U.S.

Trimming back a global work force is tricky business, particularly when it involves negotiations with 50 unions and dozens of local, regional and federal governments.

The savings from closing a plant can vary widely, depending on the size of the capital investment, labor costs including severance benefits and the cost of exiting special deals negotiated with local governments.

In developing countries, it is common for governments to require foreign firms to purchase or manufacture a certain percentage of goods locally in exchange for tax breaks or tariff reductions.

“We are pretty experienced, fortunately or unfortunately, in getting in and out of a lot of different markets,” Dawes explained.

Work-force flexibility is even more critical to technology companies such as Solectron, which has become one of the world’s largest contract manufacturers. In order to service an exploding market for circuit boards, mobile phones and telecommunications equipment, the Milpitas, Calif.-based firm went on a worldwide spending spree last year, acquiring NatSteel Electronics Inc., and manufacturing facilities owned by Sony Corp., IBM Corp. and Nortel Networks Corp.

Turning on a Dime

Although second-quarter sales soared to $5.4 billion, an 85% increase over the previous year, Solectron’s management could see future orders slowing drastically. Two weeks ago, the firm announced the cutback of 8,200 jobs, including the closure of recently acquired plants in Hungary and Mexico. This week, the company added a plant in Georgia to the layoff list.

More than 5,000 of those job cuts are being spread across the company’s 60 sites around the world, and they are largely coming from a “temporary” work force that provides an employment buffer in times of turbulence.

Kevin Whalen, a Solectron spokesman, said the company’s survival will depend on its ability to turn its products, and its employees, on a dime.

Solectron might be firing 1,075 employees in Suwanee, Ga., who are producing circuit boards and point-of-sale systems for the retail and medical fields. But it is still hiring specialists in optical-fibers technology in other parts of its global operations.

“It is our bread and butter to be able to move production to anywhere in the world it needs to be,” Whalen said. “That’s the way we manage business, whether it’s going up, going down or going sideways.”