published Monday, January 6th, 2014

Smith: Onshoring: Tennessee's opportunity

By Robin Smith

Part of any enterprise where competition is involved is knowing the market, meeting the demands of the market, and maintaining a competitive advantage that keeps your company relevant in that market.

Businesses and sports teams spend millions in research, training, and talent acquisition to stay competitive. Marketing and advertising comes only after the development.

You recognize the need and opportunity. You build it. Then you promote it. And a response by an interested market is given.

After years of committed policy development and implementation to attract business in Tennessee, to drive down the burden of excessive taxes and regulation, and to workforce development with skilled and educated individuals within a right-to-work state, the table is set to invite new and expanding manufacturing businesses.

Tennessee may begin to see the big payoff in 2014.

In the last three months, I've read articles in Forbes, Inside Indiana Business, the Mississippi Business Journal, and the Wall Street Journal touting the return of manufacturing to the states, or "onshoring." This trend is unfolding as our domestic production of natural gas drives down the cost of energy and more states are moving to "right-to-work" status.

The advantages of "offshoring" with U.S. companies expanding globally -- disproportionately to China and other Asian markets -- for "cheap" labor are weakening due to increasing costs of energy and labor abroad.

You see, in China and other emerging economies, the costs of doing business for American companies are increasing. Labor shortages due to an aging workforce is resulting in a 15-20 pecent wage spike. The cost of energy in China has increased by 15 percent just since 2010. Transportation costs to move products are a fixed liability that have only increased during the last 5 years driving up overhead.

To remain competitive, all companies, domestic and foreign, are now looking for a skilled workforce that is efficient and flexible to meet the demand of quality and price. The "offshoring" of manufacturing is no longer as compelling from a cost standpoint as it was a few years ago.

A Wal-Mart supplier, Hampton Products International, has tracked its Chinese production costs over the last six years and has "resurrected" its manufacturing back home in Wisconsin.

CEO H. Kim Kelley observed, "The price of producing a part in China has risen 24 percent to $2.20 from $1.77 because of the Chinese currency and increased labor costs. Throw in transport costs and U.S. tariffs, and that product delivered to the US today would cost about $2.53... Moving production back to the U.S. ... we can make the part today for just $2.16, a nearly 15 percent savings."

The Boston Consulting Group's study of 2011 projected that "onshore" manufacturing "could create 2.5-5 million U.S. jobs and related services by the end of the decade ... with up to $130 billion in exports from other nations by 2020, thanks largely to significant labor and energy-cost advantages over Western Europe and Japan and to rising costs in China."

Will our city, county, state and region be positioned with the right talent, training, and technology to leverage this onshoring? Will our leaders continue to understand and fight the efforts of organized labor, specifically the United Auto Workers, in negatively impacting our workforce advantages? Will they, instead, lead with pro-growth policies?

The research shows the need exists. Will we build the right climate for manufacturing success? Will we vigilantly protect it?

Robin Smith served as chairwoman of the Tennessee Republican Party, 2007 to 2009. She is a partner at the SmithWaterhouse Strategies business development and strategic planning firm and serves on Tennessee's Economic Council on Women.

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nucanuck said...

IMO,

What Robin calls "on-shoring" is actually the early stages of the re-localization of many world economies. Globalization is likely to trend down as transportation and energy costs rise. Energy importing countries will be at an increasing disadvantage and that includes the US. Currency wars and protectionism will reinforce re-localizaton.

Sometime over the next few years the US dollar will lose it's reserve status, that process is already underway. When that moment occurs, trillions of dollars will be forcibly repatriated and the inflation that the US has exported to other countries over the years will return as a tsunami of dollars. The resulting weak dollar will cause all imported prices to rise sharply, including petroleum, which is based on world prices. The US will go into economic shock.

No net jobs will be created in the US with the return of some manufacturing because the US will be transitioning from a wants based economy to a needs based economy which will tend to contract the overall economy. There is every reason to believe that the combination of forces at play will dictate a long period with zero or negative growth which means that debt would be much more difficult to obtain and repay.

The US will be at a low ebb and forced to reconsider all options as a new economic order is put in place. From that should come a new foundation that would allow the US to rebuild it's economy and society towards balance and health. At least that is the hope.

The US will likely become a much smaller economy with less global impact, but still an important economy that has become wiser from the difficult transition. With that gained wisdom, humility, so long lacking, will hopefully become a component of US national character.

The sooner the Fed and the Congress stop fighting the inevitable, the sooner the job can begin.

January 6, 2014 at 1:18 a.m.
LibDem said...

Thanks, nucanuck. Now I'm all depressed.

I think Ms. Smith is just asking for lower taxes, less education, cheaper labor.

January 6, 2014 at 9:38 a.m.
nucanuck said...

LD, I see Ms Smith as long on political agenda and short on depth perception.

January 6, 2014 at 12:13 p.m.
jesse said...

nucanuk!there seems to be an epidemic of that ailment goin around!!

January 6, 2014 at 5:30 p.m.
chet123 said...

THIS WOMAN IS AN AIR-HEAD

January 6, 2014 at 7:04 p.m.
Hunter_Bluff said...

Robin just re-states Rush's talking points. She completely misses the fact that China has essentially free money to build those factories with. That means no interest charge. It means they could buy huge quantities of raw materials and store them at no expense since they didn't have to pay interest on the borrowing to buy the raws. They didn't have any pollution controls, I watched workers tear down a building from the top down (no safety rope, nets, hardhats). But according to Rush, I mean Robin, the problem was those bad old unions and high priced labor and the needless regulations that make Chattanooga's air clean in 2014 as opposed to America's most polluted city circa 1969. Thanks Robin but we don't need this drivel, we can tune into any low wattage AM station and get it straight from where it originates.

January 8, 2014 at 10:19 a.m.
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