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 Summer 2014

  
 Features

Petrochemicals and the Southern Manufacturing Renaissance

Non-Petrochemicals and the Southern Manufacturing Renaissance

Ten Reasons Why Manufacturing is Booming in The South

Rick Perry

2014 Annual Directory


2014 SB&D 100 Edition

SB&D 100 Feature

Big Fish Keep Alabama's Economy Humming


Southern Economic Development Roundtable

The Best Greenfield Data Center Sites in the South

The Most Southern Place on Earth

Ensuring a resilient Delta Region by training a skilled workforce

Driving toward success in Alabama's Black Belt

Arkansas's Big River Steel has found its home in the heart of America's Delta Region

Building a healthy economy and a healthy workforce in Illinois

Innovation and collaboration are building a Work Ready Kentucky

Louisiana's industry off to a fast start

Perfected in Mississippi

Certifying Southeast Missouri and beyond

Select Tennessee sites offer competitive edge

Reshoring and its potential effect on the Mississippi River Delta region

10 TOP TENS

 Ten People Who Made a Difference in the South

Top 10 Stories in the American South

Ten Exceptional Southern markets to Locate your Reshored Traditional
Industry


If you are looking to relocate your HQ to the South, here are 10 Outstanding
Cities for your Operation that might not show up on your Radar


Ten Low Cost Manufacturing Locations to Reshore your Plant near Major
Southern airports


If these Southern Market Economies were Stocks, they would be the Ten Best
to Invest in over the next Decade


Ten Highly Creative Places to Live in the South where you can Reshore your
Manufacturing Operation


Ten more Shining Examples of Economic Development that's working in the
South


Five Outstanding Supplier Sites for Airbus and Five for Boeing

Ten Supplier Locations in the Southern Aerospace Corridor that can serve
both Airbus and Boeing

FDI Surges in the South

Tennessee: Moving in the right direction

The Northeast Tennessee Valley Comes Back Strong

The Southern Auto Corridor

It's down to the Southern Auto Corridor and Mexico for automakers

Mississippi Enters Second Decade of Assembly

BMW in South Carolina: Two decades and thriving

Nissan and Tennessee: A 30-year partnership unlike any other in North America's automotive sector

20 years of Mercedes-Benz in Alabama: A defining moment in the Heart of Dixie

The tremendous success of the Hyundai-Kia model in the Southern Auto Corridor

Ford's resurgence in Louisville

2013 Motor Vehicle Parts Supplier Guide

Community preparedness is about vision

20th Anniversary Edition


  
 Features

A Defining Moment

How the American South is beating China at its own game

By Mike Randle

China is the South's fiercest competitor when it comes to manufacturing job and investment generation and over the last 10 years it really hasn't been much of a competition. In fact, between 2001 and 2010, according to The Economic Policy Institute, the U.S. lost 2.8 million jobs to China, with 1.9 million of those jobs coming from the manufacturing sector. SB&D estimates that of those 1.9 million U.S. manufacturing jobs lost to China, 1,038,000 came from Southern states.I am sure some of you have heard recently about the prospects of the U.S. benefiting from jobs being re-shored from overseas, specifically from China. From what we have gathered, many of you have not heard of such a thing. What if I was to tell you that there's a good chance as many as 3 million jobs could be re-shored to the U.S. and Mexico over the next eight years? And what if I told you that the vast majority of the jobs re-shored to the U.S. will land right here in the American South? Don't believe it? Well, it is happening right this very minute and SB&D has hard data on it. Just read on because this is truly a defining moment in the history of economic development in the South.

We have stumbled upon something that may be bigger than any of the South's great manufacturing waves that have hit the region since World War II. For example, in the 1970s turning a deal in many Southern states was like shooting fish in a barrel. Just ask any of the "golden age" Southern economic development professionals like Bob Goforth, Jack Hammontree, Ernie Pearson or Bob Leak, Sr. They will tell you that landing projects in the 1970s was as easy as answering the phone. Why? Just about every cut and sew plant boarded up in the Northeast and relocated to the South that decade. But what we have stumbled upon is much bigger than what occurred in the South in the '70s.

Then in 1983 and again in 1986, a more sustainable wave hit. That's when Nissan and Toyota chose to place the first foreign automotive assembly plants in the South and the Southern Automotive Corridor was born again. More automotive manufacturing waves sourced off our shores would soon follow such as BMW in 1992, Mercedes in 1993 and Nissan and Toyota again later that decade. Today, there are 19 original equipment plants in the Southern Automotive Corridor owned by foreign automakers and those massive facilities represent one of the strongest manufacturing waves seen in the region in the last 50 years.

