Spring 2011
For real-time news on economic development, business and politics in the American South, go to www.RandleReport.com. For more information on economic development in the South go to www.SB-D.com and www.SouthernAutoCorridor.com for automotive news in the region.
Editorial
Overseas Jobs Coming Back to the South
By Mike Randle
The biggest economic development issue 10 years ago as the U.S. and the South were smack dab in a recession that we believe was just as bad as The Great Recession -- only shorter -- was whether or not Mexico, China and other countries were going to steal every bit of manufacturing done in this country as a result of their incredibly low labor costs. The fear was real as one major manufacturer after another set up shop first in Mexico (NAFTA was ratified in 1994) and then China and other low wage countries in Asia and South America in a search for low-cost sourcing. That is still occurring, yet the original idea for those waves of companies was to outsource manufacturing to low wage countries and export product back to the U.S. That strategy is now all but obsolete to many manufacturers as companies start a new wave; bringing back hundreds of plants to the South from China and elsewhere. What happened?
We published an editorial in 2002 that was designed to ease fears in the South's economic development community by writing, "Yes, the concerns among communities and states in the South of a mass exodus of manufacturing jobs offshore is real, for now anyway. However, in time, wages in China will skyrocket and combined with the costs of shipping from the other side of the world will make this relatively new phenomenon an unpopular venture.”
Later in the piece, we wrote, "Another factor that will come into play is the brutal travel times to China that will have to be made by American executives. U.S. manufacturers cannot monitor their work in China from the U.S. Executives will eventually tire of that 24 hour flight. I mean, have you ever flown to China? It is a brutal experience."
Well, we were mostly right. China's manufacturing wages nearly doubled during 2003-2008 and wages there have risen 30 percent in the last year, mainly due to labor strikes. They are expected to rise at least 20 percent a year with no end in sight. In 2002, when we wrote the editorial, workers in China made half as much as their Mexican counterparts. Today, wages in China have passed those in Mexico. So, the bargain of 2002 is not the same bargain of 2011, particularly since it costs less to manufacture in the U.S. – particularly in the American South -- than it did prior to the recession.
Smaller manufacturers that lack the resources of giants like GE were the first to return back home from China. They have come back in droves. But now, even manufacturing giants like GE are having second thoughts about their China strategies. In Louisville's Appliance Park, a closed General Electric plant is being restarted to produce energy efficient water heaters and another facility in the park will build refrigerators. GE currently makes those products overseas. That will end soon as the company is hiring 1,300 union workers at Appliance Park.
Atlanta-based NCR, which relocated its headquarters to the ATL from Ohio two years ago, is also bringing plants back to the South. The company will manufacture ATMs and self-service checkout systems at a plant in Columbus, Ga. hiring hundreds in the process. Those machines were formerly built in China, Hungary and Brazil.
mike@sb-d.com
Editorial
The Automotive Industry is Back Big Time in Small Town South
By Mike Randle
The timing couldn't have been better. No place was affected more by The Great Recession than the rural American South. Hundreds of plants closed, gas prices increased dramatically and therefore tens of thousands of folks that live and work in the South's rural areas were not only out of work, they had to spend a fortune driving 80 miles or so round trip just to interview for a job.
Re-enter the rural South's most important industrial sector: the automotive industry. Not only is the automotive industry the South's No. 1 industrial sector in terms of average projects announced each year of 100 jobs or more over the last 20 years, it is THE economic savior for the region's rural areas. No industry loves Small Town South more than automotive and after the first six months of 2011 we can say that it is back in a big way.
Of the rural South's 48 significant job generating projects that were announced in the winter 2011 quarter, 23 came from the automotive industry. In the spring quarter, of the 44 big deals announced in SmallTownSouth (go to www.SmallTownSouth.com), 13 came from the automotive sector.
Just two years ago in the winter quarter of 2009, there were five automotive projects announced in the rural South. Of those five, two didn’t even pan out. Even worse, there were 18 automotive-related closures in the rural South in the winter of 2009. This winter there were two closures and only one was located in Small Town South and in the spring of this year there were no closures in the automotive sector in the South.
mike@sb-d.com
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