Global Reach

From Toronto to Tokyo, the new manufacturing is defining the communities.

Visit virtually any nation, and you'll find a pocket of production -- even in what seem to be the most unlikely places. In Belfast harbor in Northern Ireland, for example, next to the massive cranes of the Harland & Wolff shipyard where the Titanic was built, a 6,000-employee plant of Canada's Bombardier Inc. turns out fuselages for Learjets. In Spain's Basque region, despite decades of terrorism, a booming industrial sector makes electronic goods, machine tools, and steel. Sunderland, the northern England city that sparked the industrial revolution in the 19th century and was almost extinguished in the 1970s, is now a thriving manufacturing center sporting a Nissan Motor Co. Ltd. auto plant said to be Europe's most productive. In Puerto Rico, an agricultural Caribbean island turned pharmaceutical center, exports rose 26% after Pfizer Inc. began making Viagra at Barceloneta in 1998. But manufacturing now embraces more than production, and a variety of communities around the world confirm that as well. For example, manufacturers are installing R&D facilities in Israel -- in the high-tech center of Tel Aviv and its northern neighbor, Haifa. Ditto for Taiwan, which like Israel, claims to have the world's highest number of Ph.D.s per capita. In the Netherlands, Rotterdam's seaport and Amsterdam's Schiphol Airport provide modern links to the rest of Europe -- and well beyond. And Singapore is the new world headquarters for Caltex Petroleum Corp. Yet for all the dynamism, there are problems as well. For example, Seoul, South Korea's standout manufacturing community, still suffers from less-than-honorable ties between business and government. Singapore's status as a kind of economic safe haven is driving up costs and driving away some manufacturers. Brazil's fluctuating currency is hurting So Paulo, as is a severely strained infrastructure. Barcelona, like the rest of Spain, must contend with double-digit unemployment. So the question is: What in the world is a world-class manufacturing community? The following profiles of nine Medalist metropolitan areas outside the U.S. provide more definition -- and they complement the profiles of U.S. manufacturing. In the nine non-U.S. metro areas, production plays a dominating role. And that should come as no surprise. But note how increasingly important these places also are as headquarters locations and centers of marketing, R&D, and distribution. Also helping to define the new manufacturing are key characteristics shared by many. World-class centers often serve as automobile-manufacturing hubs, which in turn draw other producers. Many are gateways to larger markets and maintain well-run distribution networks including roads and tracks. The best communities grow through vital partnerships among leaders representing government, business, and academia. Toyota Motor Corp. director Takashi Kamio says that the size of the market, the workforce, and the supplier base, as well as community involvement, are critical to that company's manufacturing decisions. Toronto's turnaround Trucks tell much of Toronto's story. Eighteen-wheelers emblazoned with company names hog the metropolitan area's roads. "We took it on the chin in the recession [earlier] in the 1990s. Six or seven years ago, this highway would have been empty," relates Greg McDonald, a director at the Alliance of Manufacturers & Exporters, looking out at the auto route in front of his office, which today is one long line of trucks. A good number of the trucks are heading south to the U.S. Some 89% of Ontario's exports end up in the U.S., and greater Toronto fits the pattern. Toronto's companies produce cars and tractors, data-processing-equipment parts, and newsprint -- in part because labor, real estate, power, telecommunications, and construction are less expensive than in many major U.S. metropolitan areas. "We offer a pool of engineering talent that [is] very cost-competitive . . . ," emphasizes Micheline Bouchard, chairperson and CEO of Motorola Canada Ltd. "Not only that, we have a very low turnover for engineers. It's at 4% at Motorola." Toronto is North America's second largest automotive center, after Detroit, with the metropolitan area bounded by the factories of Honda Canada Inc. in Alliston; Ford Motor Co. of Canada Ltd. in Oakville; and General Motors of Canada Ltd. in Oshawa. Feeding these giant plants are literally thousands of auto-parts suppliers. Meanwhile, few manufacturers remain in downtown Toronto. Factories have been replaced by retail centers, law offices, condominiums, and, ironically, the