But this new phenomenon to positively affect the South likely will not be a wave, but rather a tsunami. Again, it has the potential to re-shore 3 million jobs to North America with the majority of those coming to the South. It should be noted that there are only 11 million manufacturing jobs left in this country with about 38 percent of those residing in the American South.

The first clue indicating something was up wasn't last month, last year or two years ago. It was four years ago. In 2007, big manufacturing projects took over the No. 1 spot from the services sector in the region. That was the first time total manufacturing projects of 200 jobs/$30 million or more in investment topped service deals of 200 jobs/$30 million or more in investment in 11 years in the South, or since 1996. In 2007 there were 257 manufacturing projects meeting or exceeding our thresholds announced in the South compared to 225 service projects. The prior year saw 219 manufacturing and a whopping 370 from the services sector. Yep, something was up. A new sustainable was emerging.

In 2008 the trend continued with manufacturing chalking up an impressive 301 big manufacturing deals and services came in with a paltry 209. The gap was widened in 2009 – manufacturing: 291 projects with services dropping to a 20-year low of 138 projects of 200 jobs or more.

While this sector shift in large job-generating projects in the South was going on, I was trying to tell everyone I could that this was indeed happening. In 2008 I said on CNBC that "A manufacturing beachhead is being formed in the American South and Mexico." Other quotes of mine in the media in 2008 and 2009 included "South poised for wave of plants" and "If you think manufacturing is dead in the South, think again."

Then, we crunched the numbers for calendar year 2010. Wow, the South set a 20-year record of 335 large manufacturing projects that year. Again, I was shouting at the top of my lungs to media hacks whenever I could and we made the topic our cover story in the summer 2010 edition of Southern Business & Development with the headline, "A New Sustainable: Manufacturing continues its Deal Surge in the American South." But something was missing in the discussion; where were all of those projects coming from?

Total Deals - Manufacturing vs. Services - SB&D 100 1992-2011

Year Mfg. Services *Total Deals
       
2011 335 259 594
2010 228 140 368
2009 291 138 429
2008 301 209 510
2007 257 225 482
2006 219 370 589
2005 292 297 585
2004 189 277 466
2003 164 245 409
2002 165 282 447
2001 209 312 521
2000 194 346 540
1999 228 344 572
1998 229 407 636
1997 212 361 573
1996 310 243 553
1995 281 189 470
1994 303 182 485
1993 274 162 436
1992 244 183 427

Source: SB&D. *Total Announced Deals 1991-2010 with 200 jobs and/or $30 million in investment or more. Projects announced the previous calendar year.

Fortunately, none of those folks that interviewed me even asked where the manufacturing projects were coming from and if they did I assume my response would have been something like, "Well, just after a recession the South historically sees a significant increase in activity as a result of companies seeking lower cost locations to operate from."

Well, that premise has some legs. In the first recession we covered in the early 1990s, the first full recovery year was in 1993. That year the South got a big manufacturing deal bump of 29 projects. In 2003, the first full recovery year of the 2001-2002 recession, the South saw a big manufacturing deal bump of 22 projects.

But in 2010, the first full recovery year of the 2007-2009 recession, the South saw a big manufacturing deal bump of 107 projects, or about quadruple the bumps seen in the first recovery years of the previous two recessions.

Still, I had no idea what exactly was happening and why large manufacturing projects announced in the South were rising to levels never before seen, or at least in the 20 years we have covered economic development in the region.

Then, in September, a headline on www.RandleReport.com caught my eye. "The Chinese advantage is shrinking fast" the headline read. It was a story that one of our editors -- Morgan Holladay or Shelly Jo Jacobs -- posted that day on The Randle Report. The lead paragraph read, "China's overwhelming manufacturing cost advantage over the U.S. is shrinking fast. Within five years, a Boston Consulting Group analysis concludes, rising Chinese wages, higher U.S. productivity, a weaker dollar, and other factors will virtually close the cost gap between the U.S. and China for many goods consumed in North America."

Hmmm. Could that have something to do with a fast-rising manufacturing project total in the South -- even during The Great Recession? So, I bolted to the Boston Consulting Group's Web site and found a treasure trove of information, such as this from its study titled, "Made in America, Again."

