Hot! Hot! Hot! Global Siting's Hottest Locations

Dec. 24, 2005
U.S. manufacturers continue to invest heavily in China and India. But their siting strategies also include Eastern Europe, South America and even the United States.

There's a kind of a night club mentality about China and other economic cauldrons, says Peter L. Rodriguez.

"When some place is seen by enough people as the future -- the big opportunity -- everyone wants to be there. They'll do anything to get beyond the bouncer," says the economist and professor at the University of Virginia's Darden Graduate School of Business in Charlottesville.

Indeed, Guangzhou, Shanghai, Pune and Chennai have joined Hong Kong and Bangalore as readily recognized locations as China and India have become the business hot spots where manufacturers want to be.

U.S. investment in India for all businesses, for example, in 2004 increased an almost incendiary 59% over the average of the previous two years while U.S. investment in China increased a very warm 40%, figures Steven Thiry, vice president for business development at AMT-The Association for Manufacturing Technology in McLean, Va.

By The Numbers

Who's Going Where
A manufacturer in the U.S. or Western Europe seeking to set up shop outside its own country "would be hard-pressed to argue [the investment] should be [anywhere] but in Asia," says Amit Batabyal, a professor of economics at Rochester Institute of Technology in Rochester, N.Y. The investments manufacturers are making include R&D centers, warehouse and distribution facilities, sales offices and, of course, factories. For example, nearly half -- 48% -- of the large, U.S.-based industrial manufacturers surveyed by PricewaterhouseCoopers between August and October last year said producing in China was "important" to their profitable growth. Here are some examples of why manufacturers are there:
  • For Norwalk, Conn.-based ABB Inc., China and India are markets growing at 25% to 30% annually. "They are really hot spots for us, and we don't see any hiccup in the next few years," relates Dinesh Paliwal, president and CEO of ABB Group's North American unit.
  • Sealed Air Corp., the maker of Bubble Wrap and other industrial and food packaging, has been in China for more than 10 years, operates three modest-size plants there and is building a fourth near Shanghai. "We see China as a good place to manufacture and a good market," says William V. Hickey, the Saddle Brook, N.J.-based company's president and CEO.
  • In the western India city of Pune, where a tractor plant is already located, Deere & Co., the Moline, Ill-based farm equipment maker, expects to open a new engineering and IT support center in 2006.
  • Observes Edward P. Campbell, chairman and CEO of Westlake, Ohio-based Nordson Corp., "China has become the global center for consumer electronics in a relatively short amount of time. And any company that is involved in the sale of manufacturing equipment for that very large segment of the global economy needs to have a very large presence in China."

Right Place, Right Market

Everybody, believes John R. Malott, a former U.S. ambassador to Malaysia, should take a look at China. "But they should be a little more realistic and not just be mesmerized by the bright lights of Shanghai," cautions Malott, managing director-Asia/Pacific at ManattJones Global Strategies LLC in Washington, D.C.

In fact, many manufacturers, including ABB, Deere, Nordson and Sealed Air, are selective about where they locate -- and why. Although ABB, a maker of power-technology products and automation equipment, plans to spend about $100 million each in China and India during the next four or five years to add capacity and aid market growth, "we cannot possibly make everything in China and India," Paliwal says. It "doesn't make sense" to produce a car in China, even if labor costs are lower, and export it to the U.S, says Aubert Martin, president and CEO of Alpharetta, Ga.-based Siemens Energy and Automation Inc., a unit of Siemens AG. Foreign automakers are building cars in the U.S. "You have to be close to the customer," he stresses.

South Carolina-based Polymer Group Inc. (PGI), a maker of non-woven materials and fabrics that go into such products as diapers, baby wipes, pool filters, injection molders and Swiffer floor mops, has 21 sites in 10 countries, including China, because its customers, which include Procter & Gamble Co., Hanes Industries, Johnson & Johnson and Midwest Filtration Co., are there, explains CEO James L. Shaeffer.

"We're not in China, shipping back to Wal-Mart," he explains. "We're there because there is a developing middle class, and there is a developing consumer base."

Where to be, whether to sell into a market or to make products or both, also depends on the nature of the products involved, be they auto parts, consumer-packaged goods, or, at Nordson, adhesive, coating and sealant systems. To be price competitive, a producer of high-volume, standard consumer products sold through mass merchandisers in North America likely needs to "capture" the manufacturing cost economies China or other relatively low-labor-cost locations offer, says Nordson CEO Campbell. However, a manufacturer of high-value-added components, more specialized products or those depending upon a closely linked supply chain more likely needs to be close to R&D centers or to suppliers, he says. And in that regard, "the capability of North American manufacturers, their engineering teams and the supply chains that support them are unequaled," Campbell contends. "Very well-run U.S.-based manufacturing that embraces the latest philosophies of lean and other modern manufacturing technologies can be extraordinarily competitive in many markets." His company is an example. While two-thirds of its sales are outside the U.S., only 30% of its manufacturing is.