Factory Theatre, as manufacturers have fanned outward from the central city. Fifteen miles from downtown, for example, Mississauga holds a cluster of pharmaceutical and chemical companies doing both R&D and production. Etobicoke, near Lester Pearson International airport, has drawn major aerospace players including Bombardier. And the city of Vaughan, 10 miles north of downtown and within Toronto's sprawl, is close to being one big factory. Manufacturing, concentrated in automotive parts, plastics, and metal fabrication, accounts for 43% of all employment. So Paulo -- still South America's leader Stockbrokers aren't the only ones grimacing in So Paulo. Shortly after Brazil plunged into economic crisis in late 1998, manufacturers in the world's ninth-largest economy slowed production and laid off employees. The International Monetary Fund's $41 billion bailout package, ironically, added to industry's fears of recession and a return to high inflation. What's more, almost-unbearable traffic, and severe air and water pollution and street crime, make Paulistanos yearn for the countryside. Nevertheless, the So Paulo metropolitan area is the capital of the booming Brazilian state of So Paulo, which itself accounts for 50% of the nation's industrial GDP. Some 16 million people live in greater So Paulo, an area that encompasses 38 cities and forms the largest consumer market on the South American continent. The city's strong economy has helped build a solid professional class -- attractive to marketers -- dwelling in upscale suburbs such as Morumbi. "Despite recent upheavals in the economy, So Paulo will remain a vital [area] for sales and marketing," confidently predicts Timothy J. Daleiden, a consultant with Chicago's Meridian Sales Development Specialists Inc. "Gillette Co. used to run its sales office in Rio de Janeiro but moved to So Paulo because that's where things were happening." A country once primarily associated with coffee and carnaval now hosts most of the world's major automakers. Car production rose an average 15% per year between 1991 and 1997, and So Paulo brims with auto production. General Motors Corp., Ford Motor Co., and Volkswagen AG all have factories in the metropolitan area. Volkswagen expressed its confidence in So Paulo's potential by recently investing in expansion of its facilities there. "When you're on the ground, the only strategy in a currency crisis is a mental one," says Ruth Stanat, founder of SIS International Research, Fort Wayne, Ind. "You have to think when things turn around you'll have a competitive advantage. That's the Japanese strategy. Also the Europeans are taking a longer-term view." Manufacturers have employed different approaches to deal with last fall's collapse of Brazil's currency, the real. Some have put off establishing manufacturing operations in So Paulo, opting instead to set up local distributorships, says Stanat. Others are conducting business and holding debt in dollars. Seeing So Paulo as South America's largest market for its products, San Diego-based Qualcomm Inc. last August announced a factory to make digital telephones in the metropolitan area. But the currency crisis has affected operations because "we import 100% of our components to go into the phones," says Marco Aurelio Rodrigues, president of Qualcomm do Brasil SA. Qualcomm is meeting with customers to explore different options, with Rodrigues predicting the fluctuating real will begin to calm in mid-spring. Barcelona's boom Manufacturing in Greater Barcelona, a community that promotes itself as the southern gateway to Europe with links to Africa, is one reason Spain economically outpaced nine of its European Union (EU) neighbors in 1998 and could repeat this year and next. Barcelona, on the northeast corner of the Iberian Peninsula and to the south of France, is the heart of a metropolitan region of 160 towns and 4.3 million inhabitants. It contributes more than 14% of Spain's GDP. Barcelona is a city of youth -- a quarter of its population is younger than 25. It is a magnet for immigrants -- from other parts of Spain and from Italy and Africa. There's no better place to sample the Mediterranean port's glamour and vitality than in La Rambla, where businesspeople meet for three-hour lunches and tapas (appetizers) in the evening. "Barcelona has everything -- a port second to Rotterdam, a good location to serve markets of western Europe," observes Han P. M. Bullens, general manager of corporate real estate for Siemens Building Technologies Inc. The founding of Barcelona dates back to Roman times -- the first century BC -- and its manufacturing roots