"Wage and benefit increases of 15 to 20 percent per year at the average Chinese factory will slash China's labor-cost advantage over low-cost states in the U.S., from 55 percent today to 39 percent in 2015, when adjusted for the higher productivity of U.S. workers. Because labor accounts for a small portion of a product's manufacturing costs, the savings gained from outsourcing to China will drop to single digits for many products," the report read. 

What "low-cost" U.S. states is the report talking about I thought? Wyoming, South Dakota? Nope, there is only one group of "low-cost" industrial states in this country and they are all in the American South.

The report went on to say, "For many goods, when transportation, duties, supply chain risks, industrial real estate, and other costs are fully accounted for, the cost savings of manufacturing in China rather than in some U.S. states (again, got to be referring to the South) will become minimal within the next five years."

Then, bingo: "When all costs are taken into account, certain U.S. states, such as South Carolina, Alabama, and Tennessee, will turn out to be among the least expensive production sites in the industrialized world. As a result, we expect companies to begin building more capacity in the U.S. to supply North America. The early evidence of such a shift is mounting."

The $1.2 billion, 850-employee Bridgestone tire plant announced in Aiken, S.C. in the fall quarter was Evidence? I need some evidence, I thought. So I called one of my longest running advertisers, Will Williams at the Economic Development Partnership in Aiken, S.C. Will, who recently took over for the agency's long-running director, Fred Humes, was basking in the glow of landing a $1.2 billion, 850-employee Bridgestone tire plant the week before. I asked Will about the project and he suggested I call our mutual friend Mark Williams, the site consultant on the Bridgestone project.

I asked Mark to tell me about the project after informing him of my theory that the rise in manufacturing plant totals could be the result of the South competing more keenly with China. Mark said, "Mike, you might be right. Interestingly enough, this project was approved for Asia" but after doing due diligence, Bridgestone chose Aiken instead.

I asked Mark, "What did you say?" Mark repeated what he said. I then told Mark, "Do you know what you just said? You just said the South's biggest competitor is dead."

Now, after further review of that statement, I realize China's advantages for those tapping the Asian market are not dead. But after making a few more phone calls, I became convinced that a huge shift is indeed underway; that site selection trends for capacity in the U.S. for U.S. consumption had turned and we believe this began in 2007 based on our data.

After talking to Mark, I called David Rumbarger, CEO of the Community Development Foundation in Tupelo, Miss., another one of our long-term advertisers. I told David my theory and he responded by saying, "You might be right. I am working 29 big manufacturing projects and I have never worked that many here at the same time. And here is another thing. Mike, you would have laughed me out of the room if I told you this five years ago. Several of those 29 projects are coming from the furniture industry."

Furniture? When did the South begin making furniture again? That prompted me to take a long hard look at some of the largest manufacturing projects announced recently in the region and -- boom -- there was Electrolux building a huge plant in Memphis, GE adding new capacity at its Appliance Park in Louisville -- many of those jobs brought back from China -- and finally, I had forgotten about Whirlpool's new plant in Cleveland, Tenn. I thought, "When did we start making appliances again in the South." (By accident, I discovered this shameless plug: the majority of the South's largest projects in the last three years were turned by our year-end, year-out print/online advertisers and I didn't know that either until I reviewed them.)

Let's go back to my statement on cable news where I said in 2008 that, "A manufacturing beachhead is being formed in the American South and Mexico." Back then, I had no inkling where the source was. I was simply looking at the South's numbers, the Mexican numbers and numbers from the other three U.S. regions. It was clear to me that nothing was going on in the manufacturing sector in any of those places except in the South and in Mexico.

According to the Boston Consulting Group, Mexico will be a big winner in the re-shoring of jobs from China to North America. Pictured are Mexican workers assembling Volkswagen Jetta models at the German automaker's Puebla factory.Mexico was highlighted in the Boston Consulting Group report. "Mexico, on the other hand, has the potential to be a big winner when it comes to supplying North America (jobs re-shored from China). In 2000, Mexican factory workers earned more than four times as much as Chinese workers. By 2015, Boston Consulting Group forecasts that the fully loaded cost of hiring Chinese workers will be 25 percent higher than the cost of using Mexican workers."

The report has this warning about Mexico, though: "Mexico's gains will be limited, however, especially in higher value work now done in China. Because of concerns over personal safety, skill shortages, and poor infrastructure, many companies will keep manufacturing high-end products in the U.S." (We assume, as they do throughout the report, the "companies will keep manufacturing high-end products" in low-cost U.S. states, or more specifically, the South.)

