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.
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.
By: John Schwartz
Via: The New York Times
BALTIMORE — The four cranes rise grandly over the port here, 14 stories high. Just off the boat from China and now being prepared for operations, the $40 million machines are part of this city’s gamble that when supersize container ships start coming through the expanded Panama Canal in 2015, Baltimore will be one of the few ports on the East Coast ready for their business.
“We think it’s going to be a major win for us,” said James J. White, the executive director of the Maryland Port Administration.
This sense that the new set of locks now being built to allow giant ships through the canal will bring riches 1,000 miles or more to the north is shared by industry and government officials along the East Coast and the Gulf of Mexico, who have been promoting multimillion- — and in some cases multibillion- — dollar port projects for years. The Obama administration has now moved to speed up the review process for developing and deepening the harbors for several of these ports, including those of New York and New Jersey; Charleston, S.C.; Savannah, Ga.; Jacksonville, Fla.; and Miami. The initiative “will help drive job growth and strengthen the economy,” President Obama said in announcing it last month.
But some who are following the efforts have begun to express skepticism about the hope and money going into dredging mud and raising steel. With so many ports competing for a share of the bounty, experts are questioning how big that bounty will be. “Everybody is trying to go after it — there are going to be few beneficiaries, in my judgment,” said William D. Ankner, a former official of the Port Authority of New York and New Jersey and a former secretary of transportation for Louisiana.
The big ships — known as “Post-Panamax” and even “Super-Post-Panamax” — are already in heavy use worldwide, making up 16 percent of the container fleet but accounting for 45 percent of its capacity, according to a July report by the Army Corps of Engineers. And “those numbers are projected to grow significantly over the next 20 years,” said Maj. Gen. Michael J. Walsh, deputy commanding general for civil and emergency operations for the corps, in announcing the report.
In the race that began when plans for the expansion were first announced in 2006, some winners have already emerged. The Port of Virginia, in Norfolk, is ready to receive the big ships today. And New York is also prepared, thanks to a massive dredging project that began 13 years ago.
But nearly every port in the game still faces major challenges and expenses — including the Port Authority of New York and New Jersey, which plans to spend $1 billion to raise the Bayonne Bridge roadway by 64 feet to allow the giant ships through on their way to to Newark and Elizabeth, N.J.
Baltimore, which already has a 50-foot channel, has a bottleneck on the land side: the Howard Street tunnel, through which trains have to pass to reach the port, and which is too small to accommodate the double-stacked container cars that are increasingly the standard for rail shipping. The rail line CSX has announced a workaround that could cost hundreds of millions, involving a new yard beyond the tunnel filled with containers brought by truck; the port will load the trains with a single container to get through the tunnel, and the trains can be completed at the yard.
Baltimore officials expect larger ships to arrive at their city’s port via Panama in a few years.
Miami is putting $2 billion into improvements to its port; its dredging project was approved by the Army Corps of Engineers in April, and the city is building a tunnel costing an estimated $1 billion to create a crucial link between the port and the Interstate System of highways.
Savannah is preparing to move forward with a $652 million deepening project, while the South Carolina Legislature has committed $300 million to dredging for Charleston. A plan for the two cities to team up on a common port has all but stalled.
The big ships will also come via places beyond Panama: many are expected to come from Southeast Asia through the Suez Canal, and from South America’s eastern ports.
But more fundamental questions have been raised about the real benefits of the coming trade, and especially the effects of the new canal traffic.
Moving goods by water is generally cheaper than moving them by land because of the economies of scale of moving so many containers on those big ships, said John Martin, a ports consultant in Lancaster, Pa. So that would suggest canal routes will offer lower-cost shipping to the East Coast and Midwest through the canal.
But, he said, containers loaded on the West Coast, which has built up its container yards and highway and rail infrastructure, can outrun those that travel to the East Coast by water, and that can make the difference when speed and dependability are more important than cost alone. Besides, he added, costs and fees can shift; Panama can be expected to raise rates for canal passage, and “the railroads are not going to sit idly by” and let the water route undercut their business.
Scudder Smith, a consultant with the engineering consulting firm Parsons Brinkerhoff, said that a water passage, “all things being equal, will cause cost reductions — but all things are not equal,” he added, and so “I’m not at all confident in any numbers.”
That could be why J. Christopher Lytle, executive director of the Port of Long Beach, does not sound a bit worried. “There’s just not going to be a huge movement of cargo from the West Coast to the East Coast,” he said.
His port, and its counterpart in Los Angeles, are already dealing with some of the biggest vessels on the water, capable of carrying the equivalent of 13,000 container units — vessels too big to pass through the new Panama Canal locks.
After talking up port projects in ways that sound a bit like the overblown economic predictions about new stadiums and convention centers in recent years, some officials are now scaling back their claims. After Hurricane Katrina, Gov. Haley Barbour of Mississippi trumpeted plans for a “port of the future” at Gulfport with a 50-foot-deep channel, redirecting some $600 million in federal housing disaster funds on a project he pledged would spur the economy and create bountiful jobs. A state official at the time called it “the single largest economic-development project in the state’s history,” and officials predicted that it would surpass the Port of Los Angeles.
Today, Mississippi and the port are being more modest. The port recently noted that it is not pursuing the announced plans to dredge the channel to 50 feet, and because of lapsed maintenance, the channel does not even reach the depth of 36 feet authorized by law. The port is now focused on improving what it has instead of expanding greatly, and plans focus more on the cascade effect as smaller ships are crowded out of the major ports by the new superships.
Local critics of the original plan like Reilly Morse, policy director of Mississippi Center for Justice, said the state had been swept up in a national fad “that promised far more economic benefits than it could deliver and risked far greater burdens on the host community than it could support.”
Other ports try not to overstate their goals. Mark Montgomery, the chief executive of Ports America Chesapeake, the private partner with the state of Maryland in Baltimore’s project, said that his port and supporters understand that they are not likely to defeat the megaports of the West Coast, or even New York and Norfolk. Instead, he said, his port will serve Baltimore, Washington and Northern Virginia — though he also sees it as a potential gateway to the Midwest. “Our expectations are right-sized,” he said.
To Robert Puentes, a transportation expert at the Brookings Institution, the problem of whether the ports are overbuilding for a Panama payoff is one of planning. “We are the only industrialized country on the planet that doesn’t have a comprehensive freight policy,” he said. As for port development, he said, “I can’t see the federal government picking winners and losers” in such a politically charged environment, but “they could provide a little more guidance — where right now they are providing none.”
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.