run deep. Georges Haour, a professor of technology and innovation at IMD (the Institute for International Management Development), Lausanne, Switzerland, traces Barcelona's entrepreneurial tradition to the Middle Ages. The region "is very much grounded in small family businesses, very nimble, very flexible," he says. Today its leading industries are metal bending, electronics, chemicals, and textiles. People who visited Barcelona before 1985, when the city began preparing itself for the 1992 Olympic Games, would be astonished at Barcelona's transformation. Rondas, or ring roads, surround the city -- to ease traffic congestion and to allow Barcelona to fan out beyond its traditional borders. Two major telecommunications towers soar into the sky. The airport has been enlarged. Nearly $403 million has been pledged to fund the 15-year Llobregat Delta Plan, a government infrastructure project that is intended to turn the city's port into an intermodal logistics center. Halfway between Barcelona's seaport and its airport is the Zona Franca Industrial Estate, home to 162 companies and one of Europe's largest planned clusters of manufacturing. Catalonia, the region whose capital city is Barcelona, has attracted nearly 50% of foreign direct investment in Spain. And Barcelona -- thanks in no small part to its strong supplier base -- has captured most of it. Randstad: production and much more The Netherlands' Randstad -- the term means cities' border in Dutch -- is an exceptional, 400-sq-mi triangle that begins at Amsterdam in the province of North Holland, goes south to Rotterdam in the province of South Holland, turns sharply northeast to the province of Utrecht, and heads back west to Amsterdam. The Randstad is the core of the Netherlands' new manufacturing, an essential element in the realization of the Dutch economic "miracle." Within the Randstad, Rotterdam is Europe's largest oil-refining center -- and it serves the Netherlands' thriving chemical industry. The country's second largest export -- after a group that includes food, beverages, and tobacco -- is chemicals, produced throughout the Randstad in factories that extend beyond the triangle to Antwerp, Belgium, 45 miles south of Rotterdam. Amsterdam attracts corporate headquarters. Royal Philips Electronics NV recently relocated to Amsterdam from Eindhoven, where its high-tech R&D campus remains. Utrecht lays claim to more than 1,100 headquarters of-fices and corporate centers for a host of such IT companies as Sun Microsystems Inc., Oracle Corp., and the Netherlands' Origin BV. But the Randstad, like Singapore nearly half a world away, is an important gateway to a larger world. "The Netherlands is the logistical platform for Europe," states Siemens Building Technologies' Bullens. Indeed, Rotterdam vies with Singapore for title of world's busiest cargo port. P&O Ned-lloyd, one of the world's largest container-shipping companies, calls Rotterdam home to a huge operations facility. And Amsterdam's Schiphol, handling 31.6 million people in 1997, is the EU's fourth-largest passenger airport, an especially notable achievement since the Netherlands, with a population of 15.6 million, is one of Europe's smallest countries. Shanghai returns to the good life Shanghai, the great industrial behemoth of socialist China, is rumbling back to life. The port -- built on a bustling river that leads directly to the Yangtze estuary -- was until recently overshadowed by its fast-track southern neighbors, Guangzhou, Zhuhai, and Shenzhen, which concentrated on light-industrial goods, electronics, and clothing. But recently, Shanghai has become an increasingly popular location for large-scale foreign investment, with more than 50% of the world's top industrial corporations now having a presence. Volkswagen's automotive plant in Shanghai, one of China's showcase factories, turns out Santana Saloons, the preferred choice of taxi drivers, middle managers, and senior Communist Party cadres. Meanwhile, Chen Xianglin, president of the state-owned Shanghai Automotive Industry Corp., is looking for the enterprise -- which makes cars, trucks, and components -- to become a major industrial player by the year 2000, with revenue of $12 billion and profits of $1.2 billion. Among the most recent foreign firms to show faith in Shanghai is General Motors, which is slated to begin regular production of Buick sedans at a $1.5 billion plant this spring. GM, like many investors, has been lured by the staggering sales potential in a country with 1.2 billion people. Between 1990 and 1997, the investments from such firms as GM fueled an economic boom in Shanghai, with