Again, back when I made that statement in 2008 about "a manufacturing beachhead being formed in the American South and Mexico," I had few ideas about what might be brewing. It is clear to me what the ingredients are in that brew now.

So how big is this?

Just how big is this? Well, China is the South's fiercest competitor when it comes to manufacturing job and investment generation and over the last 10 years it really hasn't been much of a competition. In fact, between 2001 and 2010, according to The Economic Policy Institute, the U.S. lost 2.8 million jobs to China, with 1.9 million of those jobs coming from the manufacturing sector. SB&D estimates that of those 1.9 million U.S. manufacturing jobs lost to China, 1,038,000 came from Southern states. Based on total employment, the American South is the largest manufacturing region in the U.S. by a wide margin, so naturally it would lose more jobs to Asia during that time than any other U.S. region.

What did the South get in return for those 1 million lost manufacturing jobs? Well, there's Haier operating here with significant operations in Georgia. Huawei Technologies opened its new headquarters in Plano, Tex. in the fall of 2010. There's Lenovo that took over IBM's PC unit way back when and it's headquartered in North Carolina. Let's see. It's hard to come up with another Chinese brand operating in the South. Even though the Chinese as well as political and economic development leaders in the U.S. continue to maintain -- as they have for years now -- that Chinese jobs are coming, as of yet, there is really little or nothing meaningful to show.

According to Rumbarger, tiny Tupelo, Miss., which I referred to earlier in this story, has lost 30,000 manufacturing jobs to China in the last 10 years. Per capita, that total is one of the highest of any single location in the entire country. Yet, if furniture projects and jobs are coming back to places like Tupelo, then anything goes when it comes to re-shoring jobs from China to the South.

According to the Boston Consulting Group's report, "The reallocation of production is still in its early stages, but we believe it will accelerate in the years ahead." The New York Times, CNBC and The Financial Times all reported in the fall quarter about the BCG report. In brief they determined that this 'reallocation" could mean the creation of 3 million new jobs in the U.S. by 2020. If that is the case, the U.S. and specifically the South and Mexico, will get back all of the jobs lost to China over the last 10 years and then some by the end of this decade. That's how big this manufacturing wave could be.

Who is leading the (re) charge?

Again, we believe this wave of re-sourcing or re-shoring jobs and manufacturing capacity to the U.S. to make goods for U.S. consumption as well as for export out of the South to world markets as a result of China's fast-eroding cost advantage, began in earnest four years ago. By looking at the most active manufacturers to land in the region in those four years, one company stands out in the crowd. Illinois-based Caterpillar has been particularly active in the South.

Caterpillar is leading the way in the resurgence of manufacturing in the U.S., specifically in the American South. Pictured (left to right) are Bob Leak, Jr., President of Winston-Salem Business Inc. and Mike Randle, editor and publisher of Southern Business & Development at CAT's new axle manufacturing facility in Winston-Salem, N.C. in December.Just before Thanksgiving, Caterpillar officially opened its gleaming new plant in Winston-Salem, N.C. The 850,000-square-foot, $426 million axle manufacturing facility will soon house about 400 workers. But more important than the jobs, Steve Wunning, a CAT group president, said in the Winston-Salem Journal on November 14 that, "This Winston-Salem plant will help us more fully participate in the growth of developing countries. This world-class axle facility will allow us to produce more high-quality mining trucks in our existing manufacturing operations," Wunning said. He also said that 90 percent of the axles made in the Winston-Salem plant are expected to be sold to customers outside the U.S. And you thought global giants like CAT go to China to build things like axles for worldwide distribution. They did. But now the tide has turned. NOTE: I wrote "turned" not "turning."

Caterpillar is also building a plant in Victoria, Tex. that will open in mid-2012. That plant will manufacture hydraulic excavators. The facility has already expanded before it has even had a chance to open, something that was common back in the good old days in the South. Originally, the project called for a 600,000-square-foot facility. Now, CAT has expanded the project to include 1.1 million square feet of space and the original threshold of 300 workers has been doubled to 600.

The new Victoria, Tex. plant will more than triple CAT's current capacity of hydraulic excavators produced in the U.S. The expansion paves the way for potential future phases of growth in Victoria. Again, most of the excavators made in Victoria will be exported to other markets outside the U.S.

