Bringing Manufacturing Back To The U.S.

At the recent IEDC Conference in Charlotte, NC, I had an opportunity to participate in an event sponsored by Atlas Advertising that explored the decision process for selecting a manufacturing location. Ben Wright, CEO of Atlas Advertising, hosted a panel debate between a team representing Brand America, and a team representing Brand International.

I learned a lot about FDI from my fellow panelists, and thought I’d share some of what I found in my research preparing for the debate as well as from my conversations with panelists.

My going-in approach in preparing for the debate was to “following the money”. Doing so makes it easier to understand the dynamics of any site decision. Manufacturing is no exception. And, it is a good way to determine what a compelling value proposition looks like from the business perspective.

With that in mind, I focused my debate preparation on three key business considerations – Low labor cost, low cost of delivery to the consumer/customer, and reliable supply chain to support lean manufacturing processes.

I learned from Douglas van den Berghe, Managing Director of Investment Consulting Associates that the decision is actually far more complex. ICA has identified 12 key considerations in the decision process. Douglas was a panelist on the opposing team, so his extensive knowledge of FDI was a real advantage to Brand International.

Labor Cost

Filip Abraham authored a discussion paper that compared labor costs between Brand America and Brand E.U. over the time period of 1975 – 1998. His analysis found that, among industrialized nations, labor costs are roughly comparable. But, the data also found variances within the E.U.. But, labor costs in Scandinavia, the Benelux, Germany and Switzerland were actually substantially higher than Brand America. This highlights the need for economic development professionals to understand specifically which countries are being considered by a Company as directly competitive with Brand America for a specific manufacturing site decision.

A Report from the U.S. Bureau of Labor Statistics on hourly wages in 2009 confirms Dr. Abraham’s discussion paper findings regarding country specific variances. The Report concluded hourly wages within Brand America were actually lower than 12 countries in Brand E.U. and lower than Australia. It also provided data showing that in 1997, the index range for the 12 countries versus Brand America was -24% to +29% (note a few were lower cost than Brand America in 1997). And, in 2009 the index ranged from +3% to +61%. This suggests the rate of cost increase in the 12 countries is meaningfully greater than Brand America over the same time period.

Delivery Cost

Dr. Anderson author of the book “Build to Order & Mass Customization” wrote a nice piece on off-shoring to save costs. His observation was that most of the time the business objective is not met. In fact, in many cases Companies realized an increase in total delivered cost.

On top of that, crude oil prices are rising, and is increasingly more of a margin reducer than cost of labor. Given the insatiable desire for crude oil as an energy source, this trend doesn’t seem to be changing any time soon.

Supply Chain Reliability

Toyota recently reminded the world about the negative impact a disaster can have on supply chain performance. Robert Handfield [hot link to http://www.businessofgovernment.org/bio/robert-handfield] authored an industry issues paper that suggests supply chain unreliability can reduce shareholder value as much as 8% to 10% or more.

Conclusion

My debate position was simple:

1. Workers outside the U.S. are getting more expensive.
2. Shipping costs continue to increase.
3. Global supply chains have demonstrated they are at risk of both natural and man-made disasters.

Outcome

Team Brand America was voted by the audience as the debate winner. But, I’d be misleading if I left you with the thought that our facts and figures were more compelling. Like any real life capital investment decision the victory was determined based on emotional not rational arguments. In a desperate last minute attempt we included ponies for all executives in our financial incentive package, and the audience voted Team Brand America the winner. Obviously, and luckily, the debate was all in good fun.

Special thanks to Atlas Advertising for engaging the economic development profession in thinking about how to more effectively compete for capital investment in the manufacturing sector. And to my fellow teammates who came up with the pony’s strategy – simply brilliant!

What Are Your Thoughts?

Does re-shoring manufacturing offer your community an opportunity for job growth? If yes, is there anything special you are doing to compete for it? What is your community’s value proposition for a manufacturer? What is your equivalent of our Team’s pony’s offering?

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