Dean Barber

Let’s Build a Future

In Site Selection on September 28, 2014 at 6:28 pm

I liked the building. It had some good things going for it – 22 dock doors and a large concrete pad in the back, 32-foot-high ceiling with good lighting and modern office space.

And it was big, more than 250,000 square feet with nearly 700 parking spaces for employees. And it was only a few years old and in excellent condition.

“So what do you think of my building?” the economic developer asked proudly after giving me a tour of the property. He so much wanted a tenant for that large empty space under roof. It would mean jobs and a big win for his community and a feather in his hat.

“I think it’s a very good building,” I replied. “I don’t much care for the goat trail that we took to get here.”

Goat trail is an exaggeration. A narrow, crumbling farm lane, however, is not. Why a company chose to build there I do not know. I was actually shocked by the location, and that’s saying something.

What I do know is this – the company didn’t last there very long, less than two years. It proved in my mind that companies should concentrate on their core focus and leave the driving, the site selection to the experts. See blog “Why Companies Should Outsource Site Selection.”

But it was a nice building.

Cornerstones

When I am asked to speak to audiences of economic developers, which I enjoy, I sometimes get the distinct feeling that I am supposed to provide that all-important one thing that a community should embrace in order to win corporate investment.

Well, there is no silver bullet, but more often than not, it does comes down to two big things – talent and infrastructure. You have to have the human resources, the talent, for a specific operation, and you have to have the physical tools, the infrastructure, in order to compete successfully.

If you don’t have either of those in a sufficient capacity, chances are we are moving on seeking greener pastures. And I’m not talking vegetation.

And while this combination of people and infrastructure may at first blush sound like a simple proposition, I can assure you that actually determining what is on the ground is not so easy as it entails a systematic investigative process.

It’s a lot of work and again most companies are not well-equipped or experienced to do that very well.

More often than not, this blog, written for both a corporate and economic development audience, focuses on people and infrastructure. Both are cornerstones of a business environment.

And when I go on a familiarization tour of a community and/or region (I will be participating in several in the coming weeks), it’s the human capital and the physical support system that I am trying to fathom.

As an aside, I do not go on fam tours for free. As a self-employed consultant, I simply cannot give away three days of my time without being compensated. It’s just not a business model that works for me.

The Need to Move

Enough on that. Let’s get back to infrastructure, which in the bigger scheme of things is a far more important topic than my consultancy. Infrastructure is a very broad term.

It can consist of many things, airports, schools, electric utility grids, pipelines, and on and on. For purposes of today’s blog, we focus mainly on transportation and for good reason — companies need to move people and product around.

And for manufacturing, this is ultra critical. Recently I toured some rural provinces in Costa Rica, a beautiful country with a lot of potential. Not surprisingly, transportation infrastructure was a huge challenge for these outlying regions. Some of the roads I traveled were narrow and teeth rattling.

But we find the very same in parts of rural United States, and even in metropolitan areas, roads and bridges are often inadequate to meet the demands placed on them.

Manufacturers have long been concerned about the failure of this country, the largest economy in the world, to maintain its infrastructure. In a 2013 survey, the National Association of Manufacturers found that 70 percent of manufacturers said U.S. infrastructure was in fair or poor shape and needed a great deal or quite a bit of improvement.

Their concern is echoed by the American Society of Civil Engineers. Last year, ASCE gave the nation’s infrastructure a grade of “D+.”

A Stark Warning

And now NAM came out with another report last week that further sounded the alarm, revealing a decade of troubling trends in infrastructure formation, such as a 3.5 percent drop per year in the volume of highway, road and bridge investments as well as further sharp decreases in mass transit, aviation and water transportation infrastructure investment.

“The United States is stuck in a decade-long period of decline that will eventually harm job creation, future productivity and our ability to compete head-to-head with companies all over the globe,” said Jay Timmons, NAM’s president and CEO. “As we sit idle, our competitors are churning out investments in their infrastructure.”

