November 17, 2009    Volume 16, No. 19

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Emerson Electric Votes With Its Feet, Saying The Goverment Is Destoying American Manufacturing

By Richard McCormack

One of the country's most important industrial companies says the United States is not a good place to manufacture and it will continue moving its assets offshore.

The federal government is "doing everything in [its] manpower [and] capability to destroy U.S. manufacturing," says David Farr, chairman and CEO of Emerson Electric Co., in a presentation at the Baird 2009 Industrial Conference in Chicago Ill., on Nov. 11. In comments reported by Bloomberg, Farr added that companies will continue adding jobs in China and India because they are "places where people want the products and where the governments welcome you to actually do something. I am not going to hire anybody in the United States. I'm moving. They are doing everything possible to destroy jobs."

In his Powerpoint presentation available on the Emerson Electric Web site, Farr notes that the federal government is damaging prospects for U.S. economic growth with a $1.41 trillion federal deficit (10 percent of GDP); $12 trillion in government debt that will grow to $20 trillion in 10 years; a policy of printing money; a "non-targeted $800-billion stimulus"; bailouts for Wall Street and the automobile companies; the prospect for cap and trade legislation; a "government takeover" of health care to the tune of more than $1 trillion; increasing taxes and regulations; and a "lack of U.S. $ support" for manufacturing. The global stimulus "soon will fade," says Farr.

What does it mean for a company like Emerson? "We continue to increase our international and emerging market presence," says Farr. The company has increased its emerging market sales by 19 percentage points over the past 10 years, from 13 percent of total sales in 1999 to 32 percent in 2009. It is now generating 55 percent of its sales from overseas operations, a figure that will grow to 60 percent by 2014, with 40 percent of total sales coming from emerging markets.

"Emerson's investment in emerging markets is continuing to pay off with sales growth," say Farr. In 1999, the company generated $12.4 billion in annual sales from mature markets and $1.9 billion from emerging markets. By 2009, sales from mature markets grew to $14.2 billion, while sales from emerging markets more than tripled to $6.7 billion.

The company projects sales from mature markets in 2014 of between $16 billion and $17 billion, while emerging market sales will reach almost $12 billion.

Between 1999 and 2009 "73 percent of growth is from emerging markets!" Farr exclaims. "More than 60 percent of our growth is expected to come from emerging markets over the next five years so Emerson will continue to invest in these key markets."

In 2001, the company had 21 percent of its 360 manufacturing facilities located in "best cost countries." Today, Emerson has 250 manufacturing locations and 36 percent of them are in "best cost countries." That percentage is going to increase to more than 40 percent.

Emerson is following the money. Infrastructure investment in the United States now accounts for 21 percent of the global total of $12 trillion, down from 27 percent in 2004. Asia Pacific's share of global infrastructure investment has increased from 18 percent of the global total in 2004 to 27 percent in 2009. That number is expected to continue going up -- to 31 percent of global investment in 2014 and 37 percent in 2019.

The current recession has been destructive and the United States will have a hard time recovering, says Farr. U.S. job losses of 7.3 million to date are only slightly less than the total of the last four recessions combined (8 million). The current downturn is having a big impact on Emerson and its employees. The company has reduced its headcount by 15 percent. It has closed 55 facilities and has incurred $540 million in restructure expenses.

The 2001 recession was also tough on the company. It reduced its headcount by 14 percent, closed 75 facilities and incurred $437 million in restructuring expenses. "But the world did not change much," says the Emerson CEO. With the current recession, "there will be some fundamental changes going forward."

The company reported sales for its 2009 fiscal year ending in September of $21 billion, down from $25 billion in 2008 and $22 billion in 2007. It had an operating profit of $3.2 billion in 2009 (15 percent of sales).

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