Dean Barber

Why Don’t He Write? What is Wrong With Us?

In Corporate Site Selection and Economic Development on February 7, 2016 at 7:40 am

Last week, I stood before an economic development board of directors and gave a recap of a proposal on how to best grow an industry sector in their community.

We had submitted a proposal two months ago, and found ourselves one of four finalist firms selected to essentially argue our case. We had 30 minutes.

I spoke about the knowledge and experience of my project partners, who were present via Skype. They said more about their backgrounds and gave ideas on how we were offering more than just a report but an action plan.

Then it came to the question and answer phase, and one board member asked a question that momentarily threw me for a loop. I’m paraphrasing here but he asked in essence, “Why aren’t companies coming here. What is wrong with us?”

His question went to the very heart of what we would be delving into if we were chosen to do this work, because our starting point would be a SWOT analysis to determine the community’s strengths, weaknesses, opportunities and threats, especially relative to this one industry group.

Why Don’t He Write?

It’s weird how sometimes something from left field will come to mind at moments like that. Standing there, I thought of the scene from the movie “Dances with Wolves.” A crude wagon teamster looked down upon a skeleton on the prairie and laughed: “Somebody back east is saying, “Now why don’t he write?”

Why don’t companies come here? In most cases, communities that wait for business investment to come to them, typically find themselves waiting and waiting and waiting.

Go Fish

The truth is that you have to go fishing, and you have to know what you are fishing for, and you have to have good bait. For lack of a better phrase, we call this business development, which for me is not nearly as relaxing as fishing.

My reply to the board member’s question was something like this.

“Look, we haven’t yet done a SWOT analysis to determine what your community’s strengths, weaknesses, opportunities and threats are, so I would just be guessing.

“But it rarely works to sit back and wait for business investment business to come to you. You have to engage in business development, which is never easy, with target industries in mind, but only after you know what your strengths, weaknesses, opportunities and threats really are.”

I may have said it better here than I said it there, but you get my drift.

Outreach is Hard Work

Business development is an exercise in outreach and I’ve always believed that most economic development organizations are not particularly good at it. It’s hard work and to some degree it’s even scutwork, like digging a ditch. But it has to be done in a continuous and systematic way.

In a follow-up email the next day, I thanked the staff and the board of the economic development organization for giving us the opportunity to compete for the project.

I even offered to show them some not-so-obvious ways and means by which to identify and make contact with senior corporate decision makers in companies within that industry group.

Wave the Flag

I also suggested that the community has to get out there and wave the flag by attending at industry conferences and trade shows and developing relationships with business people outside their community.

You can make all sorts of strategic errors in business development, but if you meet the right people and develop relationships with them, good things can happen.

The Fixation with Hot Leads

Too many economic development groups are looking solely for “hot leads” when they should be looking at building long-term relationships with companies that could and would be a good fit for their community, whether there is an imminent project or not.

I cannot tell you how often I run across this short-term “hot lead” mentality among economic developers to the exclusion of almost everything else.

I’m convinced part of the reason is that there are some consultants out there selling that smoke in a bottle, and a goodly number of economic developers are buying it.

Last week, while I was in this city and about an hour before I spoke to the economic development board, I was on the telephone with the president of a manufacturing company in the Pacific Northwest. He said this, which is an accurate quote: “We have talked about a Southeast facility but it hasn’t moved much past the discussion phase.”

Playing the Long Game

Now that was music to my ears, a great opportunity for me to provide consulting assistance on a future site selection project. And because of that, I’m going to stay in touch with this man, all the while knowing that nothing will probably happen this year.

But because this is not an imminent project, I know of some economic developers who would see no urgency, no need to develop a relationship with this business person. No project, why bother.

And they would be so, so very wrong. Business development should be played as a long game and not for short gain.

He Gets It

Next week, I fly a southern state to consult with an economic development department of an electric utility company. They want me to look at their big data gathering initiatives and see how we can leverage all that information into developing relationships with people in identified companies.

I feel pretty confident that I can help them. But to gauge whether they were smitten with the “hot lead” mentality, I asked a senior executive with the utility this question: “If I introduced you to a company executive who said his or her company might be looking in your area two or three years from now, would you consider that a win?”

His answer was “absolutely,” which was the right answer. But I have worked some economic developers who would have said no, which to me is to cut off your nose to spite your face.

