Price Pressures Pushing Manufacturers Abroad

By TOM ABATE, SAN FRANCISCO CHRONICLE

At SanDisk Corp. headquarters in Milpitas, Calif., human- resource chief Tom Baker wrestles with a conundrum that ripples through the U.S. economy.

SanDisk’s employees want hefty paychecks, and the company has to pay them to get the best engineers, product managers and marketers. But customers demand low prices for the MP3 players and flash memory that made SanDisk a $3.3 billion company in 2006.

“It’s a tough balancing act,” said Baker, who says 1,100 of SanDisk’s 2,800 employees work here. Their median salary (before benefits and options) is “well over $100,000.”

Not surprisingly, however, most of SanDisk’s remaining 1,700 employees work at low-cost manufacturing sites in Asia to help keep MP3 players around $250 and flash memory cards around $25.

“There is a relentless pressure to drive down costs in our category,” Baker said.

SanDisk’s situation encapsulates an ongoing shift in the U.S. economy away from manufacturing and toward a service-based economy.

Looking back at the last five years of federal data, Matthew Kazmierczak, research vice president for the American Electronics Association, calculated that the United States lost 1.1 million manufacturing jobs between 2002 and 2006. The 14.1 million Americans who still had factory jobs last year earned an average of $51,425.

During those same five years, U.S. employers created nearly 5 million service-sector jobs. The 84 million Americans working in the service sector in 2006 earned an average of $40,544.

That substantial difference is often highlighted by critics of the service economy such as Alan Tonelson, a spokesman for the U.S. Business and Industry Council, a group that lobbies on behalf of small manufacturers.

“We need to start restricting trade in various ways,” he said, “because the imports from China and the Third World are replacing too much U.S. production and driving down the wages of too many Americans.”

That sort of talk makes free-market economists fume. Even setting aside Tonelson’s willingness to flirt with protectionism in an age wedded to free trade, they argue with more than a little justification that his wage analysis is bunk as it lumps all of those 84 million service sector jobs together, as if they were all hamburger-flippers, when they are not.

General Electric Chief Executive Jeffrey Immelt, addressing the differential between factory and service wages, has argued from a free-trade, pro-global view: The U.S economy will suffer if the nation does not refocus on manufacturing.

(c) 2007 Record, The; Bergen County, N.J.. Provided by ProQuest Information and Learning. All rights Reserved.