The NAM study, conducted by Inforum at the University of Maryland, said an additional $100 billion was needed annually to bring infrastructure up to minimum standards. In 2012, investments in roads, bridges, ports and other infrastructure totaled $291 billion, of which governments contributed $181 billion and the private sector contributed $110 billion.

Spending on public infrastructure grew at annual rate above 2 percent from 1956 through 2003, but declined 1.2 percent a year from 2004 through 2012, much of it due to weak state and local expenditures after the 2008 recession.

Here’s What Could Happen

The study determined that for every dollar invested in infrastructure by 2030, there would be a $3 boost to the U.S. economy. Highlights of the report show that if the recommended $100 billion per year was spent on infrastructure improvements, the following would result:

  • Almost 1.3 million jobs would be created by 2015 and 1.7 million by 2017.
  • GDP would be increased 1.3 percent by 2020 and 2.9% by 2030.
  • Household disposable income would see a net gain of $1,300 per household by 2020 and $4,400 by 2030, measured in 2009 dollars.

It is probably not a great stretch to term NAM as a politically conservative group. And yet here is this organization advocating what would amount to a 40 percent increase over the current spending on new infrastructure projects.

NAM is not dropping the other shoe and asking for an increase in the 18.2-cent-a-gallon federal fuel tax, which has not been increased since 1993. Annual collections for the federal fuel tax have been declining as motorists drive more fuel-efficient vehicles and rack up fewer miles than in the past.

Business Warms to More Funding

Congress has relied on a series of stopgap bills in recent years to maintain level funding for transportation. Meanwhile, the business community, including the trucking industry, is starting to realize that paying higher fees may be the answer.

“The infrastructure has gotten bigger and that means you need more funding to maintain it,” Susan Alt, senior vice president of public affairs for Volvo Group North America, which makes commercial trucks and construction equipment, told The Wall Street Journal.

Former U.S. Treasury Secretary Lawrence Summers has called for a “major” plan to boost the country’s economic growth and said borrowing to fix aging infrastructure would help lower the jobless rate.

“What we need in the United States is a comprehensive growth strategy to get that rate from a struggling 2 percent to a 3 percent,” Summers said in an interview broadcast on the Fox News program “Sunday Morning Futures With Maria Bartiromo.” “Over time, that would be transforming of job opportunities for millions of Americans.”

My take: Investing in the country’s transportation infrastructure will pay dividends in the long run, especially for manufacturers who depend heavily on trucking for receiving supplies and delivering products.

It’s also a basic business tenant that you have to spend money to make money. You have position yourself in order to win.

I submit that the U.S. remains a very good bet, and that we – both the public and the private sectors – should have enough confidence as to bet on ourselves and our future. Our competitiveness as a nation is at stake.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a site selection and economic development consulting firm based in Plano, Texas. If your company needs an optimal location for future operations anywhere in North America, we can help. If your community needs to improve its competitive standing, we can help. All requests for information are considered confidential.

If you liked what you saw here, invite me to speak at your next meeting.

© Unauthorized use is prohibited. Excerpts and links may be used with permission.

Your Turn

In Site Selection on September 25, 2014 at 12:44 pm

In response to my latest blog — What Recovery? — some of you had some very interesting and worthwhile comments. I may not agree with all of them, but here’s a sampling, edited for space.

####

“A couple of weeks ago, a friend posted a link to a story on Forbes, talking about how Obama has created more jobs and other such criteria than had Reagan. And while the raw numbers of jobs may be accurate, comparing the types of jobs (part-time vs. full-time, “just a job” vs. career jobs, underemployment) as well as the salary data shows some serious gaps in where we were vs. where we are now. The idea of economic recovery being measured by stock market performance just isn’t an accurate yardstick, especially when all we hear about are companies sitting on massive amounts of savings and cash but crucially not investing it in hiring.” — Brad in Fresno, Calif.