We asked Adrian Cannady, Vice President of the Victoria Economic Development Corporation, if the plant was approved for China and after reviewing cost-based data, CAT settled on South Texas. "I don't know if it was approved for China or not. But they (Caterpillar) have told us about China's eroding cost advantage. That's what they are telling us and that is what our project was all about. They also said we (Texas) have a tremendous advantage over Mexico. And they told us there will be more. Not only here but throughout the South," Cannady said.

Yes, there will be more than the plants Caterpillar has recently built or is building in places in the South like Victoria, Winston-Salem, Little Rock, Griffin, Ga., Schertz, Tex. and Seguin, Tex. The company has recently announced that it plans to build another massive manufacturing facility in North America that will produce small track-type tractors for mini hydraulic excavators.

In another huge sign that jobs are being re-shored to the U.S. -- and fast -- the prospective mini excavator plant is a result of CAT's decision to shift some production from Japan to be closer to its customer base in North America and Europe. "We're not going to comment or speculate on possible locations," Caterpillar spokeswoman Bridget Young said. "There are a number of factors that go into our analysis, such as logistics, access to major ports, proximity to our supply chain and the overall general business climate to name a few," she said.

This new plant is expected to house more than 1,000 workers. One-thousand workers in one deal being re-shored from Japan? Yep, it's happening folks and it is happening fast and we don't even know it. CAT's "Southern strategy" makes it the poster child of the Boston Consulting Group's report.

GE is also a poster child of this re-shoring event that could bring 3 million jobs to the U.S. and Mexico by 2020. Pictured are GE officials with Kentucky Gov. Steve Beshear at GE's Appliance Park expansion announcement in Louisville, Ky.General Electric is also a poster child for this massive re-shoring event. The Connecticut-based manufacturing and innovation corporate monster has also been particularly active with projects throughout the South. Its aerospace division has opened or is building plants all over the region. But GE's recommitment to its Appliance Park in Louisville is especially telling of this re-shoring event.

In 2009 GE began a series of expansions at its Louisville Appliance Park. Then the company announced it would produce high-end, energy efficient washers and dryers in Louisville. GE also announced that the new capacity it was adding in Kentucky was replacing capacity in – you guessed it – China.

In the press release regarding GE's commitment to its Appliance Park in Louisville, it reads, "The total number of new GE Appliance jobs announced in 2009 would reach 830, further building upon GE's vision of an 'American Renewal' fueled by a reinvigorated U.S. manufacturing sector."

Who is GE's CEO? Well, of course it is Jeff Immelt. That's the same Jeff Immelt that replaced Paul Volcker as leader of the President's Economic Recovery Advisory Board that was renamed the President's Council on Jobs and Competitiveness last year.

Why is re-shoring happening, generally speaking?

Taken from the Boston Consulting Group's report titled "Made in America, Again:" "The conditions are coalescing for another U.S. resurgence. Rising wages, shipping costs, and land prices -- combined with a strengthening renminbi -- are rapidly eroding China's cost advantages. The U.S. meanwhile, is becoming a lower-cost country. Wages have declined or are rising only moderately. The dollar is weakening. The workforce is becoming flexible. Productivity growth continues."

Ah, that word, "productivity." You might say to yourself that you are doing the job of what three of your former co-workers did prior to the recession. That may not be a good thing for you unless you believe not having a job is a better thing. But it does wonders for productivity and contributes greatly to a company's bottom line.

If you are working in manufacturing and doing the job of your three former workers, you are directly contributing to a U.S. manufacturing sector that has grown its output about two and a half times its 1972 level. And yes, that has been done even though manufacturing employment has dropped by 33 percent since 1972. Of course, technology on the factory floor contributes more to the added productivity and the drop in employment than any other factor.

Why is re-shoring happening, exactly?

Foxconn International, the giant contract manufacturer, employs 920,000 in China, most of which are housed at its immense Shenzhen campus.What is occurring in China is aligning the Moon and the stars for this re-shoring event like no time we have ever seen. Labor costs in China rose by 150 percent from 1999 to 2006. However, the huge increase in wages outpaced productivity growth dramatically on the Chinese mainland. From 2005 to 2010, wages grew by an average of 19 percent a year in China. On the other hand, according to BCG, "while fully loaded cost of U.S. production workers rose by only 4 percent" from 2005 to 2010.

