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.
by Siobhan Dilly, TIP Strategies
It is well-known that US manufacturers have spent the past 30 years off-shoring production in pursuit of low-cost labor and economies of scale. This trend has had significant ramifications for the landscape of the US economy, in which manufacturing as a share of total employment has fallen by more than 40% since its peak in 1979. Off-shoring, however, is no longer the default choice for US manufacturers. Issues with logistics, culture clashes, intellectual property, and quality control have made on-shoring or re-shoring more attractive. According to Boeing chief executive, Jim McNerney:
“We, lemming-like, over the last 15 years extended our supply chains a little too far globally in the name of low cost. We lost control in some cases over quality and service when we did that, we underestimated in some cases the value of our workers back here.”
Companies participating in this counter-trend note a range of advantages associated with producing on-shore, from better quality control, improved responsiveness to product changes, more logistical flexibility and lower shipping costs, to simply operating in the same (or a similar) timezone. Small businesses in particular see an advantage in domestic manufacturing, which frees them from the challenges of financing the required bulk orders from Chinese manufacturers. Larger businesses have found savings by eliminating the need to send employees to China and India to oversee production processes.
A series of reports released by Boston Consulting Group has found that rising US competitiveness, next to rising costs in China, will result in 10 to 30 percent of US imports from China being moved to the US in the seven tipping-point sectors: transportation goods, appliances and electrical equipment, furniture, plastic and rubber products, machinery, fabricated metal products, and computers and electronics. Along with this prediction, BCG anticipates the return of manufacturing work to the US, along with increased exports, will create 2 to 3 million jobs, both directly from added factory work, and indirectly via supporting services. BCG also found that increased US per worker productivity means the average US worker is 35 percent cheaper then the average Western European worker, up from 12 percent a decade ago. They expect this gap will continue to widen.
The Massachusetts Institute of Technology (MIT) recently released the results of a survey as part of their Forum for Supply Chain Innovation. The survey found that 14% of 108 respondents were definitely planning to move some of their manufacturing back home, and 33% were considering re-shoring. Google, GE, Caterpillar, and Ford are examples of large companies that have announced plans to move some of their production to the US. Although this is generally positive news for the US economy, continued high unemployment indicates this trend has yet to make significant inroads.
By: Joe McKendrick
Via: Smart Planet
New York and London top this year’s list of leading global centers of opportunity, though emerging cities such as Beijing and Shanghai are catching up quickly. Beijing actually tops the list in terms of overall economic clout. The top cities for business and financial services employment? Milan and Paris.
These are the conclusions culled from the latest edition of Cities of Opportunity, released by PwC and the Partnership for New York City.
While New York officially edges out London by one point across 10 economic indicators, the city wins in no individual category. Toronto, which finishes third, also shows great balance yet wins no category. London, however, takes the lead in “city gateway,” an indicator introduced this year that measures global interconnectedness and international attraction. Rounding out the leaders are Paris, which advances four spots from 2011 to number four, and Stockholm at number five.
Here are the top 20 cities, ranked by innovation, technology, infrastructure and health:
1. New York
6. San Francisco
8. Hong Kong
13. Los Angeles
18. Kuala Lumpur
In addition to looking at the current performance of cities that are global capitals of finance, commerce and culture, the study for the first time analyzes city employment in the most significant and telling job sectors. Here are the top 10 cities by employment in key sectors of financial and business services and manufacturing:
|Financial and business services:
|(% of total employment)|
|(% of total employment)|
Financial and business services, when grouped together, account for more than a third of the jobs in Milan, Paris, London, Beijing, San Francisco and Stockholm. One in three Shanghai jobs today is in manufacturing, although the study projects the city shifting to a more diversified economy by 2025. Wholesale and retail make up more than 20% of the workforce in Hong Kong, Kuala Lumpur, Moscow, Mumbai, Mexico City and Istanbul. New York leads the world in healthcare employment with nearly 16% of its workforce in the field, while Abu Dhabi takes the lead in hospitality and tourism.
The study projects that by 2025, an additional 19 million individuals will live and 13.7 million will work in the cities. They will generate an additional $3.3 trillion in gross domestic product—all predicated on a world of modest growth. At the same time, the wealth divide will remain much the same in 2025 as it does today.
The cities ranking highest in terms of the PwC report’s key indicators include the following:
• Intellectual capital and innovation: Stockholm, Toronto, Paris
• Technology readiness: Seoul, San Francisco, New York
• Transportation and Infrastructure: Singapore, Seoul/Toronto (tied forsecond), Tokyo
• Health, safety and security: Stockholm, Toronto, Sydney
• Sustainability and the natural environment: Sydney, San Francisco/Toronto (tied for second), Berlin
• Economic clout: Beijing, Paris, London/New York (tied for third)
• Ease of doing business: Singapore, Hong Kong, New York
• Cost: Berlin, Seoul, Kuala Lumpur
• Demographics and livability: Paris, Hong Kong/Sydney (tied for second), San Francisco
• City gateway: London, Paris, Beijing
Beijing advanced to the top spot in “economic clout” while Shanghai placed fifth behind Paris, London, and New York. This is the first time two emerging cities appeared in the top five of this indicator category.