He Doesn’t Get It

Last month, I was on a conference call with the head of economic development for a New England state who had been bitten by the “hot lead” bug.

He didn’t want to hear about developing relationships with identified companies as likely suspects. Rather, he just wanted that silver bullet on how to win projects in the 200-300 people range.

I came away from that conversation thinking this man had no more understanding of business development that I do about quantum physics.

But at least I know what I don’t know. This was a bureaucrat with no economic development experience thrust in position that he shouldn’t hold and answering to a governor to whom he desperately wanted to please.

Actually, that is not a particularly rare scenario on the state level throughout this country come to think about it.

Part Art, Part Science

This thing we call business development is all about developing and then mining, that is extrating information from, sources over the long haul.

I believe it’s part art and part science, especially now with the big data resources that we can use to our advantage. Unfortunately, many people with the job title of business development will never really truly get the hang of it, largely because they don’t spend the time to learn what works and what does not.

In some ways, it is easier for me to show than explain how I go about getting names, email addresses, direct phone numbers, and mobile phone numbers of senior executives.

The president of that Pacific Northwest manufacturing company had invited me to call him. Over the course of two days, we communicated via LinkedIn inmail, email, telephone and text messages, four different mediums.

Whether he decides he needs our help with a future site search project a year or two from now, or whether this community chooses us in the next two weeks to help bolster their recruiting efforts for an industry is almost beside the point.

They now know about us. And they now have an idea about how we can help. And we will stay in touch because we’re playing the long game. And relationships matter.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Dallas. He can be reached at dbarber@barberadvisors.com or at 972-890-3733.

Acts of Man: Stories of Faltering Infrastructure

In Corporate Site Selection and Economic Development on January 24, 2016 at 7:39 am

They are commonly referred to as “acts of God” — earthquakes, tornadoes, and hurricanes. Winter Storm Jonas,  a historic blizzard which buried much of the Eastern Seaboard and left at least 19 dead, would be a prime example.

These are natural catastrophes that man cannot prevent, and which frequently result in considerable property damage and loss of life.

These “acts of God” are trying to the soul, but it is our nature to accept them for what they are and put our hands to the plow and move on.

It is more difficult for us, however, to accept circumstances when the “acts of man” put our health and safety at risk. Then we want redress, a wrong set right.

I can think of three communities in the past month in which I have read published reports showing public safety jeopardized because of aging, deteriorating and substandard infrastructure.

Leave it to say, this is not unique to these three places alone, but is commonplace throughout the United States, in both rural and urban environments.

The Foundation to Our Economy

Infrastructure is the foundation that connects the nation’s businesses, communities, and people, driving our economy and improving our quality of life.

It is your water main, the power lines connected to your house and the street in front of your home, as well as the national highway system.

Once every four years, the American Society of Civil Engineers gives a comprehensive assessment of the nation’s major infrastructure categories in the form of a report card.

The last report card in 2013 (the next one is due in 2017) gave America a cumulative grade of D+ for infrastructure.

In the executive summary, the ASCE said this:

“For the U.S. economy to be the most competitive in the world, we need a first class infrastructure system – transport systems that move people and goods efficiently and at reasonable cost by land, water, and air; transmission systems that deliver reliable, low-cost power from a wide range of energy sources; and water systems that drive industrial processes as well as the daily functions in our homes.

“Yet today, our infrastructure systems are failing to keep pace with the current and expanding needs, and investment in infrastructure is faltering.”

Flint, Michigan

This is a city where 40.1 percent of the city’s population is living in poverty. In April 2014, as part of a cost-savings move, Flint opted out of Detroit’s water supply and began drawing water from the Flint River.

Big mistake. It turned out that the water from the Flint River was highly corrosive to the lead pipes still used in parts of the city. In the fall of 2015, researchers discovered that the proportion of children with above-average lead levels in their blood had doubled.

Lead in water is measured in terms of parts per billion (ppb). Some samples taken by Virginia Tech researchers came in at 5,000 ppb, the level at which EPA considers the water to be “toxic waste.”

The city reconnected to Detroit’s water system in October, but it remains unclear how long the old pipes will continue to leach unsafe levels of lead into the tap water supply.

Gov. Rick Snyder, who has apologized for what has become a scandal to his administration, resulting in firings and resignations, says he will “fix it.”