####

“It is hard to get people to come together to impact on unfair policies related to trade, exporting jobs, importing workers, union-busting, inequality and other such matters that are at the heart of this ongoing crisis. I see it even in my personal life…those family members who have sustained employment through the crisis have no empathy for those who lost jobs or whose wages plummeted, or who have lost homes and life savings.

I would almost have to argue that this economic crisis has waged war on the character of humanity, on caring about and for one another, and on our deepest levels of consciousness and psyche. Charitable giving is at an all time low. Callousness seems to be at an all-time high. Suicide rates are sky-rocketing as are alcoholism, drug abuse and other social indicators of bad times.

I do feel vindicated in some ways when I read articles like this one …and want to post it on the bulletin board of the world and say in a megaphone…SEE, IT REALLY IS BAD! We are not making this up, there really are no descent paying jobs…and the economy is continuing to tank.” — Colleen in Upper Black Eddy, Pa.

####

“…it’s really a much broader and deeper structural problem that we are only now starting to understand. As the impressive growth of developing countries continues, the U.S. and the rest of the West will either slowly but surely decline or certainly grow very slowly. If our manufacturers knew how to serve and sell to this growing base of consumers, I believe you’re correct in stating that we would have much stronger growth in the West going forward. I don’t believe that our generation (The Boomers), however, has the global mindset to pull this off. I am optimistic, however, that the next few generations will be successful in beginning to reestablish not just good economic growth but sustainable economic growth. They seem to be more globally aware and less selfish than we are.” — Bill in Plano, Texas.

####

“The haves and the have-nots are nothing new. But, just because it’s an age-old problem doesn’t mean that we shouldn’t pay attention to it. Bad for both our economy and our society We see this when talking about neighborhoods and between neighboring communities. It could be even worse when we talk about regions and countries in the same terms. This has been and continues to be the source of much unrest and conflict…and it’s damned expensive.” — Bob in Kansas City, Mo.

####

“Two additional thoughts about the lack of growth in wages: it is coupled with increasing prices and young entrants (out of college) are saddled with previously unseen levels of debt service. Some would argue inflation is low, however certain categories are increasing (food) which puts additional significant pressure on consumers (especially younger ones). You know what this means for growth… thus slow, slow recovery.

We, like England are in and continuing to build an economic model that requires debt to operate. Remember when no one leased a car? Nobody used a credit card to buy food? People used cash to buy things? That was an economy centered upon equity. As we continue to move to an economy centered upon debt, it will be much harder for the masses to respond to an economic shock (recession). If you own your car you have no lease payment, if you loose your job. That is not to say a debt centric economy is all bad; like with most things, balance is what it is all about…. food for thought on another topic for you.” — Stephen in Los Angeles

####

“I hear so much about manufacturing and how it is our future engine for creating jobs but just don’t see it happening here in Massachusetts. Despite all the money we throw at setting up consortiums to train machinists and try to get high school students to consider STEM there is little to account for. Combining the flavor of the day- say Veterans and manufacturing has been a home run for getting funding for a training program but the outcomes just don’t support the investment. We need help in seeing the big picture in real terms.” — Bob in Brockton, Mass.

####

“The facts don’t lie. Median incomes are stagnant. But apparently people’s priorities have shifted so dramatically that those same younger people who are concerned about their future earnings still stand in long lines to spend $400 on a new phone that doesn’t do much more than the perfectly good one they have in their hands now. What recession, indeed?” — Linda in Irvine, Calif.

####

“The manufacturers that are coming back require only a small amount of the workforce they required in the past because of technology. Technology is also touching numerous other industries; banks for example are closing left and right because people are moving to online banking. The pressing questions that I see is what are the low/no skilled workers going to do (other than demand higher pay) and how is the US going to capture market share and compete in the emerging global markets?

I feel the US has made significant strides in becoming more competitive with other nations (still plenty of room to grow) but the world is changing and nobody really knows exactly how we need to readjust ourselves to remain the dominant economy. We live in an unprecedented time in history and the next 20 years are going to be very interesting. Despite the problems we have in this nation, I do think we’re resilient, (mostly) hard working, and have a lot of ingenuity. Hopefully that will count for something. Overall, it’s a great time to be in Economic Development.” — John in Brunswick, Ga.