Also, there is volatility in the Chinese labor market. "The last few years have been especially volatile in China. In 2010, the giant contract manufacturer Foxconn International, which employs 920,000 people in China alone, doubled wages at its immense Shenzhen campus following a string of worker suicides. After a factory supplying Honda was hit by strikes last year, wages rose by 47 percent. Minimum wages rose by more than 20 percent in 20 Chinese regions, and by up to 30 percent in Sichuan province," according to the BCG report.

Wages in the Yangtze River Delta, which includes Shanghai, will rise by an annual average of 18 percent over the next five years, according to the Boston Consulting Group.Also, wages in the Yangtze River Delta, which includes Shanghai, will rise by an annual average of 18 percent over the next five years. If that occurs, average wages will be well over $6 an hour there. The Delta is where the highest manufacturing output occurs in China and is the region of the country that competes so strongly with the American South. The Delta provinces of Zhejiang and Jiangsu make up the heart of the highly skilled region of China, where most automobiles and electronics are manufactured.

In short, what is aligning the Moon and stars for re-shoring to the American South is this: Since The Great Recession, the South has seen more flexibility from the workforce and for the few unions that call the region home. There has been minimal wage growth and much higher worker productivity -- the strongest productivity growth in the industrialized world.

But in the Yangtze River Delta you have this: scarce available labor, low worker productivity when compared to workers in the American South and wages that are rising through the roof.

Rising labor costs are only part of the problem facing the Chinese when it comes to competing with the South in 2011 and beyond for manufacturing for U.S. consumption and export to Europe and elsewhere. Tack on transportation costs, which are rising steadily, duties, the continued appreciation of Chinese currency, the risks involved in a supply chain that stretches around the world, political and intellectual property risks and rising industrial real estate costs, and BCG and others estimate that by 2015 there will be zero cost savings for a company to produce a product in China compared to the American South for North American consumption and U.S. export to Europe.

Here is an example from the BCG report: "To illustrate how the math is changing, let's look at a hypothetical part for a car assembled in the U.S. One option is to make the part in the U.S. South -- say, in South Carolina. The alternative is to make it in the Yangtze River Delta.

"In 2000, it would have made economic sense to source the part in China, where wages were about 20 times lower. Now fast-forward to 2015. The U.S. labor cost for the part will come to $3.31. At a factory in the Yangtze River Delta, workers will still be earning only one-quarter of their U.S. counterparts' wages. However, even with massive productivity improvements, output per worker at the Chinese factory will be only 42 percent of that of a southern U.S. plant. So the Chinese labor cost for the part will be $2.00, bringing the savings down to 39 percent. Moreover, since labor represents approximately one-quarter of the total cost of making the part, the total savings will shrink further, to less than 10 percent.

"Thus, the cost savings, if any, are unlikely to be enough to justify outsourcing the part to China, once all the other costs and risks are taken into account. If this trend continues through 2020, say, the equation might even reverse itself completely -- with manufacture in the U.S. (low cost states such as the South) being cheaper even before those added costs are considered."

Wow! Do you need to read that again? Go ahead. What this means is that if indeed by 2020 it would be cheaper to build the part in the southern U.S. straight up against China without even factoring in shipping, the supply chain risks and everything else, well, there is no question in our minds that what left in the last 15 years or so is all coming back.

And there is one thing not discussed in the BCG report. Manufacturers with long supply chains to Asia for products sold in North America, such as Nissan and Toyota, have been dealt a huge blow in recent months as a result of the earthquake and tsunami in Japan and the floods in Thailand. Now that the South is competitive with China and Japan straight up, why even have plants in a supply chain stretching around the world when you can make parts here in the region for about the same cost? This re-shoring event will eliminate the risks of natural disasters on the other side of the globe.

Three million jobs is a lot. One Southern governor I talked to about this asked, "Mike, how many plants is that?" I said, "Governor, I haven't even thought of that. Let's see. If each plant is 500 jobs, that's 6,000 plants." The Governor exclaimed, "Six-thousand plants! We can't accommodate 6,000 plants." I said, "Governor, they are not all coming to your state and they are not coming at the same time. We estimate it will take eight years." He was relieved.

So, what can stop this re-shoring event?

Some strong politically-minded folks may point to their distrust of Washington and that no matter how good this event looks; surely the politicos will screw it up. Wrong. No matter who is on The Hill -- Democrat or Republican -- or who is in the White House -- Democrat or Republican -- this can't be screwed up. Why? It's clear that this re-shoring event is based on one thing -- costs.