Certainly, he is speaking of the water system itself and not the bodies that have been poisoned. In children, lead can cause irreparable brain damage. For adults, high blood pressure and kidney damage. In pregnant women, miscarriages, stillbirths and premature births.

In past blogs, I have praised Gov. Snyder for being what I thought was the best economic development governor in the country.  Certainly, he changed the culture of economic development in his state.

And now it is the very culture of his own government that he is decrying and blaming for the crisis in Flint.

Speaking on the MSNBC program “Morning Joe” on Friday, Gov. Snyder complained about public agencies lacking a “culture of asking the common-sense questions,” adding there’s “a huge bureaucratic problem and it’s part of the problem with culture in government.”

Keep in mind the governor is speaking about decisions made by people that he appointed, blaming those who answer to him.

Which leads me to this question: Just where does the buck stop?

Gov. Snyder, who has faced intense scrutiny in recent weeks from state and national news media, has hired two public relations firms to help his office deal with the crisis.

Not Far Away in Detroit

At the same time that Flint was garnering national headlines, teachers in Detroit held a mass sickout last week to protest the physical conditions of schools there.

In some schools, students have had to wear coats in class for the lack of heat, along with evidence of black mold contamination and a general state of disrepair.

Michigan was in the news last week for all the wrong reasons, exemplifying how deficient infrastructure can and does hold us back. Not great for economic development.

Porter Ranch, Los Angeles County

For months now, a methane gas leak from an old oil well has been disrupting life in Southern California.

Since the leak was detected on Oct. 23, the Southern California Gas Co. has relocated 3,112 households to temporary homes and hotels outside of Porter Ranch, a community of 30,000 whose northeast border is about a mile from the leaking Aliso Canyon well in Los Angeles County.

Another 2,571 households are awaiting relocation, the company said.

Health officials say hundreds of residents have reported health problems such as nausea, headaches and nosebleeds due to additives in the natural gas.

While a cause of the leak has not been determined, experts believe the age of well probably plays a major role, as its pipes, having channeled oil, gas, and water, are 61 years old.

SoCAlGas is in the process of drilling a relief well and expects to locate and enclose the leaky pipe in cement.

When will the leak stop? Maybe next month. Maybe. In the meantime, the old well is spewing 1.6 million pounds of methane each day into the atmosphere.

The Lewisville Dam, North Texas

The age of the leaking well Los Angeles County is about the same age as that of the Lewisville Dam, a six-mile-long earthen structure completed in 1954 and about 22 miles northwest of Dallas.

Work is under way to repair a 161-foot-long slide on the upstream face of the dam. The U.S. Army Corps of Engineers detected safety issues at the dam in August, while saying the landslide occurred in June, which strikes me as a bit odd.

Now the Corps insists that the dam is not at risk at failure, despite having issues. But a Dec. 12 story in The Dallas Morning News entitled “The Dam Called Trouble” paints a different story, one of a Corps that is trying to sugarcoat a real and existing threat.

How big a threat? In 2005, the Corps started screening every one of the 694 dams under its jurisdiction. The goal was to expeditiously identify and classify the highest risk dams requiring urgent and compelling action (Dam Safety Action Classification Classes I and II Dams).

The Corps rated the Lewisville Dam as a Class II. Now I quote the Corps’ definition of a Class II from its own website:

DSAC Class II (High Urgency) – “Dams where failure could begin during normal operations or be initiated as the consequence of an event.  The likelihood of failure from one of these occurrences, prior to remediation, is too high to assure public safety; or, the combination of life or economic consequences with probability of failure is very high.”

In short, what the Corps tells itself about the Lewisville Dam is quite different from what it tells the public.

I am that public. I live an uncomfortable 10 miles below the dam, so this is quite personal for me.

The Lewisville Dam holds back 2 million acre-feet, or 2.5 billion tons, of water when the lake is full. If it failed, the magnitude of all that water unleashed would dwarf the worst dam disaster in American history.

Today, every state but Alabama have dam safety regulatory programs. Since 1998, the number of high-hazard-potential dams has increased from 9,281 to more than 14,700 in the 2013 update of the National Inventory of Dams.

The Cost of Failure

The common denominator to all these stories in Flint, Los Angeles County and North Texas is old infrastructure that is in dire need of improvement if not total replacement. In all three cases, the public safety has been proven to be at risk. These stories are part of a much bigger story.