Investing At Home

Indeed, amid all the hype about the vast size of the Chinese market and the dramatic stories of production being shifted from the United States to the People's Republic and elsewhere, Deloitte Consulting LLP recently published some surprising statistics about the expansion of manufacturing in the United States. Of 220 U.S. manufacturing companies that expect to expand their operations within the next three years, 72% are looking at domestic expansion, reveals a February 2005 Deloitte manufacturing location survey. Only 28% are looking outside the U.S. What's more, the survey, which drew on responses from member companies of the National Association of Manufacturers, shows a majority of companies in five key manufacturing sectors favoring the U.S. over foreign locations by at least a 55% to 45% ratio. Makers of metal products are the most likely to expand in the U.S., with 76% saying they'll invest domestically and just 24% saying the expansion will occur abroad. In contrast, 55% of makers of paper and wood products foresee expansion in the U.S. and 45% expect it to be overseas. In between the metal and paper producers are manufacturers of plastics, rubber and chemicals, with 63% saying expansion will be domestic and 37% foreign; manufacturers of electrical equipment and electronics, with 70% expecting expansion to domestic against 30% foreign; and food producers, with 73% expecting their expansion will be domestic and 27% saying foreign. "A lot of companies are not forgetting about staying at home," says RIT's Batabyal. In 2004, the latest year for which data are available, the U.S. had the largest manufacturing output in its history, although with fewer workers, notes AMT's Thiry.

PGI, for example, has 11 manufacturing locations in the U.S. and is adding a nearly-$40 million expansion in Mooresville, N.C., just north of Charlotte, an investment that Schaeffer admits some might see as counterintuitive. But it "absolutely makes sense for us," he says, in part because a lot of hygiene product manufacturers -- PGI's customers -- will be staying in the U.S. and the market for diapers and incontinence garments is growing.

Meanwhile, Farmington Hills, Mich.-based Jervis B. Webb, a maker of material handling systems, is growing its U.S. businesses in part by sourcing components from its joint ventures in China and India. Employment at the privately held company's airport equipment plant in northern Michigan rose 30% during the first 10 months of 2005. "Our foreign operations are growing. We're importing products that are making us stronger here, and we're hiring more domestic people," stresses Brian G. Stewart, a Webb senior vice president and COO.

Getting Hotter

In addition to China and India, a list of attractive production locations for manufacturing kept by QAD Inc. includes Malaysia, the Czech Republic, Singapore, the Philippines, Brazil, Canada, Chile and Poland. In the Czech Republic, for example, "there is a lot of excitement, and the government is doing a lot of great things, especially in the automotive sector. They're making it very attractive for companies to move in," says Michael Lodato, chief marketing officer for QAD, a California-based producer of ERP software for manufacturers.

For high-end manufacturing requiring skilled workers, ABB is turning to the Czech Republic, Poland and Russia. Deere also is expanding in Russia, although other manufacturing companies remain cool on the country. Deere has opened a seeding-equipment assembly operation in Orenburg, about 800 miles southeast of Moscow, established a dealer network and set up a system for parts and service support.

Meanwhile, "Latin America has been a terrific story for us," says PGI's Schaeffer. PGI has a plant in Cali, Colombia, to serve customers in the Andean trading bloc and another just north of Buenos Aires, Argentina, to serve customers in the Mercosur trading group. A competitor once asked Schaeffer why he was in Cali, Colombia. He replied, "Because you're not."

Singapore has launched an ambitious program to double manufacturing output to $300 billion by 2018, by diversifying its manufacturing base, creating more skilled jobs and strengthening supply chains. Ko Kheng Hwa, managing director of Singapore's Economic Development Board, sees nanotechnology, for example, enhancing his country's core industry strengths: electronics, chemicals, biomedical sciences and engineering.

Who's Going Where

Bigger Companies Go Farther
Where U.S. manufacturers expect to locate

Domestic sites Foreign sites
All companies 72% 28%
Large companies 56% 44%
Mid-size firms 79% 21%
Small companies 77% 23%
Source: Deloitte Consulting LLP. Percentage of companies planning to locate or develop new operations within the next three years. Products Determine Places
U.S. manufacturers, sites by industry
Domestic sites Foreign sites
Metal products 76% 24%
Food products 73% 27%
Electric equipment, electronics 70% 30%
Plastics, rubber and chemicals 63% 37%
Paper and wood products 55% 45%
Source: Deloitte Consulting LLP. Percentage of companies planning to locate or develop new operations within the next three years. Production Most Often
U.S manufacturers, type and location of facility
Domestic sites Foreign sites
Manufacturing/processing 68% 59%
Distribution/warehouse 19% 24%
R&D 2% 6%
Shared service center 3% 4%
Sales offices 1% 4%
Retail store or other outlet 1% 2%
Headquarters 4% 2%
Call center 3% 0%
Source: Deloitte Consulting LLP.

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