####

“With the slow to non-existing growth of income comes an opportunity for those who are enterpreneurs. I found that many people who have stagnant wages are looking outside of the traditional business model to bridge the gap in their income. These people are looking for business opportunities where they can keep their day time jobs and do part time businesses at nights and weekends to bring economic growth for themselves and their families. There are a growing number of people who are doing home based businesses. It’s what I call being adaptable to the changing business environment. These people are discovering their enterpreneural genes that laid dormant during booming big businesses that employed them before 2009.” –Lan in Gilbert, Ariz.

Coming Sunday on Barberbiz

A new report by the National Association of Manufacturers warns that the status quo won’t do for U.S. infrastructure funding if the country is to avoid a competitive decline.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a site selection and economic development consulting firm based in Plano, Texas. If your company needs an optimal location for future operations anywhere in North America, we can help. If your community needs to improve its competitive standing, we can help. All requests for information are considered confidential.

What Recovery?

In Site Selection on September 21, 2014 at 9:12 am

Maybe, just maybe, we ought to reconsider our definition of what a recession truly is. Or for that matter, a recovery.

I say this not as economist or a learned professor of a vaunted university business school, but rather as someone who gets around, asks a lot of questions and reads.

For while the Great Recession, which will go down in history as just that, technically ended in 2009, we’re still at least five years away from regaining everything lost during the 2007-2009 downturn.

That is the startling conclusion from forecasting firm IHS Global Insight, which predicts that real median household income won’t reach the prior peak from 2007 until, get this, 2019.

Adjusted for inflation, it means the typical family will wait 12 years until their purchasing power is as strong as it was before the recession. I have heard this and seen this in many communities across this great country. Even Texas.

A Lost Decade

The Census Bureau reported last week that the median income of families in the United States edged up slightly to $51,939 last year from $51,759 in 2012, showing no significant growth for the second year in a row.

The increase leaves incomes around 8 percent below their level of 2007, when the recession officially started, which should give us all great pause.

Justin Wolfers, economics professor at the University of Michigan, calls it a “lost decade” for the middle class.

“What recovery? Real median household income is up a mere $180 on last year and is still $5,000 below the 1999 level,” when middle-class incomes reached an all-time high in the U.S., Wolfers told The Washington Times.

With no growth in incomes, consumers are hard-pressed to splurge on much on of anything. Only the top 10 percent of households have seen a major increase in income.

Not a Winning Hand

As I noted in last week’s blog, The Canary in Our Mine, a recent survey of Harvard Business School alumni revealed that more than 40 percent of the respondents foresee lower pay and benefits for workers. Roughly half favor outsourcing work over hiring staffers.

A growing share prefer part-time employees, and nearly half would rather invest in new technology than hire or retain workers.

Lower incomes means less consumer spending, which means slower economic growth. Leave it to say, that is not exactly a winning hand for U.S. manufacturing. Talk of a “manufacturing renaissance” remains, in this writer’s opinion, a pipe dream.

“People are starting to realize that something serious has happened,” IHS economist Chris Christopher told Yahoo Finance. “What the younger generation, people under 35, is experiencing is something very different than their parents or grandparents experienced.”

IHS regards 2014 as a turning point in which real incomes ought to turn upward and continue to rise until they finally reach pre-recession levels in 2019. But it will be slow going.

“We are using a coffee cup to dig ourselves out of a big hole,” Lawrence Mishel, president of the Economic Policy Institute told Reuters.

I Know Now

Last month, I sat on a panel discussion of site selection consultants before a roomful of economic developers in Minnesota. All the consultants had toured various regions of the state (I had Duluth and Northeast Minnesota), and we had convened to report our impressions and answer questions.

