Slathered in Guilt: Why Some Manufacturers Do Not Train

In my quest for answers and meaning, sometimes I can find only shades or the merest hints of truth. And when that happens, I consider myself lucky. I figure that I am at least getting warmer.

More often than not, I only turn up confusion — lodged in myself and in others, the latter, of course, being much easier recognized. I have concluded that no truer words were ever penned than that of cartoonist Walt Kelley: “We have met the enemy and he is us.”

As my regular reader(s) know (thank you, my dear wife), I have been consumed of late with thoughts of an America that could maintain and might even grow its manufacturing base. To do this, I believe we must embark on a national manufacturing strategy, which would include as a primary component a commitment by our public and private sectors to partner together to invest in our human capital.

Ok, let’s pare it down into plainer English. We need to do a better job at training our people to work in manufacturing. Industry executives and educators need to talk.

This is especially true at a time when U.S. manufacturers face a 20 percent additional cost burden compared to companies operating in our largest nine trading partner countries, principally because our corporate taxes now rank the highest. Also, we face these challenges when about 13 million of our citizens are out of work and are actively looking for jobs, and yet US manufacturers contend they struggle to find qualified people to fill job vacancies.

Clearly, something is amiss.

Hard Times Still With Us

If what our manufacturers are saying is true – that, in effect, we are fast becoming a nation of boobs, unqualified for most tasks beyond sprinkling our lawns and that most of our young people would prefer cage fighting to working in their factories – then hard times may still come knocking at our door.

You see, it is manufacturing, not the satanic practice of derivatives speculation or casino banking, that sustains wealth in our nation. And if we abandon manufacturing wholesale, as some policy wonks would suggest, we are in for a tough slog ahead.

Manufacturers are not shy about telling anyone who will listen that they are being treated akin to lepers. Jennifer McNelly, president of the Manufacturing Institute and speaking at a workforce conference in the Dallas-Fort Worth area earlier this week, told me the story of a manufacturing executive who was disinvited from a jobs fair.

In other words, he was told to leave — We don’t need your kind around here. (My words, not hers as she was very urbane.)

Not For My Kids

I happen to subscribe to this conventional wisdom – that manufacturing is a shunned class – largely because I have written about it before (See March 11 blog, “Mama’s, Don’t Let Your Babies Grow Up to Be …,” which means it has to be true.

Actually, we are schizophrenic about manufacturing. We may concede that it is important for our nation’s economy and even our local economy, we just don’t want our sons and daughters working in manufacturing plants.

It would be easy, too easy, in fact, to blame parents and schools for this gulf. The truth is that nobody, but nobody, has clean hands here. There is plenty of guilt to be spread around, so much so that we should all be slathered in it.

As Ms. McNelly pointed out in her presentation to North America’s Corridor Coalition, Inc. (NASCO), just as most educators have never been in manufacturing plants, most manufacturers have never reached out to schools

“Manufacturers were as much responsible for this situation as students, parents, and schools.  During the leaning process, many companies cut their training budgets to a minimum, eliminating the traditional, months-long training programs that new hires would enter.  Few manufacturers had a choice in this regard though, because the cost of such programs was now prohibitive in the global economy,” she said.

How About a Reality Check?

Peter Capelli, a professor at the Wharton School of Business, says companies are typically seeking job candidates who would need no training  whatsoever (remember, they probably ditched their in-house training program) and could hit the ground running so to speak. But is that truly realistic?

“One can’t get work experience in school, and that’s where training comes in. Further, almost none of the candidates employers are looking for are recent graduates. They want experienced workers,” Capelli wrote for the Wall Street Journal last fall.

“A few employers said the amount of money they had to pay to get the talent they needed was outrageous. Indeed, many of the employers who report that there is a shortage of qualified candidates go on to say that qualified candidates won’t take the jobs at the wages they are offering them.

“At this point, it may be uncomfortable but still necessary to bring up how markets work. There is a difference between saying we can’t find anyone to hire and saying that we can’t or don’t want to pay the wages needed to hire.”

So let me get this straight, professor, what you are saying is that SOME manufacturers no longer offer in-house training and SOME manufacturers are cheap. Is that right, professor? As I have had a telephone conversation with Dr. Cappelli, I will answer for him. “Bingo.”

It’s Not My Job

Capelli says that as long as manufacturers are of the belief that it is the job of someone else – principally community colleges – to train their workforce, we are going to have some big disconnects. That is not a cut at community colleges. They can and should be part of the mix, part of a public-private partnership.

But community colleges alone, and I don’t care how good their programs are, cannot realistically carry the entire load upon themselves. Certain things, by virtue of the work itself, cannot be learned in a classroom but are better suited for hands on training. And despite the costs involved, more manufacturers are going to have to reinstate in-house training, complete with industry certification of skills, in order to better compete and ensure a talent pipeline.

If the enemy really is us, then we can only win if we invest in ourselves. And more manufacturers are going to have to step up to the plate and initiate in-house training.

Desperados Waiting for a Train

Generally speaking, I like reporters, economic developers and real estate brokers. As members of oppressed groups, they have a certain air of desperation, a hungry countenance, about them that I have come to admire.

Of course, one could argue that this is true of most business people. I have come to believe that at least some level of stress is actually good for you. It forces you out of bed and into the world to scratch and claw in an effort to keep the lights on and pay for pizza deliveries. I don’t think that is necessarily a bad thing.  Civilization, after all, has resulted.

In short, we were meant for work and not to picnic away our lives, although I do like a good ham on rye.