growth in double digits and the total output reaching $40 billion, 4.5% of China's GDP. Affluence is plainly visible on the streets of China's most populous city. Nanjing Road, Shanghai's main street, is lined with tony stores, while on the riverside Bund promenade, flanked by imposing European-style granite buildings, a favorite pastime is parading in designer-label clothes. Shanghainese have tasted the good life and are prepared to work to make it even better. In 1978 the city's per capita GDP stood at $300. The figure jumped to $1,200 in 1990 and was more than $3,000 in 1997. Officially, the value of the metropolitan area's industrial output has been growing at an annual rate of 17.1% -- much of that in Shanghai's stronghold industries: steel, petrochemicals, telecommunications, home appliances, and power-station equipment. These days officials are steering foreign investors toward Pudong, a newly created industrial and financial zone across the Yangtze River from downtown Shanghai. The infrastructure is certainly impressive: Bridges have been built, roads completed, and industrial parks allocated. Also, an airport is nearing completion. Pudong is clean, spacious, and modern, a direct contrast to the overcrowded main downtown area. Although China's leaders do not want Shanghai to prosper at the expense of the affluent south or Hong Kong, the city has friends in high places. Both Chinese President Jiang Zemin, a Shanghai native, and Prime Minister Zhu Rongji, a former city mayor, would love to see the city become a symbol of newly affluent China. Seoul: production, marketing, and logistics The smell of epoxy and thick, particle-filled air mark the border of Inchon, which skirts the western edge of the Seoul metro area. Today Inchon is to Seoul what Brooklyn once was to Manhattan -- the city's heavy-production center. One-third of Inchon's 980,000-person workforce produces such goods as auto parts, computer parts, electronic components, and plastic trinkets. On the Yellow Sea, just 25 miles from downtown Seoul, Inchon is Korea's third largest port and home to clusters of metals, electronics, chemical, and plastics manufacturers. The country's first export center is so chockablock with manufacturing that many operations are squeezed into "apartment factories" to conserve space. The majority of Inchon's companies are South Korean, and among the largest is the Daewoo Motor Co. Its Pupyong plant manufactures 500,000 passenger cars annually, and its Pupyong Technical Center employs 3,000 engineers. Inchon, which began attracting foreign investment in 1987, now boasts 43 manufacturers from Japan, the U.S., and Europe. The port city also is home to a huge government infrastructure project. On reclaimed land, construction of a $4.5 billion airport is underway, a facility that local officials claim will eclipse Osaka's Kansai Airport and Hong Kong International Airport. No more than three hours by air from 30 northeast-Asian cities, including Shanghai, Harbin, and Vladivostock, the Inchon airport is being promoted as the future logistics hub for northeast Asia. Suwon, 20 miles south of downtown Seoul, is another production center just as packed with factories as Inchon. Nevertheless, most of South Korea's conglomerates -- the famed chaebol -- are headquartered in Seoul, a city that's home also to the majority of the country's sales, marketing, and advertising activities. "There is no better time to increase sales and marketing efforts in South Korea," believes Meridian's Daleiden. What's more, a majority of the R&D facilities belonging to South Korea's chaebol call metropolitan Seoul home. Good fundamentals in a recovery economy, plus a devalued currency, the won, are encouraging foreign manufacturers to snap up assets in and around Seoul at bargain prices. For example, this past November Frankfurt-based Degussa AG announced the purchase of LG Chemical Ltd.'s carbon-black business, and in December Fairchild Semiconductor Corp., Portland, Maine, announced its acquisition of Samsung Electronics Co. Ltd.'s power device division. Foreign investment could reach $17 billion this year, double the estimated $8.5 billion in 1998. Singapore: neighborhood pacesetter The Washington, D.C.