One of the questions threw us for a loop. If I remember correctly, an economic developer asked what effect Alibaba would have on U.S. manufacturers and our jobs as consultants. As none of my colleagues were offering an answer, I leaned forward  into the microphone and said, “I don’t know.”

My answer seemed to delight the audience as they probably don’t hear that very often, especially from a consultant. Since then, I have learned more about Alibaba, the Chinese e-commerce giant that raised $21.8 billion last week in the largest initial public offering in U.S. history.

Trust Means Volume

Although it is not well known among U.S. consumers, Alibaba is the largest e-commerce company in the world, bigger than Amazon and eBay combined. Its founder Jack Ma, a former English teacher and now the richest man in China, was at the New York Stock exchange where some of his customers rang the opening bell.

“What we got today was not just money, but trust,” Ma told CNBC.

Apparently, Alibaba has been winning a lot of trust of late. In the 12 months ending on June 30, the company, which quietly launched a U.S. e-commerce site of boutique specialty stores called 11Main, posted total gross merchandise volume of $296 billion across 14.5 billion orders from 279 million active buyers.

A Tech Giant Emerges

So what have we or could we learn from the emergence of Alibaba on the American consciousness? One is that China is not just a sweatshop for manufacturing, but is emerging as a real tech giant.

Literally, right across the street from where I live in Plano, Texas, is the North American headquarters for Huawei Technologies Co., which is fast becoming a threat to Samsung Electronics Co., as the world’s biggest smartphone maker.

The world is an ever changing place. As noted here, U.S. consumption has been constrained by a hammered middle class characterized by stagnant wages and weaker job prospects.

The New Engine

But that is far from the case in China, India and many developing nations, where consumers there are fast becoming the new engine of global economic growth. Therefore, it is vital, indeed absolutely necessary, for U.S. manufacturers, if they are to have much of a future, to compete in the marketplace for those consumers in the developing world.

It’s business Darwinism, adapt or die. U.S. manufacturers will have to come to realize that just as the U.S. consumer dominated the 20th century, consumers in the developing world willhold such a role in the future.

Jack Ma has said that he plans to expand Alibaba’s presence in the U.S., which continues a trend of foreign direct investment from companies from developing markets. Again, I only have to look across the street to know this is true.

According to the American Enterprise Institute, Chinese companies have invested more than $500 billion around the world since 2005 — with the U.S. the top destination. Chinese investment into the U.S. has increased from about $58 million in 2000 to $14 billion in 2013. Since 2000, it totals nearly $40 billion, according to the Rhodium Group.

Back from the Brink

The instinct in the United States against secession is now thankfully strong. This matter was settled with a bloody Civil War that took 750,000 lives.

Still, there are the wingnuts, the neo-confederates. I met a vendor at a flea market in Arlington, Texas, a few years back spouting off nonsense of Texas secession. I promptedly put down the item that I was about to purchase and walked away.

Sam Houston, elected twice as president of the Republic of Texas, was the only southern governor evicted from office on the eve of the Civil War because of his steadfast opposition to secession. He will always be a hero of mine.

So with that backdrop, you might know that I was relieved that a majority of voters chose to step back from the brink and continue Scotland’s 307-year-old union with Britain.

A U.S. survey of leading business professors said Scotland would have suffered “extreme economic pain” had it voted in favor of independence. Thankfully, cooler and wiser heads prevailed and the United Kingdom, which has been a steady ally of the U.S., remains whole.

Are there cultural differences between the Scots and the English? Of course, just as there are between Texans and New Yorkers. But never so much as to bust up the union. That remains sacred ground.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a site selection and economic development consulting firm based in Plano, Texas. If your company needs an optimal location for future operations anywhere in North America, we can help. If your community needs to improve its competitive standing, we can help. All requests for information are considered confidential.

If you liked what you saw here, invite me to speak at your next meeting.

© Unauthorized use is prohibited. Excerpts and links may be used, but only if expressed permission has been granted.

Follow

Get every new post delivered to your Inbox.

Join 710 other followers