TIP Strategies is a privately held Austin-based economic development consulting firm committed to providing quality solutions for public and private‑sector clients.
This blog is dedicated to exploring new data and trends in economic development.
submitted by: Derek Singleton, the Software Advice blog
Recent news coverage has highlighted several companies that decided to locate their production facilities within the United States. For instance, the Wall Street Journal reported that European aerospace manufacturer Airbus plans to open a massive plant in Alabama. The Detroit Free Press reported also reported that the high-end watchmaker Shinola would be setting up shop in Detroit.
These are encouraging signs for proponents of American manufacturing. What’s more, there have been reports of a number of companies “reshoring” their production from China or another overseas location. Companies are coming back for a variety of reasons, many of which are driven by conditions in China. Some of the most popularly cited reasons include:
—Chinese labor costs are expected to rise at a rate of 13 percent per year through 2015;
—The cost of shipping products around the world is dramatically increasing;
—Distance is making it difficult to design and collaborate on products; and,
—It is increasingly difficult (and expensive) to protect intellectual property in China.
Three Companies that Brought Production Back
While there are numerous reports of companies reshoring, these three represent a sampling of motives for a move back to U.S. soil:
Hurst is best known as the manufacturer of the Jaws of Life, and they recently made news for bringing their production back from China due to quality issues and unreliable suppliers. After Hurst started receiving returns of defective products, they started sourcing their production domestically. As a result, they have realized significant quality improvements and have more control over their supply chain.
In February of this year, General Electric decided to reshore the production of their water heaters from China to Kentucky. In addition to supply chain issues, GE had difficulty coordinating short delivery times. Even though GE had 30 percent lower labor costs in China, once supply chain and delivery issues were factored in, they saw their costs were actually six percent higher than producing in the US. The move back to U.S. soil has resulted in stronger control over their supply chain.
Peerless-AV moved back to the U.S. after an extended an expensive (seven figures in legal fees) battle surrounding intellectual property theft and knock-off products. Moving back afforded Peerless better intellectual property protection and provided them the ability to bring products to market more rapidly.
Let’s Turn the Trickle Into a Trend
Reshoring is not the dominant trend in the industry. The number of companies that have left the U.S. still dwarfs the number of companies that have come back to the U.S. The question then becomes: how do we turn this trickle into a trend? Here are a few ways we can make it happen:
—Create a more educated workforce that can fill skilled labor gaps and get Americans interested in manufacturing careers at all levels (e.g., assembly, engineering, management, etc.).
—Use automated assembly processes to limit the labor input of production more extensively.
—Help companies evaluate their true total cost of ownership (TCO) to help model the risks and costs of offshoring production.
If you have any thoughts on the reshoring trend, I want to hear from. You can contact me via the Software Advice blog at: What Can be ‘Made in the USA’? Or you can reach me directly by emailing firstname.lastname@example.org.
By: James R. Hagerty
Via: The Wall Street Journal
About 14% of U.S. companies surveyed by a Massachusetts Institute of Technology professor definitely plan to move some of their manufacturing back home—the latest sign of growing interest among executives in a strategy known as “reshoring.”
David Simchi-Levi, an engineering professor at MIT who runs a program for supply-chain executives, said he surveyed 108 U.S.-based manufacturing companies with multinational operations over the past two months. The companies range in size from annual sales of about $20 million to more than $25 billion, and most of them are over $1 billion, Dr. Simchi-Levi said.
Among the main reasons cited for reshoring: a desire to get products to market faster and respond rapidly to customer orders; savings from reduced transportation and warehousing; improved quality and protection of intellectual property.
About 21% listed “pressure to increase U.S. jobs,” a hot political issue this year, as a factor in reshoring. Dr. Simchi-Levi said the survey didn’t specify where that pressure was coming from. But some companies appear to feel both political and market heat to show they make things in the U.S.
In February, Boston Consulting Group surveyed 106 companies with annual sales of $1 billion or more and found that 37% planned to reshore or were “actively considering” it. The MIT survey is more precise in singling out those with definite plans. When asked the broader question of whether they were considering a move to reshore, the MIT study found that 33% of those surveyed said yes.
Google Inc. GOOG +2.83% made a big splash last month by announcing that its new Nexus Q music and video player will be manufactured in the U.S., something that rarely occurs in consumer electronics. Scores of other companies—including Caterpillar Inc., CAT -1.03% General Electric Co. GE +0.51% and Ford Motor Co. F -0.96% —in the past two years have announced plans to make in the U.S. some products they previously brought in from overseas.
GE’s website includes an “American Jobs Map” providing details of 14,500 new jobs announced by the company since 2009.
