Advanced industries represent a sizable economic anchor for the U.S. economy and have led the post-recession employment recovery. Modest in size, the sector packs a massive economic punch, according to a recent study released by the Brookings Institute,
The report “America’s Advanced Industries: What They Are, Where They Are, and Why They Matter,” points out that 50 advanced industries directly employ 12.2 million Americans and, factoring in both direct and indirect employment, supports over one-quarter of all U.S. jobs.
These industries produce $2.7 trillion in value added annually—17% of all U.S. gross domestic product (GDP). That number is more than any other sector, including healthcare, finance or real estate.
To gain an understanding of why companies in this sector are choosing to locate their facilities in the U.S. the Brookings Institute held a panel discussion on Feb. 5. The session was entitled,“ Locating U.S. Advanced Industries: “Off-,” “Re-,” “Next-“ Shoring and Beyond.”
-- Ron Armstrong, CEO of PACCAR
-- John Lundgren, CEP of Stanley Black and Decker
-- Eric Spiegel, CEO of Siemens Corp.
The first question posed to the panel was about how they choose where they will locate their facilities.
Ron: PACCAR , which is in its 110th year of operation, has major operations in Ohio and Washington. We build over 140,000 trucks per year. Over 3000 engineers and technicians drive the company which has seen a truck evolved from 2 control units to 40 control units on any given truck. This new technology requires specific skills.. We have invested a lot in making sure the skill set is there. Our strategy is working in that we have been producing a profit for 76 consecutive quarters.
The key factors in determining location are labor costs, freight costs, technology and the ability of the area to be able to support the engineering aspects of our products.
As we were making the decision to build a new engine factory in 2007 we chose Columbus, Miss. We could have built it anywhere. The state gave us the right proximity to talent as well as suppliers. The state was very receptive to supporting business growth. Being a right to work state it gave us workplace flexibility. We are in cyclical business and workplace flexibility is key to our planning.
The availability of talent was also very important. There was an available workforce that is well developed in automation. A strong community college system was able to train our production employees and there are universities available to train our engineers.
John: Our strategy is to design in the market for the market, so we have production around the world with major projection on four continents. Back in the late 80s early 90s when labor was a key factor we offshored to China and were successful.
But in the past two and half years due to a number of factors including -- rising labor costs, currency issues and the length of supply chain -- we moved back the DeWalt Power Tools production from China and Mexico to North Carolina. That location has a skilled workforce, a strong supplier network and distribution center.
This move marked the first time in 25 years that a cordless power tool was made in the U.S.
In terms of costs, within first year of operation we had the cost of power tool within 5% of what we could do in China. As we ramp up it will be at parity with China.
One unexpected result was that we underestimated the positive impact from our customers and end users of having a U.S.-made professional power tool.
Eric: We like to consider our company, founded in 1847, as the oldest, biggest company in the world. To support our 40 different businesses, we rely on innovation. Globally we have 350,000 employees. In the U S. we have 50,000 employees at 100 manufacturing sites. Some of the sites we have acquired and others we built from scratch.
As far as why we have expanded in the U.S. over the last few years there has been access to less expensive energy. Additionally the U.S. workforce has increased its productivity. At the same time labor rates globally are increasing.
While those factors influence our decision, the most important factor to us is innovation. A lot of U.S. companies found that if their manufacturing goes offshore so does their innovation. Our business model is that all of our production facilities have research associated with it. It’s all in one location. The next factor is that you need to be close to your customers. You can’t separate R&D from manufacturing or your customers. You need to understand your customers to drive the innovation.
Another factor in favor of U.S. facilities is that it has the best university system in the world. We also find a lot of talent located in national labs and we access that talent as well. This is why we are opening an R&D center very soon in Silicon Valley.
The second question was about what could be improved in the U.S. to continue to attract more companies?
Ron: To us the biggest challenge is the highway system. There is a high degree of congestion. Furthermore the quality of the highway system is in need of repair. It’s critical that the U.S. makes the investment in road infrastructure.
Jon: For us the biggest problem is the skills gap. As I am active in NAM, we talk about the 600,000 unfilled manufacturing jobs in the U.S. as recently as a year ago.
Part of the problem is the image. The industry needs a face lift. An accurate picture of manufacturing is an engineer with their laptop. These are high paying jobs.
We found by collaborating with our local community colleges they will design a curriculum that provides the skills we need. This has been successful for us in our locations in Connecticut, Baltimore and Indianapolis.
I think that that the CEO of the state, which is the governor, needs to look at what barriers they can move to attract companies to their states. It’s why you see advanced manufacturing jobs in locating in 4-5 areas. It’s where the collaboration is successful.
Eric: One of the problems we run into in the U.S. also has to do with talent. We are having trouble finding the middle level skills. This is one reason why we have brought over from Germany our apprenticeship model. We are currently using this model in our Charlotte plant and plan to spread it out to other U.S. facilities.
Our largest issue however is the state of the U.S. infrastructure. Twenty or thirty years ago the U.S. infrastructure was the best; however that’s not true anymore. The transportation system is run down. In fact for the last four large plants we have built we had to upgrade roads or rail spurs in order to both move material and in order to export. We did not receive much in the way of state funds for these efforts. We picked up most of that cost.