Monday, 25 October 2010

How manufacturing really works

You may remember from geography lessons at school how national economies are broken up in 3-4 sectors - Primary (farming, mining), Secondary (manufacturing), Services (finance, shopping etc) - and maybe an elusive Quaternary Sector - which I could never get my head around - basically all the stuff which wasn't in any of the first three sectors.

The problem with this analysis is that it is complete bunkum. The reality in a globally interconnected world, is that vast global corporate empires effectively sew together all these sectors into one business network, rendering their division meaningless, but also making analysis much more difficult to interpret.

The case of Irlam based RTS is a case in point. At first sight, this innovative company makes stuff. It manufactures robots for industry, including those clover bomb disposal robots which have help saved the lives of many service people and citizens. So according to our Sectoral model - we should place it in the secondary sector.

In a world without international financial services, this perhaps would be the case. But as I've often observed on this blog, the local and the global are connected in dynamic and complex ways. RTS are simply seen as a vehicle for raising share prices and the capital values of shareholder portfolios across the world. It is now seen appropriate that RTS no longer makes stuff the way it does, and does things differently in order to extract further surplus value from the local, another victim of the vague Alternative Investment Market. And so RTS is no longer RTS, but Hephaestus Holdings, whereas the actual making of stuff will pass to a new company Entoligi.

As an ordinary employee you make think making profit has to do with the actual quality and demand for the product, marketing and efficiency on the factory floor. But the reality is that shareholder returns are by in large made through acquisitions and mergers on an international scale through City dealers. As an ordinary employee you will be aware that the consequences of the constant changes in ownership is restructuring and job losses.

Hephaestus Holdings is another one of those global companies who are notoriously difficult to pin down. It is a new company, formed in 2005, based in the US where it runs 15 subsidiary businesses in the engineering sector in the mid-West region.

According to Greek mythology Hephaestus was cast down from Mount Olympus by Zeus, crippling his legs, who fashioned magical contrivances for the gods, but cut a rather comic figure as the cuckcolded husband of Aphrodite. I'm not drawing any analogies but it is a strange name for a company.

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