Some foreign companies also have been stepping up their U.S. manufacturing. The U.S. unit of Japan’s Yaskawa Electric Corp. 6506.TO -2.11% recently decided to make a new line of electrical motor controls for heating and ventilation equipment at its plant in Buffalo Grove, Ill., rather than in China. Craig Espevik, a vice president at Yaskawa, said the cost of the parts will be about 10% higher, even after shipping costs are included, mainly because of higher wages in the U.S. But producing the parts here will allow for quicker deliveries to customers, lower inventories and more customization.
In April, U.S. Sen. Debbie Stabenow, a Democrat from Michigan, announced legislation dubbed the Bring Jobs Home Act. The bill would provide tax breaks to help companies cover the cost of moving production back to the U.S. and ban tax deductions for the expenses of moving operations abroad.
MIT’s Dr. Simchi-Levi said lower U.S. corporate taxes would help bring more manufacturing back. He said it wasn’t yet clear whether the reshoring trend will result in a large amount of U.S. job growth. Some of the jobs will be low-paid assembly work, he noted.
Even so, he called reshoring an encouraging development: “Once you start this process, there is no telling where it ends.”
The complete results of the MIT survey are due to be presented at a Forum for Supply Chain Innovation conference July 25 at the university in Cambridge, Mass.
By: Will Oremus
Former Alaska Senator Ted Stevens called the Internet “a series of tubes.” Sociologically, it’s something more than that, but on a physical level, he’s basically right. Easy as it is to forget, the information that appears on our screen generally travels first through a vast network of fiber-optic cables.
But where exactly does it go on its journey? A new set of images published in this week’s issue of Fortune provides some of the clearest and prettiest pictures yet. They’re based on maps from GeoTel Communications, a company that specializes in “telecommunications geography.” GeoTel’s CEO, Dave Drazen, tells me the information is derived from major U.S. based carriers and publically available sources. He notes that the maps aren’t comprehensive—they don’t include military or government installations, for instance. Still: wow.
The maps—one of the world as viewed from the North Pole, and one of New York City—go along with an article by Andrew Blum in Fortune’s print edition this week. They were visually enhanced by Fortune graphic designer Nicolas Rapp, who also posted them on his blog. They’re reprinted here with GeoTel’s permission.
New York City’s fiber-optic cable routes are concentrated around the financial district. One major hub is the telecommunications building at 60 Hudson Street, in TriBeCa:
The world’s fiber-optic network as viewed from the North Pole:
By: Nathan Yau
Nicolas Rapp dives into the patterns and growth of worldwide shipping in a six-page spread for Fortune Magazine.
“Nearly 90% of all goods traded across borders travel, in part, by sea. Typically a ship will undertake six voyages a year. The fastest-growing routes are between ports in Asia, while goods moving out of that continent account for 43% of all maritime trade, according to IHS Global, an economic forecasting firm. Today the most heavily trafficked sea route is between China and the West Coast of the U.S. The total value of goods that travel from China to the U.S. is four times that of those on the return trip—a clear symbol of America’s trade deficit.”
Despite a gap of a few centuries, the routes today still look a lot like the ones from the 18th century.
By: Lam Thuy Vo
Via: NPR Planet Money
The U.S. sells over $1 trillion worth of goods to the world every year. We also export hundreds of billions of dollars worth of services — legal and financial advice, plane tickets, etc.
After we ran the chart above earlier this year, one category in particular piqued our interest: Royalties and licensing. That category is, essentially, ideas America sells to the world.
In 2010, the most recent year for which data are available, the world paid U.S. companies $105.6 billion to use our ideas. This is why companies that rely on royalties and licensing — Microsoft, say, or Disney — are always making such a big deal about piracy and intellectual property. Here’s a closer look.
Most of this is pretty self-explanatory. Software, not surprisingly, is huge. The one big jargony category is “industrial processes.” This includes patents on drugs (a big one), as well as on particular ways to make everything from chemicals to cars.
For detailed data on U.S. royalty and licensing exports to countries around the world, see this Excel spredsheet from the Bureau of Economic Analysis.
By: Diane Cardwell
Via: The New York Times
|Marc Steiner for The New York Times|
|A Roof Diagnostics crew installing panels in Holmdel, N.J. Creative financing has set off a boom in solar installations.|
HOLMDEL, N.J. — Jay Nuzzi, a New Jersey state trooper, had put off installing solar panels on his home here for years, deterred by the $70,000 it could cost. Then on a trip to Home Depot, he stumbled across a booth for Roof Diagnostics, which offered him a solar system at a price he couldn’t refuse: free.
Mr. Nuzzi had to sign a 20-year contract to buy electricity generated by the roof panels, which he would not own. But the rates were well below what he was paying to the local utility. “It’s no cost to the homeowner — how do you turn it down?” Mr. Nuzzi said on a recent overcast morning as a crew attached 41 shiny black modules to his roof. “It was a no-brainer.”