-sized city-state of Singapore fought to grow economically in 1998. It did increase its GDP by an estimated 1.2%, a sharp contrast to 1994 when Singapore soared by 10.5%, but a lot better than the negative numbers most of its southeast Asian neighbors reported for 1998. Singapore is still struggling; Merrill Lynch & Co. Inc., for example, projects a 0.1% contraction in Singapore's economy this year. Respectable growth of 3.5% isn't expected to return until the year 2000. Singapore must adapt to new circumstances. It's a relatively healthy economic community in a region that's only now starting to work its way back from recession. For example, while the currencies of Indonesia, Thailand, and Malaysia have roughly half the value they did when the Asian financial flu broke out in July 1997, Singapore's dollar has suffered less. A result, analysts contend, is that Singapore is the safest place to do business in the region. But it's also a fairly expensive location. "In Singapore, when companies do invest, they're primarily upgrading," observes William R. Boulton, the C.G. Mills Professor of Strategic Management in Auburn University's College of Business in Alabama. Nevertheless, Singapore boasts some impressive fundamentals. It has one of the world's busiest seaports, with an average of 700 freighters moored daily. Its airport is notoriously clean; its customs agents efficient. Singapore is a distribution hub, hosting companies such as Emery Worldwide and United Parcel Service of America Inc. Its telecommunications system is fully digitalized. Singapore has a well-educated workforce and doesn't countenance the corruption some of its east Asia neighbors do. Singapore sports 11 oil refineries and is a leading producer of electronic components. Tennessee-based Eastman Chemical Co. manufactures in Singapore, and the city-state is home to a company technical center, customer-support facility, and regional headquarters, as well. Much to the chagrin of Hong Kong, Melbourne, and Sydney, Dallas-based Caltex Petroleum Corp. opted for Singapore as the site of its new world headquarters. But Singapore is not for all manufacturers. The government is keen, for example, to develop the city-state as southeast Asia's technology center and is openly recruiting semiconductor and other technology-driven companies. One goal: to have 20 wafer fab plants in Singapore by the year 2005. On investment's flip side, Singapore is discouraging textile and other low-wage, low-skill industries. Such labor-intensive production is being dispatched to neighboring countries. Indeed, a decade ago, in part to encourage development of Malaysia's Johore province and Indonesia's Riau province as manufacturing centers, a three-country Southern Growth Triangle was created to relocate the industries Singapore doesn't want. Since then Singapore has promoted a similar production center in China at Suzhou, about 75 miles from Shanghai. Tokyo and Osaka: giants even in recession Northeast from Singapore, across the South China and East China Seas, two manufacturing communities in Japan command attention -- even in the context of a persistent national recession. Tokyo must have the GDP "of a very sizable country," quips IMD's Haour. Tokyo and its six surrounding prefectures -- known collectively as the Kanto region -- are home and job site to 38 million people, about 30% of Japan's total population. Day after day some 2,247 heavy-machinery and machine-parts makers are turning out products. So, too, are 10,550 makers of electrical equipment, 1,457 steel companies, and 3,016 paper mills. Tokyo's seaport sends exports on their way, as do Tokyo's two main airports: New Tokyo International Airport (Narita) and Tokyo International Airport (Haneda). Most of the major Japanese companies are headquartered in Tokyo -- or maintain substantial offices in the capital city to coordinate with the government and with their factories in the region. Toshiba Corp., for example, a producer of electronic and electrical equipment headquartered in Tokyo, has four factories in nearby Kawasaki, one in Yokohama, two in suburban Tokyo, and one in Tochigi. Kawasaki Heavy Industries Ltd. (KHI), the heavy-machinery and engineering company, maintains two head offices, one in Tokyo and the other in Kobe. KHI company conducts some of its R&D at the Kanto Technical Institute in Chiba, close to four of its factories. Nippon Paper Industries Co., on the other hand, has four of its six research laboratories in the Kanto region, but only one paper mill. Honda Motor Co. Ltd. and Nissan Motor Co. Ltd., two of Japan's major auto manufacturers, are headquartered in Tokyo. One of Honda's largest plants is based in Saitama, the prefecture just to Tokyo's north. Nissan has one plant in suburban Tokyo, another in Tochigi. However, Nissan also illustrates part of the toll the Japanese recession has taken on business. One of its largest plants in the Kanto region, in Kanagawa, has been closed. And Nissan now leases its Tokyo headquarters, having sold its head office to a realty