Globalization drains corporate headquarters from state

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Globalization drains corporate headquarters from state
Wisconsin loses in a winner-take-all economy

By Charles Rathmann, of SBT

Wisconsin is suffering more from globalization than other states, in part because Wisconsin’s economy is second only to Indiana in its reliance on manufacturing.
A global process of consolidation is pulling corporate headquarters out of Wisconsin, draining not only manufacturing jobs, but highly paid executive and professional positions, according to Madison technology consultant Larry Eriksson.
Eriksson, who was scheduled to speak at a March 6 Conference on Global Sourcing in Milwaukee, had been the vice president of research at Nelson Industries, a Stoughton-based manufacturer of acoustical noise filtration devices. The company was purchased in January 1998 by Cummins Engine Co., of Columbus, Ind.
Eriksson said he sees corporate mergers as one of the consequences of the "intense pressure" that has resulted from globalization.
"Large corporations feel driven to acquire competition through mergers. The global economy stresses growth in both revenues and profits. They feel that by growing, that they can better control their future," he said.
Market leaders tend to acquire their competitors, Eriksson said. However, Wisconsin has not created many businesses that are market leaders; companies here that occupy second- and third-rung positions are almost exclusively the purchasee, rather than the purchaser in such transactions.
However, competitors are not the only targets for acquisition. Manufacturing giants are acquiring companies in their channels of distribution and in their supply lines.
Wisconsin’s manufacturing sector is heavily laden with companies, such as Nelson Industries, that supply other manufacturers.
"The net result of this is that Wisconsin has taken on the characteristics of a colony," Eriksson said. "Absentee owners make the decisions for our businesses and our state. It is a good example of the impact that the competitive world economy is having on the state."
While loss of large numbers of manufacturing jobs typically raise a cry and hue in any community, the loss of corporate headquarters often may not inspire as much outrage.
"The attitude is that only a few jobs will be lost," Eriksson said. "But they are typically high-paying and influential positions. Once those decisions are no longer being made in the community, there are repercussions for a number of supplier organizations that no longer have immediate access to the people doing the purchasing.
"It is easy to document the decline of corporate headquarters in Wisconsin by looking at the Fortune 500," Eriksson said. "Wisconsin had 11 Fortune 500 companies headquartered here in 2002. But in 1979, we had 16."
Eriksson discounted the notion that a heavy tax and regulatory burden had anything to do with the failure of Wisconsin to grow market leaders and retain corporate headquarters.
"Other diverse university states have more businesses on the Fortune 500 list, they also have bigger companies overall," Eriksson said. "We have nobody in the Top 100 – and the world is gravitating toward the Top 100. Some factors to consider may be that we are sandwiched between Chicago and Minneapolis. Also, our research university is not located in the major center of population, so you don’t get the synergies between the two."
Eriksson stressed that while Wisconsin may have a hard time adjusting its business climate to solve the entrenched problems of business growth and development, individual businesses can take steps to make it easier for them to compete in a world market.
"We in Wisconsin cannot begin to match the laissez-faire attitude in other states or overseas," Eriksson said. "We have higher-price labor and more regulations, but both of those contribute to our quality of life. In this environment, you have to start focusing on what are you really good at. You can’t expect to be a very general supplier but, rather, need to develop core competencies."
Eriksson says manufacturers can draw on the experience of the agriculture industry by focusing on specialty goods that command higher prices.
"Family farms have responded to these kind of economic pressures," Eriksson said. "They have been dealing with this for the last 20 years, at least. The family farm is being squeezed on the supply side where there are very large corporations supplying seed, fertilizer, animals and machinery. The customers of the farmer are typically very large corporations as well – from food processors all the way to the grocery stores. There are a number of interesting examples where family farms, by banding together, have been able to expand both their supply and distribution chains."

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March 7, 2003 Small Business Times, Milwaukee

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