No matter how hard they may try, Washington can't artificially increase wages to any great extent. Nor can they screw up the productivity the U.S. has demonstrated for years now. If it is strictly a cost thing -- which it is -- then we are back in time to the 1970s when the South's industrial might went off the charts. Why? Simple, costs were too much to bear for manufacturers in other U.S. regions so they flocked to the South in droves not seen since. Until now.

What about if the Chinese become more productive with a greater investment in automation? Could that threaten this massive re-shoring event? That's unlikely. According to the BCG report, "It might seem that greater investment in automation would solve the problem of China's lower productivity. Multinational companies would merely have to install the same equipment used in their factories at home (in the U.S.). That, however, would undercut the chief competitive advantage of manufacturing in China -- low labor costs. Despite the greater productivity that automation would afford, China's total cost advantage over the U.S. would likely not increase significantly as a result."

And why, you might ask, wouldn't companies operating in China simply move to Thailand, Vietnam and elsewhere? According to the BCG report, "Other low-cost nations won't be able to absorb all of the export manufacturing that is likely to leave China. A simple reason is that there is no replacement for China's labor force. China not only has the world's largest population, it also has the highest proportion of able-bodied adults in the workforce. Nor can many other low-cost nations match the first-rate infrastructure, skilled talent pool, well-developed supply networks and worker productivity of China's coast industrial zones."

The only thing that we can think of that can stop this re-shoring event is if the North American consumer just quits buying. But we have been there and done that during The Great Recession. If anything, the American consumer is in a position to buy as a result of pent-up demand that has been created by the widespread downturn in the economy between 2007 and 2009.

Even more evidence this re-shoring event is happening. 

On another cable news show I was paired with a union stalwart during the GM bailout in 2009. The gentleman kept talking about the importance of the union in the entire scheme of the bailout. My argument centered on the fact that the union was the primary suspect -- other than GM itself -- in the whole deal and that union contracts were not sustainable and that reason, more than any, is why GM was in the situation it found itself in during that time. 

He kept on and on about the UAW and I finally said, "All you can do to stop the South's advantage is to get on here and ram card check down our throats? Try something different. Instead of forcing your economic policies on us (the South) to level the playing field, why don't you implement ours on yourselves? Pass right-to-work in Michigan."  

Well, that statement just got me laughed at, as if Michigan would stoop so low to pass right-to-work. Then, I was reading The Randle Report and saw this headline from The Washington Times on October 3. "Right-to-work drive gains steam in Michigan."

Okay, maybe they had a change of heart. Change of heart? Yes, leaders in Midwestern states have had a change of heart. They are falling all over themselves to pass right-to-work legislation right now because they know this tsunami of jobs is coming, too. They know it and they also know that if they don't pass right-to-work laws they will land but a small portion of the 3 million jobs headed our way.

Other evidence that jobs are moving to the South from China surfaced while this article was being written. Just before Thanksgiving, Louisiana Economic Development announced that Maritime International is moving production of mooring systems and protective fenders for international harbors and the U.S. Navy. The company will move production now taking place in China to its plant in St. Martin Parish, La. The relocation from China will create 90 new jobs in Louisiana.

A different scenario surfaced the day before Thanksgiving in Henry County, Va. Commonwealth Laminating & Coating, a manufacturing company with a strong emphasis on solar-control window films, announced it will invest $16.5 million to expand its operations in Henry County, where Martinsville is located. Henry County successfully competed against -- you got it -- China for the project. 

Why is this so important?

Other than the re-shoring of millions of jobs, this event is important for a variety of reasons. Chief among them is this: unlike previous boon times, such as the Internet boon of the 1990s or the real estate boon of the 2000s, this positive event is not based on an economic development bubble. If the South and Mexico just happen to become the lowest cost places to operate a manufacturing facility in the industrialized world, this is true sustainable economic development. Once it arrives, it won't be leaving any time soon. And, the "beachhead" is not built on an idea, a scheme or the soup of the day. It is being built for one reason: it makes economic sense to move those jobs back home for the thousands of companies that went to China for the same reason -- to save money.

And unlike other manufacturing waves that have hit the South, this one is not relegated to a single industry such as textiles and apparel or the automotive industry. Nope, this will involve almost every manufacturing sector there is, specifically the higher-end sectors that involve advanced manufacturing. In other words, after reading this don't be surprised to read about cell phone and other communication and electronics sectors building manufacturing facilities in the South for the first time in 15 years or so.

