Smith: Onshoring: Tennessee's opportunity

Smith: Onshoring: Tennessee's opportunity

January 6th, 2014 By Robin Smith in Opinion Columns

Robin Smith

Photo by Contributed Photo/Times Free Press.

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.