Made in America © image100/Corbis

Extra12/17/2007 12:01 AM ET

Weak dollar adds twist to 'Made in America'

European companies that once rushed to China or India now seek to lower production costs in the US, where a culture of innovation is also part of the appeal.

By MarketWatch

Forget about China; the United States is the new hot spot for global companies looking for lower production and transport costs, increased supply-chain flexibility and a crack at wooing the world's most demanding customers.

France's Alstom, a maker of high-speed trains and power turbines, this week became the latest European company to unveil plans for a facility across the Atlantic. The company wants to build a $200 million plant in Chattanooga, Tenn., to mitigate the impact of the weak dollar on its margins and to get closer to some of its biggest customers.

"Long term, a very high euro level is not good news," Alstom Chairman Patrick Kron told French radio Europe 1. "Let me also add the issue of volatility; we are in a heavy industry and exchange rates that change at the pace they're changing add to the difficulty."

The dollar has lost roughly 20% against the euro in the past two years. It's declined about 14% against the British pound. Partly as result of that depreciation, Alstom and other companies with global exposure are taking a fresh look at the United States as an attractive location for new facilities.

In recent months, companies ranging from automakers Fiat (FIATY, news, msgs) and Volkswagen (VLKAF, news, msgs) to German steel behemoth ThyssenKrupp (TYEKF, news, msgs) to South Korean consumer-electronics maker Samsung Electronics (SSNLF, news, msgs) have either publicly debated or set in motion plans for U.S. plants.

"They're worried about the movement of the dollar, so moving to a dollar zone takes a big element of risk out of the equation," said Richard Gane of PricewaterhouseCoopers.

Super-low-cost destinations lose appeal

The trend reflects a notable shift in strategy.

"Three or four years ago the discussion among supply-chain directors and C-level executives was all about low-cost sourcing in India and China," said Mark Pearson, managing director in the supply-chain management-consulting business of Accenture (ACN, news, msgs). But the feverish rush to super-low-cost countries has lost steam.

"In the last 12 to 18 months the discussion (about where to expand industrial footprints) has gotten a lot more mature and balanced, with companies looking at factors including currency, transport costs, manufacturing automation, business risk and supply-chain flexibility," Pearson said.

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Strong euro squeezes Airbus
Executives at EADS, the Franco-German aerospace consortium that owns Airbus, see the dollar's decline as a serious threat, which may force the company to move a large part of its production to 'the dollar zone' or low-cost countries.
Alstom said it chose Chattanooga because the city offers good transport infrastructure from which to deliver its steam turbines across the United States.

Credit Suisse (CS, news, msgs) analysts applauded Alstom's decision, saying a U.S. plant will diversify the company's cost base at a time of significant currency moves and help it gain share in the U.S. power market just as capital expenditure in the sector is accelerating.

Alstom has recently won a number of contracts in the United States, including a deal with UniStar Nuclear Energy, a joint venture between Constellation Energy Group (CEG, news, msgs) and EDF that's focused on development of nuclear power plants in the U.S.

European carmakers also are sensitive to the edge a U.S. plant could give them as transport costs have soared. "If you have oil near $100 a barrel, transport costs for heavy stuff like turbines or cars become a much bigger consideration," Pearson said.

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