And again, if the South and Mexico are transforming into the low-cost leaders for the production of goods consumed in North America and Europe, this is not simply a projection. There have been many other manufacturing sectors over the years that were "projected" to land in the South in large numbers, such as the semiconductor industry in the 1990s and biotechnology beginning in the 2000s. Both failed to materialize or in the least live up to their projected growth in the region at the time. Why? Because it didn't make economic sense to make products in those industry sectors at the time in the South. Now it does. 

Who in the South will benefit from this re-shoring event?

First and foremost the states, counties and towns that are already benefitting from this re-shoring event are the few who know about it and have begun targeting manufacturers -- particularly the larger ones -- who have facilities in China producing goods for North America. Those same locations that really haven't done anything different during or after the recession are also those that will benefit from this monster shift in global site location.

In a related matter, those manufacturing locations in the South that are visible and are aggressive in their marketing, such as Kentucky, Texas and South Carolina are already landing the first wave of plants from China. In 2011, it seemed to us that a large number of projects announced in the South ended up in Kentucky, Texas and South Carolina. Our data shows that many of those projects, some of which have already been profiled in this story, are decisions that were made to source plants here as opposed to in Asia.

On the other hand, those locations that have essentially closed the hatch and are practicing economic development on the cheap will be the last to catch this Chinese wave. Regardless, we believe this re-shoring event will be so large that few locations in the South will miss out on at least an opportunity to create new jobs as result of companies leaving China for North America over the next eight years. 

Comment and conclusion.

In 20 years of covering economic development in the South we have never seen anything like this and nothing that even remotely had the potential to create 3 million new jobs over the course of eight years. The fact that beginning in 2007 our data showed that large manufacturing projects were increasing in number in the South and continued that push until setting a 20-year record in calendar year 2010, simply verifies that this re-shoring event is actually happening right now.

The American South and Mexico have been beating China at its own game in the last few years and we didn't even know it. Now we realize it and it is going to be interesting to see if the skepticism, political wrangling and the shell shock born from The Great Recession will be an obstacle for some states and communities in the South to cash in on this event.

For example, when we discovered our data and other information proved this re-shoring event has actually begun and is much more than a mere projection, we shared it with as many people in economic development in the South as we could in the month of November. We received two distinct responses. There were those who responded favorably and were desperate for more information, such as what to do next to land projects being re-shored from China. This group was "all in" and they were genuinely astounded by the data we provided them.

On the other hand, some that we shared it with also had no idea this is happening and responded like so: "We are going to have to get our research team to verify what you are claiming." Based on their skeptical and apathetic response, the research never went past the end of the phone conversation. They can research all they want and they still won't come up with what we have presented in this article.

This data in its complete form as presented in this story is an exclusive to SB&D that no research team, media or government entity has discovered. The reason is simple; SB&D is one of the few if only sources that use data from the American South exclusively. Everyone else looks at data from a U.S. perspective, a view that would not easily present a conclusion on this event. In short, this re-shoring event is a Southern and a Mexican thing because only in those two places in North America are manufacturing projects rising to levels never before seen. 

Folks, our economic development departments represent the only government entities that earn revenue for a state or community. If we are going to emerge from this apathy, distrust, skepticism and government budget crunches that have been created by the worst economic period since The Great Depression, we are going to have to grow our way out of it. And this defining moment for the American South is the best chance we have seen in 20 years to do just that.

EDITOR'S NOTE: For more information on the Boston Consulting Group's (BCG) report, go to www.bcg.com and type in "Made in America, Again" in the search window. The report in PDF format can be accessed through the site. The report was written by Harold L. Sirkin, Michael Zinser and Doug Hohner. There is also a press release dated October 7, 2011 from BCG that outlines the 2 to 3 million manufacturing jobs that might be re-shored to the U.S. as a result of China's shrinking cost advantage.

Sirkin is quoted in the press release saying, "A surprising amount of work that rushed to China over the past decade could soon start to come back -- and the economic impact could be significant. We're on the record predicting a U.S. manufacturing renaissance starting by around 2015. Now we can be more specific about which industries will return and why."

We would like to take this opportunity to thank BCG and Sirkin by writing that the information you provided in your report, combined with the data SB&D has collected and published over the last four years, indicates that the "renaissance" will not wait until 2015. It has already begun in the American South. 

mike@sb-d.com


  
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