The other dark side of Merck's 13,000 layoffs

The recent headline-grabbing layoff announcement from Merck ($MRK) reinforces the notion that, despite protestations, pharma manufacturers are making a wholesale exodus from the U.S. to greener pastures. The New Jersey pharma giant said it plans to eliminate as many as 13,000 positions by 2015--up to 40% of them in the U.S. The rest will come in Europe and elsewhere, but not in fast-growing pharma markets like China and India.

U.S. tax laws are perhaps the biggest driver. "American companies have piled up mountains of profits overseas, but they must pay very high taxes if they bring the money home," according to the Sacramento Bee. "So instead of investing back home, they are more apt to put the money into overseas expansion, adding jobs there."

And according to Wells Fargo senior economist Mark Vitner, "If your business is growing overseas, why do you need to repatriate [profits]? You want to invest where it's growing."

U.S. layoffs in pharma and other industries demonstrate the business reality that financial and human capital has to be where the demand is, according to the article. And that means manufacturing. Lee writes that, across industries, "the largest layoff actions last month were accompanied by disclosures that the same companies planned to ramp up their operations--including hiring--in emerging economies."

Merck's $12.2 billion in second-quarter sales is dominated by overseas sales, and the international portion is growing at more than triple the pace of the domestic side, the article says.

For its part, Merck says it is continuing its U.S. investment, citing the vaccine plant it's building in North Carolina. Emerging economies, however, are expected "to account for 90% of the industry's future growth," a company spokesman explained.

- see the story