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Friday, May 6, 2016

CAEDC Action Report

Thursday, May 12, 2011

A prime time for growth

In the 1990s, we rode the tech breeze and in the 2000s we rode the easy money of the construction trade winds. In 2008, we ran into a major headwind. Each had its expansion and contraction in the economy. The most recent one being the most severe most of us have seen in our lifetime. Now we search to identify a structural trend that would provide the tailwinds necessary to create meaningful expansion in the economy.

One might be appearing that has an impact in the heartland. In 2010, the U.S. economic data are revealing trends that manufacturing is making a rebound. That is important especially here in Iowa where manufacturing has been a significant part of the economy. Among the reasons for the current and projected growth are:

* Increased importance of proximity of manufacturing facilities to the customer locations. The United States is the world's largest market, and dynamic changes in customer preferences happen with increasing frequency and with trends and preferences fleeting. Those manufacturers who sell to end consumers are finding increasing value in locating facilities closer to their end customer so as to be able to react more quickly to changes in customer preferences.

* Increased risks and expense within a globally oriented supply chain. The events in Japan, overall political volatility throughout the world, weaknesses in emerging economy intellectual property and contract law, and outright firsthand experience with fraud are forcing executives to rethink the risks within their global supply chain.

* Narrowing of the labor-related cost benefits of locating in East Asia compared with Western developed economies. While there clearly remains a large difference in per-hour labor rates between the United States and Asia, in March, the U.S. Bureau of Labor Statistics issued a report that indicated the average hourly rate for Chinese manufacturing laborers was $1.36 per hour in 2008, nearly double the 2005 rate. Furthermore, recent commentary from executives at Chinese-based manufacturing companies, particularly along the coastal regions of China, indicates they are experiencing increases of 15% to 30% for skilled labor and with these increases, shortages in skilled labor.

* We are leaving an era in which labor costs were the primary driver to determining the location of a manufacturing facility to an era in which proximity to a reliable energy source begins to take equal precedence. The United States is sitting on the largest national gas supplies in the world. In addition we possess the largest coal supply. If we in the Midwest unlock the potential energy stored in the vast quantities of biomass we could become a rival of Saudi Arabia.

Transitioning through tough economic times often has the benefit of clearing away preconceived notions and dated strategies. Following are some of the tactical ideas that growth-oriented niche manufacturers are adopting:

Lean -- all around

Flexible scheduling and alternative sourcing

Market-based pricing

Portfolio and product-level profitability analyses

Bundled, higher value service and product offerings

Energy, transportation and international volatility could provide a spark to U.S. manufacturing in general. Manufacturing, especially of agricultural products in Iowa, is a niche market that may see a renewal. Providing high quality and efficient products that can be delivered on demand are an opportunity that may be entering a prime time for growth.