Beijing and Shanghai are also in the top five in a new category, “city gateway,” along with London, Paris, and New York. Balanced progress across a range of social and economic indicators represents the next step for these cities in transforming exceptional growth into sustainable performance for these emerging cities.
Despite the rise of emerging cities in key indicators, Cities of Opportunity details some of the long-term challenges facing developing cities due to rapid growth. For example, both Beijing and Shanghai will need to devote roughly 42% of GDP to infrastructure between now and 2025 to accommodate growth, while cities such as London and New York only need to invest 17% and 20%, respectively.
By: Quentin Hardy
Via: The New York Times
If you thought it has been tough to find good work over the last couple of years, just wait.
The old problem was a bad economy, the kind of thing that ends. Trends suggest that we’re heading for a global online arbitrage of opportunity, however, with good workers in bad places able to snatch business away from better-performing environments. If that happens in large numbers, the competition will get really fierce for everyone.
Recently two of the biggest online staffing companies, oDesk and Elance, have released surveys concerning the companies that hire workers over the Internet to do things like write software, and the mindset of online workers themselves.
Between them, oDesk and Elance claim to have more than four million coders, Web designers, marketing professionals and other workers. Some even spot porn on Facebook at a rate of four for a penny. In the second quarter of 2012, oDesk says, its contractors worked over 8.5 million hours, a 70 percent increase over a year earlier. The average freelancer at Elance, meantime, expects to make 43 percent more money in 2013, as more employers come online.
Taken together, the reports indicate a lot of growth ahead in the business, and a lot of talented people looking for work wherever they can find it. oDesk, which surveyed over 2,800 companies that used its service, found that 10 percent of these buyers were college students, and 58 percent described their companies as start-ups.
Not all those young companies will survive, but the habit of hiring online seems baked in; 64 percent of respondents said at least half of their work force would be online by 2015, and 94 percent predicted that in 10 years most businesses would consist of online temps and physical full-time workers.
The range of jobs done online is increasing, too. Workers on Elance said the highest-growing job categories in 2013 would be Web programming, making mobile applications, design, marketing and content writing. oDesk respondents were heavily in those categories too, but also saw employment in customer service, secretarial work and high-level technology development.
“As we move along, we see an increase in all the categories of work,” said Gary Swart, the chief executive of oDesk. “We now have lawyers, accountants, financial executives, even managers.” The only work unlikely to go online is immediate physical work, like plumbing, he said, adding, “but even a plumber needs an accountant.”
What he doesn’t need, apparently, is an accountant anywhere nearby. Some 30 percent of the United States citizens working on oDesk are working for overseas companies, Mr. Swart said. An even greater number of overseas people are probably working for Americans, too. In interviews, both companies say the continuing economic troubles in Europe are driving more people to online employment. oDesk has seen a 78 percent growth in hours billed by companies in Britain this year, even though it has never had much of a presence there.
The online work is already changing how some governments think about labor. Last May the government of Bangladesh decided to classify online work as export-related commercial income, free of taxes, instead of as a taxed offshore remittance.
The idea, Mr. Swart said, is to foster the growth of online workers. In other words, if you’re reading this from one of the better parts of the global economy, it’s a good time to think about how to be indispensable.
Another interesting wrinkle from the oDesk survey: Education alone probably won’t help you get hired. Only 6 percent of the survey respondents rated schooling as a “very important” reason to hire someone. It was the lowest-rated reason to hire someone. Work experience was first, followed by how other people rated the contractor, pay, portfolio of work, references, and scores on skills tests that oDesk offers online.
In the future, having a degree may be helpful, but having a reputation will be even better.
Interview with Rahul Tandon
Via: APM Marketplace
Treasury Secretary Tim Geithner and Fed Chairman Ben Bernanke are visiting India together today. The two are there to boost economic ties — last year trade between the two countries stood at $57.6 billion. They hope that figure will dramatically increase after India pushes through reforms to open up key sectors — like retail — to foreign investment.
If you want to see America’s growing influence on India just visit any large shopping center. You’ll see how popular American companies like McDonalds and Starbucks are with young people. Young Indians have embraced American culture over that of their old colonial rulers, Britain.
So on this trip, Bernanke and Geithner want to capitalize on this popularity for American businesses. They’ve met with the Indian finance minister and business leaders in Mumbai and issued positive statements about India relaxing it’s restrictions on foreign companies.
