I’ve just returned from a conference in Vail, Colo., where I presented to economic development professionals and state leaders from throughout the United States. Because the focus of my presentation was on industry trends that are currently affecting location decisions, I thought I’d share the findings with RealPoints readers, too.
It’s encouraging to see domestic corporate expansion under way that had been going offshore, like Whirlpool’s expansion in Tennessee. Some of these expansions also involve reverse investment, like Rolls Royce Aerospace in Virginia, Siemens Gas Turbines in North Carolina, and IT centers from India like Infosys, here in Texas.
Reshoring, a ‘mini-trend’ that started back in 2009, continues to be nurtured by extended supply chain concerns in the areas of delivery time, cost, risk, and customer service. Contributing influences are poorer product quality and defects, IPO and knock-offs, worker rights and evidence of abuse, and the grassroots initiative to “Buy American.” The cost differential between the U.S. and offshore sites is narrowing. China, where the majority of imported products are manufactured, is experiencing an increase in labor cost of up to 15 to 20 percent annually. Transportation costs in China are up 10 percent per annum. Although energy costs are rising in China, the U.S., and elsewhere, the rate of increase for transportation and energy is lower for America.
Effected by shoring decisions, manufacturing is experiencing a “rebirth” and is on the upswing in the United States. Original equipment manufacturers (OEMs) and suppliers are the main reason for this rebirth. Our strength in innovation continues, with the U.S. ranked No. 1 for manufacturing patents per capita in the world. Investment in technology used in manufacturing has increased about 7 percent. Realignment of supply chains to regional versus extended has also impacted this growth. The increased use of economic incentives to encourage expansion is yet another contributing factor.
The top states for manufacturing growth are California, Texas, Ohio, Illinois, Pennsylvania, Michigan, New York, Indiana, North Carolina, and Wisconsin. The highest growth products measured in shipment value are capital goods, e.g. primary metals, machinery, fabricated metals, robotics.; medical and scientific instruments; automotive (OEMs and suppliers); health, beauty, computer/electronics, food processing, specialty chemicals, plastics, packaging, and furniture.
There is also a movement to fewer, more skilled and productive workers by OEMs and suppliers. The growing practice of lean manufacturing and investment in the use of robotics is resulting in reductions in workforce. It has also exposed a deficiency in our availability of skilled manufacturing workers.
Customer service reshoring has also picked up, primarily from India, as a result of customer/consumer dissatisfaction associated with language and cultural differences. Offshoring will continue, but will be driven more by market than cost. Nearshoring is on the upswing in markets such as Central America and South America, reducing supply chain costs. Most companies are likely to adopt an “all shore” strategy. This will also include more regional production activity.
Certain industry types are showing more robust activity than others, with the following having the most impact on location decisions: metalworking, motor vehicles and components, aerospace, optics and instruments, energy storage, alternative energy, plastics, packaging, healthcare and beauty products, food processing, digital media, bioscience, and consumer durable goods like appliances, furniture, and sports equipment.
IT and data centers, both development and application, have seen significant activity, like Facebook in Austin. Back office activity—customer service, telesales, help desks, shared services, and claim processing—continues to see growth. As consumer buying grows, we’re seeing a continued push to more online fulfillment or e-commerce operations, such as Kohl’s in DeSoto. Perishable goods, sporting goods, and mail order pharmacies, like Medco, also mean increased need for retail related distribution. And lastly, research and development is on the rise.
One final trend to note is the growth in popularity of smaller communities in corporate site location searches as a solid alternative for offshoring. Cost, quality of labor market, and a business friendly environment are key decision factors. This trend is predicted to pick up steam over the next several years. The numerous smaller communities within the Dallas-Fort Worth metro and on its fringe in North Texas offer attractive, diverse location options.
Linda Burns of BDG/WDG Consulting is a national site consultant based in the Dallas area who specializes in incentive negotiations and economic development location strategies. Contact her at [email protected] or [email protected]