Certainly, robust infrastructure is of great importance when I consult with a company on location analysis for a future site of operations. It is something that I will focus on when I advise economic development organizations. This is foundational stuff that cannot be ignored.

Aside from the human cost, there are huge economic considerations if we fail to act and fix what needs to be fixed, according to ASCE in a 2013 report:

“Overall, if the investment gap is not addressed throughout the nation’s infrastructure sectors, by 2020, the economy is expected to lose almost $1 trillion in business sales, resulting in a loss of 3.5 million jobs. Moreover, if current trends are not reversed, the cumulative cost to the U.S. economy from 2012–2020 will be more than $3.1 trillion in GDP and $1.1 trillion in total trade.”

Infrastructure built by man, so too, can be maintained, repaired and replaced by man. It’s what we must do to remain a competitive and safe nation.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Dallas. He can be reached at dbarber@barberadvisors.com or at 972-767-9518.

My Evidence Is Better Than Your Evidence: The Reshoring Debate Continues

In Corporate Site Selection and Economic Development on January 17, 2016 at 12:43 am

Look,  we are all guilty of this – we believe what we want to believe. Maybe that’s why there are different religions in the world.

In the real world, we are being bombarded with information, much of which is often conflicting.  I stopped grappling over whether coffee was good for me or not a long time ago.

While we should make decisions based on which evidence is strongest, people tend to interpret “facts” that are consistent with their desires.

All too often, we believe that the weight of evidence supports the position that we already wanted to believe was true.  That is precisely why I will smugly show my wife any news report that I may come across stating that coffee might actually be good for me.

Aha, take that. Slurp.

The Reshoring Brouhaha

A few years back, I wrote a blog stating that while there was certainly anecdotal evidence of reshoring taking place, I was unconvinced that I was witnessing an actual megatrend in the making.

Judging from some of the emails I got, you would have thought I had called the Pope a Satanist. One muckety muck, I kid you not, said that he had lost of all respect for me because of my stated skepticism concerning reshoring.

Now imagine that. My response to him: “So you lose respect for anyone that you may disagree with?” How adult is that? This fellow would seem well suited for Congress.

Well, to continue this saga, late last month, the consulting firm A.T. Kearney published a study concluding that “the reshoring phenomenon appears to have been more a one-off aberration than an inexorable trend.”

Yikes! Now don’t you know that caused a bit of a firestorm. Magazine articles, far from anything that could be called scholarly work, promptly came out questioning A.T. Kearney’s findings.

“They are just plain wrong about reshoring efforts in America,” wrote one consultant. “We continue to base our opinions on actual evidence and we continue to see the outlook as optimistic.”

The Things Consultants Will Say

Let me tell you something about consultants, because I am one. A goodly number of them, not all mind you, will whisper sweet nothings in your ear. They will tell you what you want to hear, if only you will let them.

They are, after all, selling their consulting services.

I’m currently finishing up a SWOT analysis for a community and I know of at least one rather major thing that the client would want us to include in our final report. But in good conscious, we have to recognize that client’s desire for this one particular finding is just not supported by the facts on the ground.

We owe it to them to be straight with them. We just do.

Not Surveying Plans and Predictions

The 2015 A.T. Kearney Reshoring Index compares the relative evolution of goods manufactured in the U.S. with those imported from 12 key Asian ‘offshore countries’ like China and Vietnam. Unlike other studies, it does not survey plans, speculations, intentions, or predictions of company executives.

Rather, A.T. Kearney relies on a set of macroeconomic analyses of publicly available data.  The intent is to go beyond the hype and determine what actually happened.

Their study shows that U.S. imports from the ‘offshore countries’ grew at a faster rate than domestic manufacturing, and that companies, in response to rising labor costs in China, are increasingly switching their sourcing decisions towards other Asian countries rather than returning to the U.S.

“In our 2015 study, we agree that, on the whole, manufacturing in the U.S. is in decent shape. However, we note that this is for a significant part due to increased Foreign Direct Investment and not reshoring, an important distinction that other studies often fail to make.”

Boston Consulting Group Lead the Charge

People started getting themselves worked up into a cheerleading frenzy when the Boston Consulting Group in 2013 predicted millions of manufacturing jobs would be created as a result of reshoring.  And yet here comes this latest A.T. Kearney report saying that it is just not happening.

