{"id":26695,"date":"2017-11-15T22:48:24","date_gmt":"2017-11-16T03:48:24","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/utx-and-carrier-in-the-context-of-isolationism-and-international-trade\/"},"modified":"2017-11-15T22:48:24","modified_gmt":"2017-11-16T03:48:24","slug":"utx-and-carrier-in-the-context-of-isolationism-and-international-trade","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/utx-and-carrier-in-the-context-of-isolationism-and-international-trade\/","title":{"rendered":"UTX and Carrier in the Context of Isolationism and International Trade"},"content":{"rendered":"

United Technologies Corp should consider the increasingly isolationist tendencies in the current US political climate that are leading to increasing pressure for American jobs to be reshored\/repatriated from Asia and Mexico to the US, as illustrated by the Carrier Trump Mexico controversy in 2016.<\/p>\n

Before we examine UTX specifically, let\u2019s dive a bit into the context of the US manufacturing landscape and the wider trend toward globalization and free trade.\u00a0 In the early 2000\u2019s, American firms moved a significant number of manufacturing jobs to China and other lower production cost southeast Asian nations.\u00a0 This geographic change made sense primarily because of lower wages in these less developed countries, making the extra transit costs and longer transit waiting times worth it.\u00a0 As a consequence, the number of US manufacturing jobs fell dramatically in the early 2000\u2019s and bottomed out in the midst of the financial crisis (see footnote source for chart).[1]<\/a>\u00a0 US manufacturing jobs have increased a bit since 2009[2]<\/a>, but much of that change could likely be attributed to a bit of economic recovery from an overcorrection of jobs during the depths of the financial crisis.<\/p>\n

In more recent years, as labor costs in less developed countries have risen, companies have begun to reassess the cost benefit analysis of outsourcing (or outsourcing to closer countries) and have started to shift production from Asia to Mexico and then back to the US.\u00a0 However, this reshoring trend has accelerated due to an increasingly protectionist\/isolationist political climate characterized by broad dissatisfaction of dislocated manufacturing workers across the United States and the election of President Donald Trump.<\/p>\n

The most stark signals of today\u2019s political realities in the US were illustrated by Donald Trump\u2019s widely publicized rhetoric about United Technologies Corp needing to keep its Carrier plant in Indiana instead of moving it to Mexico.\u00a0 President Trump made several public demands that the move be stopped and even went so far as to announce that he would charge the company a 35% import tax on the goods it produced in Mexico but sold in the US.[3]<\/a>\u00a0 In the end, with a sweetened $7mn tax incentive,[4]<\/a>\u00a0UTX saved some of the jobs at the Indiana Carrier plant while letting some of the people go and replacing many of them with automation.[5]<\/a><\/p>\n

Given the political pressures and economic realities of competitive production, United Technologies Corp is working to ensure the company can provide the most value to its shareholders while remaining respectful to its other stakeholders by making smart decisions in the near term (i.e. next two years) and the medium term (3-10 years out).[6]<\/a>\u00a0 In the near term, the company\u2019s management is working to operate in the most efficient manner possible at its US facilities and that means introducing more factory automation.\u00a0 In the medium term, management is seeking reduced corporate tax rates and fewer regulations which it believes might be stifling US manufacturing growth. \u00a0The company is also working to educate its workforce and potential employees with a large number of scholarships so that it can draw from a larger talent pool in the US.<\/p>\n

On the whole, I agree with the strategic choices that UTX is making to support its business as it deals with this political uncertainties of offshoring compared with onshoring.\u00a0 However, given that a lot of these issues are more about optics than not (UTX has many offshore facilities but Trump only fixated on one plant), I would suggest that management work to build an improved reputation for itself by launching a big PR campaign with commercials focusing on UTX’s support of American jobs and American production. \u00a0In addition, I would suggest that UTX work with the government to implement large-scale training programs that would improve the professionalism of the lower skilled workforce in the United States (note: this point harkens back to the above footnoted UTX CEO interview video in which he mentions that Mexico\u2019s workers are more reliable with better attendance records and lower turnover despite being paid less than their US counterparts, making Mexican labor relatively more attractive).<\/p>\n

UTX’s Carrier controversy leads me to wonder the following: \u00a0How realistic are protectionist actions like on-shoring production to save jobs; will this trend continue or will it be short-lived and only be relevant during the Trump presidency?\u00a0 Where do we go from here?<\/p>\n

(Word count: 711 words)<\/p>\n

[1]<\/a>\u00a0Long, H. (2017). U.S. has lost 5 million manufacturing jobs since 2000<\/i>. [online] CNNMoney. Available at: http:\/\/money.cnn.com\/2016\/03\/29\/news\/economy\/us-manufacturing-jobs\/index.html [Accessed 15 Nov. 2017].<\/p>\n

[2]<\/a> Fred.stlouisfed.org. (2017). All Employees: Manufacturing<\/i>. [online] Available at: https:\/\/fred.stlouisfed.org\/series\/MANEMP [Accessed 15 Nov. 2017].<\/p>\n

[3]<\/a> Washington Post. (2017). Trump promises not to lose Carrier jobs to Mexico<\/i>. [online] Available at: https:\/\/www.washingtonpost.com\/videopolitics\/trump-promises-not-to-lose-carrier-jobs-to-mexico\/2016\/11\/30\/c449af80-b6c8-11e6-939c-91749443c5e5_video.html?utm_term=.2a6405c0febb [Accessed 15 Nov. 2017].<\/p>\n

[4]<\/a>\u00a0Washington Post. (2017). Analysis | Trump said he would save jobs at Carrier. The layoffs start July 20.<\/i>. [online] Available at: https:\/\/www.washingtonpost.com\/news\/wonk\/wp\/2017\/05\/24\/here-is-the-number-of-jobs-carrier-is-moving-to-mexico-after-trump-said-hed-save-them\/?utm_term=.7f3fefc869d1 [Accessed 15 Nov. 2017].<\/p>\n

[5]<\/a> YouTube. (2017). United Technologies CEO Greg Hayes: Trump\u2019s \u2018No Quid Pro Quo\u2019 Request | Mad Money | CNBC<\/i>. [online] Available at: https:\/\/www.youtube.com\/watch?v=7q6v0yd9eRE [Accessed 15 Nov. 2017].<\/p>\n

[6]<\/a> YouTube. (2017). United Technologies CEO Greg Hayes: Trump\u2019s \u2018No Quid Pro Quo\u2019 Request | Mad Money | CNBC<\/i>. [online] Available at: https:\/\/www.youtube.com\/watch?v=7q6v0yd9eRE [Accessed 15 Nov. 2017].<\/p>\n

 <\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

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