Friday, April 5, 2013

The Excitement Around Domestic Manufacturing is Growing – Now What?

Matt DeVeau, Project Associate.

I can’t recall exactly when I decided that manufacturing was doomed in the United States, but I know the seeds had been planted at least as early as 1994. That’s when I got my hands on SimCity 2000, a city planning simulation that was among the forerunners to the troubled recent release. One of my favorite things to do with the game was to rapidly grow a city and attract residents by zoning large swaths of land for heavy industry. Then, when my city reached a certain size, I would methodically bulldoze each factory and warehouse, replacing them with office buildings and residential high-rises. To 11-year-old me, that was the future: deindustrialization and a permanent shift to a service economy. Fortunately for our nation, 11-year-old me was wrong. 

The changing global landscape that sapped goods-producing jobs from the United States in recent decades appears to once again be shifting – this time in favor of domestic production. This topic has been discussed on the Market Street Report on several occasions, but now we can add another data point to the growing pile of evidence. Earlier this week, a friend sent me a link to Deloitte’s “Business Trends 2013” published last month. One of the pieces in the collection is titled “Manufacturing beyond China: New options. New Opportunities. New risks.” As its name would suggest, the article focuses on China and provides a good, concise summary of the factors that are driving many cost-sensitive manufacturers to locate elsewhere. Some of these factors, such as increasing costs of offshore production and the need to shorten supply chains, point to a great potential for domestic manufacturing. Deloitte’s own research lends further support: 

“In fact, a recent Deloitte poll of more than 900 predominantly US-based executives and managers found that 39 percent believe their company is likely to deploy its next manufacturing operation in the United States, compared with only 16 percent who cited China as the likely destination.” 

That’s an eye-catching statistic, and it leads to an urgent question for economic developers: how do communities position themselves to be successful in this emerging paradigm? The article offers suggestions for companies that can be repurposed for economic developers. Consider the “total cost” of manufacturing inclusive of things like energy and tax incentives in addition to labor. And given the increasing importance of supply chains, be knowledgeable of a community’s proximity to upstream suppliers and downstream customers and be prepared to leverage any existing or emerging advantage. 

But the most important piece, not surprisingly, is talent. Much has been made of the impending skills gap that U.S. manufacturers face, but this problem is not just limited to our country. The McKinsey Global Institute projects a potential global shortage of as many as 40 million high-skilled workers. Communities obviously cannot solve these macro-level problems, but they must recognize that developing a talented workforce is absolutely essential to future success in manufacturing. Many communities around the country are already working to address this reality, but two leap to mind. 

The Decatur-Morgan County (Alabama) Chamber of Commerce partnered with the Calhoun Community College Tech Prep Consortium to create the Summer Welding & Electrical Technology Camp for Girls. Better known as “SWeETy Camp,” this four-day course introduces high school girls to construction and engineering careers and provides introductory training in welding, carpentry, and electrical crafts. The program also encourages girls – a large pool of untapped talent in these traditionally male-dominated fields – to enroll in math and science classes that will be needed for future success. In Tennessee, the Nashville Area Chamber of Commerce has long been involved in education through efforts such as its annual Education Report Card that evaluates the city’s public school system. For its part, Metro Nashville Public Schools in 2008 implemented the “Academies of Nashville,” a district-wide redesign of its high schools based on the Small Learning Communities (SLC) model. Each of the district’s 12 zoned high schools was restructured into multiple small, personalized learning academies. These academies are divided among five career groupings, one of which is “Engineering, Manufacturing & Industrial Technology.” 

Less than 20 years ago, the demise of American manufacturing seemed so certain that it was interwoven into a preteen’s leisure activities (an admittedly super-nerdy preteen, but I digress). These days, U.S. manufacturing executives are more than twice as likely to say they will locate their next operation in domestically as opposed to in China. If nothing else, this should serve as yet another reminder for communities to be prepared to adapt – and quickly – to change.