They want to make sure that as Indian markets opens up, American companies will be the first to benefit from tapping into a potentially massive marketplace. The increasingly wealthy Indian middle class is between 300-400 million people.
The IMF forecasts a growth rate slowdown for India compared to last year, so Indian businesses will, on the whole, welcome foreign investment. Though, it’s not a one-way visit, in return for allowing U.S. investment, India will want to boost growth in it’s flourishing information technology sector by forging more links with the Silicon Valley in the U.S.
By: Jeff Tyler
Via: NPR Marketplace
Jeff Horwich: Today, the apparel industry’s largest trade show kicks off in Vegas. And this year, the mayor of Los Angeles will be there, promoting a “Made in LA” campaign.
Here’s Marketplace’s Jeff Tyler on the surprising rise of a new American clothes-making hub.
Jeff Tyler: At this factory in downtown Los Angeles, large knitting machines transform yarn into fabric. What distinguishes this city from fashion hotspots like New York or Paris?
Pat Tabassi: We’re a great hub for the casual ‘L.A. chic’ look.
Pat Tabassi is marketing manager for Design Knit, a textile manufacturer. She says the company considered relocating to Shanghai, but decided the move would add time to their production process.
Tabassi: It’s really about efficiency. Because everyone wants to get their goods out as quickly as possible.
Los Angeles specializes in what’s known as ‘fast fashion’ — style as set by celebrities. Ilse Metchek is president of the California Fashion Association. She says L.A. designers have a moving target.
Ilse Metchek: You have 10 weeks to define what’s hot. And in 10 weeks, it’s not.
Companies based here can jump on a trend before it goes out of style.
Metchek: That’s what we’re all about. Built-in obsolescence.
From the home of built-in obsolescence, I’m Jeff Tyler for Marketplace.
By: David Leonhardt
Via: The New York Times – Economix
Derek Thompson of The Atlantic offers a thoughtful response to our list of 14 potential causes of the great American income slowdown:
When I write about income stagnation apart from the Great Recession, I typically rely on a trio of explanations: Globalization, technology, and health care. Competition drives down costs. Shoppers understand this, intuitively. One reason that flat-screen TV prices have fallen so much in the last ten years is that so many electronics companies have gotten efficient at making them. Similarly, competition for jobs in tradable goods and services — manufacturing that could be done in China; retail that’s simpler on Amazon — competes down the price employers pay workers in those industries. It makes many workers borderline-replaceable and nothing borderline-replaceable is expensive. Those forces drove down wages, and employer-side health care costs gnawed at the rest of it.
In my exchanges with economists so far, globalization is certainly among the most commonly cited factors for the income slowdown. American workers today face vastly more competition from foreign workers — especially foreign workers who earn much less money than the typical American — compared with past decades.
Benjamin Friedman — a Harvard professor and the author of the ambitious economic history “The Moral Consequences of Economic Growth” — told me that he would put global competition and technological change at the top of his list of causes, with the education slowdown (which, he noted, interacted with technological change) and cultural norms not far behind. Mr. Friedman pointed to Lucian Bebchuk’s research on soaring executive pay as an example of how much norms had changed.
In his next bucket of importance, Mr. Friedman listed health costs, an innovation plateau, the minimum wage, family structure and immigration. Immigration, he said, largely affects workers at the bottom end of the income spectrum.
Stephen S. Roach, the longtime Morgan Stanley economist and China expert who now teaches at Yale, offered a list with some strong similarities to Mr. Friedman’s. Mr. Roach put global competition, the educational slowdown and the innovation plateau at the top of his list, followed by automation, deregulation, rising health costs, immigration and the falling minimum wage.
He also said that the supply chain explosion — “rapid growth of integrated global production platforms that squeeze labor income at all stages of the production process” — deserved a place on the list. I’d probably argue that the supply chain was a subset of either globalization or automation, but I see why someone else might list it as a separate factor.
Mr. Thompson, in his post, included a chart — of employment by sector — that underscored the importance of globalization:
As he notes, only one line defies the business cycle and just keeps going up: education and health care. He writes:
“What do those sectors have in common? They’re all local. You can’t send them to Korea. As Michael Spence has explained, corporations have gotten so good at “creating and managing global supply chains” that large companies no longer grow much in the United States. They expand abroad. As a result, the vast majority (more than 97%, Spence says!) of job creation now happens in so-called nontradable sectors — those that exist outside of the global supply chain — that are often low-profit-margin businesses, like a hospital, or else not even businesses at all, like a school or mayor’s office.”
This chart measures jobs, not incomes. I think it’s possible that parts of other sectors have delivered big average pay gains (most likely, the high-skill jobs) even if overall employment in those sectors hasn’t grown as fast as in education and health care. I also wonder how much technological innovation explains these lines: education and health care are notoriously inefficient sectors. But no matter how you look at the picture, globalization seems to be one of the biggest changes that has accompanied the great American income slowdown.