This past week, I spoke with Morris Cohen, Professor of Manufacturing & Logistics with the Wharton School of the University of Pennsylvania. He has been studying supply chain patterns and the issue of reshoring for several years now.

His conclusion: “Their (A.T. Kearney’s) data is consistent with what we have seen,” he said.

A lot of stuff is happening, a lot of supply chains are being restructured, maybe more so than ever before, but there is little reshoring on a net basis taking place in the U.S. (Do I detect the gnashing of teeth?)

“We observed two things. One, there is a lot of restructuring going on, a lot of shifting, but it is going in multiple directions,” Dr. Cohen said.

“Companies continue to offshore. Companies in China go someplace else, and some companies are indeed reshoring. It was a puzzle and we wanted to get a better sense of what was going on.”

Initial findings were published last year and a new set of findings, largely consistent with the first, are soon to be published in a second 200-page report, Dr. Cohen said.

A Mixed Bag

What Dr. Cohen’s report will show is that companies are doing a lot of different things, and that the same company can go in both directions (offshore and reshore at the same time.)

“Some opened factories in China. Some shifted back to the U.S.  Some added capacity in Mexico and on and on. Some companies didn’t do anything,” Cohen said.

Cohen’s research shows there a great flows of manufacturing from a source to a destination but that it was a mixed bag.

“We found that yes, there are companies that are shifting manufacturing to North America. We found there are a lot of companies shifting production from China to places like Vietnam. Some are shifting from Western Europe to Eastern Europe,” he said.

“We found that the companies that were adding capacity to the U.S. and there were a fair number, were not U.S. companies. They were European companies. They were Asian companies. But very few American companies are adding capacity in the U.S.”

Cohen’s findings are consistent with A.T. Kearney’s that many foreign companies are more interested in establishing a manufacturing footprint in the U.S. than their domestic counterparts are interested in repatriating their operations from Asia.

Chinese FDI is Robust 

China has been the fastest-growing source of non-domestic business expansion in the U.S. in the past seven years. Chinese foreign direct investment here reached record levels in 2014, about $12 billion dollars, up from $5 billion in 2009.

Chinese manufacturers have acquired or built facilities to produce textiles, copper, steel, automobile supplies, renewable-energy equipment, and industrial machinery in dozens of states.

Of the 60,000 new U.S. manufacturing jobs that, according to the Reshoring Initiative, were created in 2014 as a result of the combination of reshoring and foreign direct investment, about 8,000 were at China-owned companies.

The President’s Spin

And in his last State of the Union address, President Obama cherry-picked when he spoke of manufacturing jobs. The president said, “That’s just part of a manufacturing surge that’s created nearly 900,000 new jobs in the past six years.”

But if you look at his entire time in office, the U.S. has lost 230,000 manufacturing jobs, dropping from 12,561,000 jobs in January 2009 to 12,331,000 in December 2015, according to the Bureau of Labor Statistics.

For the whole year of 2015, and for the first year since the 2009 recession, the U.S. Bureau of Economic Analysis expects U.S. manufacturing gross output—which includes the input values of raw materials and intermediate goods—to shrink by as much as 3.6 percent.

Of the 2.65 million new jobs created in the private sector last year, only 30,000 were in factories, according to the Labor Department. You may want to read that again.

I’m Just Saying

Our trade deficit with China in 2015 will break the all-time record set in 2014. And nobody thinks 2016 is going to be any better, with the dollar rising, China’s currency weakening, and its industrial overcapacity not abating.

What’s more, this expansion is starting to get long in the tooth – six and a half years. The average expansion since World War II lasted less than five years. While there may be no recession this year, the odds could shift in 2017.

And the impact of China in the global economy is larger than ever before. As a result, says former Treasury Secretary Lawrence Summers, the “global risk to domestic economic performance in the U.S., Europe and many emerging markets is as great as at any time I can remember.”

Going back to my original statement, we believe what we want to believe.  To that end, we don’t always weigh the evidence objectively but through a biased lens. It is why I will continue to drink coffee, until or unless I get an epiphany to do otherwise.

And, weighing the evidence, I happen to believe that A.T. Kearney and Professor Cohen at the Wharton School have concluded correctly that reshoring is not the big megatrend that so many people have touted it to be.

As the good professor said: “That’s my story and I’m sticking to it.” As it should be.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Dallas. He can be reached at dbarber@barberadvisors.com or at 972-767-9518.

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