Similar deals are being struck with tens of thousands of homeowners and businesses across the country. Installers, often working through big-box chains like Home Depot or Lowe’s, are taking advantage of hefty tax breaks, creative financing techniques and a glut of cheap, Chinese-made panels to make solar power accessible to the mass market for the first time. The number of residential and commercial installations more than doubled over the last two years to 213,957, according to Greentech Media, a research firm.
Major players in the installation business, like SolarCity, Sunrun and Sungevity, are thriving even as the other side of the industry — solar module makers — has been squeezed to the breaking point by fierce competition from Chinese manufacturers. In a case to be decided later this month, a coalition of solar manufacturers has asked the United States government to impose steep duties on the imports, arguing that the Chinese companies are violating international trade rules.
“You hear a lot of the gloom and doom about the industry and, you know, ‘The manufacturers are losing jobs, they’re shutting down,’ but if you look at where the actual money is in these systems and where the jobs are, it’s really in the installation,” said Lynn Jurich, Sunrun’s president.
Big corporations like Google, U.S. Bancorp, Morgan Stanley and Bank of America Merrill Lynch see the potential for steady profits in rooftop solar projects and have been supplying the capital to help cover the upfront costs, which typically run $30,000 or more for a single-family home. The investors say they believe the returns, generally 7 to 13 percent, are relatively safe because the solar providers generally sign up only homeowners and businesses with solid credit. In addition, installers say that people tend to pay their electric bills even when facing other financial problems.
“We have customers that are foreclosed,” said Lyndon Rive, chief executive of SolarCity, one of the largest installers. “They’re still paying their electric bill so they still pay us.”
The company has raised more than $1.4 billion to finance its projects and is so confident in its future that it is planning an initial public offering of its stock. The company has declined to comment on the stock offering.
Industry executives even predict that solar leases could one day be bundled and sold as securities like mortgages and other loans.
Some analysts caution that despite all the activity, the sector still faces hurdles, like the high costs of bringing in new customers and getting financing. “It’s not clear to me that anyone yet has cracked the code of scaling the business massively,” said Dickon Pinner, co-author of a recent McKinsey report on the industry.
Solar customers can finance their systems in a variety of ways. Businesses often purchase them outright so that they can reap the savings and take advantage of tax incentives and depreciation.
But homeowners are increasingly choosing to avoid the upfront costs. In California, the country’s largest market, more than 70 percent of residential customers putting in solar this year have opted to sign a lease or power purchase agreement with someone else owning the systems, according to PV Solar Report.
The structure of the deals varies by company and state, but the overall approach is generally the same: Customers agree to pay a fixed monthly charge or rate for all the solar power produced, and the companies that finance the systems pay for the installation and take the value of any tax breaks or renewable energy credits for which the customer would ordinarily be eligible. Some companies concentrate on financing and use local contractors for sales and installation, while others do everything themselves.
Through such arrangements, industry executives say, customers can lower their power bills, escape the uncertainty of fluctuating energy costs, and avoid the complex bureaucracy of federal and local credits, rebates, grants and tax breaks.
|Marc Steiner for The New York Times|
|The co-founder of Roof Diagnostics, Kelcy Pegler Jr., started a solar division at his father’s roofing company four years ago.|
However, the approach does not work everywhere. Thus far, installation companies have been most active in states where the price of electricity from the utility is high and there are robust incentives, like California, Hawaii and much of the Northeast.
And the transactions are not without risks for both sides. If the systems do not produce the promised electricity, the agreements often require the companies to reimburse customers for what they have to buy from their utility instead. Customers are committed to a long-term contract, raising complications if they sell the house or want to get out of the deal.
Another concern is the trade case, brought by a group of manufacturers who say they cannot compete against Chinese companies able to cut their prices below their costs because of unfair subsidies from their government. The Chinese companies aim to monopolize the market and then raise prices, American manufacturers say.
“The game is simply rigged, plain and on its face,” said Ben Santarris, a spokesman for SolarWorld Industries America, which originally filed the trade complaint and makes panels in Oregon.
The Commerce Department has already imposed modest tariffs on Chinese-made silicon cells based on a preliminary finding of improper subsidies. On May 17, the department is scheduled to announce its determination of whether the Chinese companies engaged in dumping, or selling products below fair value, which could lead to steeper duties.
Those on the installation side of the business say that cheap imports benefit consumers, and they have urged the government not to penalize the Chinese manufacturers.
For now, those cheap panels are helping to keep business brisk for installers large and small across the country.
“We have our suppliers calling and dropping their prices on a daily basis to move inventory. That works in our favor,” said Heshy Katz, president of Green Power Developers, an installer in New Jersey. “We can offer our clients an installation at 30, 40 percent less than two years ago.”
Roof Diagnostics hired almost 50 new employees in March and April, said Kelcy Pegler Jr., who started the solar division at his father’s New Jersey-based company about four years ago and has expanded to Massachusetts and New York.
“We turned a roofing company that did solar into a solar company that does roofing in support of solar,” he said. “We’re really a solar company now.”