firm to raise cash. Osaka lies 327 miles to the southwest of Tokyo, athree-hour ride on one of the 100 or so "bullet trains" that speed daily between the two defining centers of Japan's industrial heartland. "In terms of manufacturing and its innovativeness, Osaka has a strong entrepreneurial tradition" and "is relatively buoyant compared to the rest of Japan," confirms Haour. "Lots of companies [around Osaka] have a very good product and a strong market position worldwide in a niche. For example, rapid-photo-developing machines -- 80% of them are made by small companies in the southwestern part of that region." "That region" is the Kansai, Japan's second-largest generator of GDP. And Osaka, the global headquarters for such companies as Matsushita Electric Industrial Co. Ltd. and Sharp Corp., is the Kansai's core city. For years, electrical goods, transport equipment, general machinery, chemicals, metal products, and iron and steel have dominated its list of manufacturers. Today the region contiues to rank among the world's most impressive manufacturing areas despite the economic drag of recession and the rough road back from the 1995 Kobe earthquake. Nevertheless, the industrial profile of the Kansai is gradually changing. Becoming less prominent are its iron and steel, textile, and chemical producers as consumer-electronics firms emphasize multimedia electronics and software and Hitachi Zosen Corp., an Osaka-based shipbuilding company, moves into biotechnology. Further evidence of the change: Sumitomo Electric Industries Ltd. and Sumitomo Chemical Co. Ltd., pillars of the Osaka-based Sumitomo Group, are expanding into new materials.


The Watch List
Communities that are headed toward being the best of the best. In Poland, Warsaw is where manufacturers locate when high real-estate and labor costs make production elsewhere in Europe unacceptably expensive. Its metro area, with 1.6 million people, accounts for 77% of Poland's farm-tractor output and 43% of Poland's television sets. What's more, local Warsaw manufacturers, including confectioner E. Wedel SA, have earned a reputation beyond Poland's borders. Warsaw is the hub for Eastern Europe's auto industry as well. For example, South Korea's Daewoo Group, which since 1995 has owned and operated Fabryka Samochodow Osobowych, once a state-run automaker, has invested $1.1 billion in its Warsaw operations. Montreal also merits a close watch. The metropolitan area, which grew to prominence on natural resources and transportation, has largely transformed itself into a knowledge-based business community, with more than 120,000 people working in high technology. Its economy stands in sharp contrast to the faltering days of the 1970s, when in part because of well-founded fear that Quebec province would separate from the rest of Canada, many multinationals shifted their headquarters to Toronto, and new foreign investment went elsewhere. Today manufacturers credit the European-style city's low costs, the presence of leading universities such as McGill and the Universit de Montreal, and generous tax incentives for much of the high-tech surge. And Montreal is a leading aerospace center. Near the city's Dorval Airport, Bombardier is producing fast-selling Canadair regional jet planes at a clip of 10 per month. South of the U.S. border, Mexico's Baja California is the "hot spot" of the maquiladora manufacturing belt that spans Mexico's northern tier. In the last five years Asian investment fired growth that, at its peak, added 10 new factories to the local scene each month. Expansions and arrivals of a competitive supplier base changed the region from a North American television assembler into a fully integrated industrial electronics complex. Farther south, Buenos Aires deserves notice. Some 32% of Argentina's population of 36.1 million lives in the capital city. Food and beverages, textiles, paper, printing, machinery, and metal manufacturing are the main industrial sectors. Manufacturing's share of the total employment is 20% -- and growing. An ocean to the east, Gauteng Province and Cape Town remain the standout manufacturing locations in South Africa. Defined in major measure by chemical companies, the Lyon region is now the second most powerful economic area in France -- topped only by Paris. In northern Switzerland, Basel remains a prime location for chemicals and pharmaceuticals. Elsewhere communities that promise to become manufacturing standouts include Bangalore and Pune in India; the Philippines' Subic Bay; Bangkok; Melbourne, Australia; Lisbon; Dublin; and Cardiff in Wales.
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