And while I have only spotty contact with reporters and brokers these days, I do meet with economic developers rather frequently. Their aim is to inform and impress upon me the business attributes and happenings within their respective communities. As a site selection consultant, I welcome these visits because I learn. And sometimes I even get a good lunch to boot.

It Takes Two to Tango

I learn what initiatives that they are engaged in, which could prove helpful to a future client down the road. It also gives me an opportunity to develop personal relationships, in which business so often hinges upon. In short, I like to know who I might be dealing with. As they might need me for a project, I might need them to help craft and fashion a deal.

So it’s in everyone’s best interests that we become acquainted and perhaps even chummy.

“Hey, Bob, how’s that new colonoscopy bag treating you?”

“Fine, Dean. Out on the golf course with it just yesterday. No runs, no leaks, no errors.”

“No kidding. That’s great. I need to get me one of those.”

“No, you don’t.”

In the past two weeks alone, I have met with economic developers from Missouri, Kansas, Florida, Michigan and Maine. They come to Dallas in packs to call upon a concentration of people who dare hold themselves up as site selection consultants, of which I am one, and who could, at least in theory, bring them (the economic developers) projects.

Pity the Poor Brokers

Many of the site selectors are real estate brokers, that oppressed class that I mentioned earlier and to which I am not a member. Unlike brokers, I do not work on a commission basis to put a client in a particular building or on a particular site. Nothing wrong with that, but that’s not my focus or forte.

Rather, I hold myself out to be a location investigator. As I like to say, I take clients where they need to be — an optimal location (and site) for future operations. Certainly the real estate aspect is central to making that happen (and sometimes brokers will be involved), but I think it is safe to say that I approach site selection from a different angle than most  brokers. I am not saying that my more holistic approach is better (even if it is), I’m just saying.

But again, I admire industrial brokers because they have had to muster up the courage and not a few street smarts to withstand what has been a de-industrialization trend in this country from 2000-2010, when we lost 5.5 manufacturing jobs and an average of 15 plant closings a day.

“I have never seen it this bad,” one industrial broker told me at a recent Texas Rangers game in Arlington, hosted by an entourage of economic developers from a particular state that will remain  unnamed.

“Yes,” I nodded in a thoughtful and sympathetic manner. “Hey, how were those chicken burritos?”

So, gentle readers, take pity on brokers, economic developers and even newspaper reporters. They struggle in a new man-bites-dog world. I have been employed with two of the three battered professions, and finding wisdom in song, I quote from the Grateful Dead, “What a long strange trip it’s been.”

Dean Barber is the principal/owner of Barber Business Advisors, LLC., a site selection and economic development consulting firm based in Plano, Texas. He can be reached at 972-767-9518 or at dbarber@barberadvisors.com Please visit our website at www.barberadvisors.com

First, Let’s Do No Harm

Last week, I spent at least eight brutal hours in the course of three visits to a national cell phone store for what I thought was a reasonable expectation – to get my supposed smartphone to accept and process my business email.

Truly, it was a horrible experience, akin to chewing on glass. But if there was any solace to this fiasco, it was that I had found a human bulldog, an employee of the store who simply would not give up. But I didn’t immediately come to trust him.

That’s because on my first visit, I could receive emails on my phone, but could not send. When I left the store three hours later, I could no longer receive emails. So we had regressed.

On my next visit, I reminded store personnel of the Hippocratic Oath that doctors are supposed to take to heart – first, do no harm.  When I left the store the second time hours later, having no contact with Mr. Bulldog on that visit, my business email was still not working.

On my third visit, I was lucky enough to find Spike, who after four hours of pondering,  determined that a software glitch in my phone was causing the problem. He then devised a web-based solution that, while not perfect, now permits me to receive and send business emails.

I tell you this story because the Hippocratic Oath was central to my thinking while I endured this fix. And now I think that concept should be embraced by policymakers and politicians who are now talking more frequently about fixing what is wrong with manufacturing in the United States.

The Forget About It Crowd

When you lose one-third of your manufacturing employment base over a 10 year span – 5.5 million jobs lost from 2000 to 2010, even the daftest of politicians have to conclude that something is not right. Amazingly though, there are others, some of whom are even equipped with PhDs, who advocate that we in essence, “forget about it.” These people would have us believe that manufacturing is not of vital concern to our nation’s future economic health.

Christine Romer, a former Obama economic adviser, and Michael Boskin, an adviser to the first President Bush, contend that government should do nothing to save or promote America’s manufacturing sector but let chips fall where they may and let the market rule.

But reality shows that today’s four greatest economic powers — the U.S., China, Japan and Germany—all became leading countries by fostering policies favorable and protecting their  manufacturing base.

“If market fundamentalists were correct, these countries should be economic basket cases, instead of the world’s leading manufacturing powers,” wrote Michael Lind, policy director of the Economic Growth Program at the New America Foundation.

Our Eroding Ability to Compete

I can only conclude that those who dismiss the idea of the US pursuing a national manufacturing strategy neither recognize nor credit the wealth building capacity and technological innovation that derive directly from manufacturing. They choose not to see or understand the spinoff jobs creating by a manufacturing sector or even fathom how national security concerns would naturally arise if our country were to farm off all industrial production.

But the truth is that we have been doing just that to offshore locations, principally but not restricted to China, for reasons of operational costs. Despite the spate of news stories predicting a re-shoring trend, the truth is that the US has fallen short in its ability to compete in a global marketplace.

Job losses have resulted because production output has actually declined in 13 of 19 manufacturing sectors from 2000 to 2010, according to a recent report by the Information Technology and Innovation Foundation. (ITIF)

Yes, Houston, we really do have a problem.

We Need Some of That Rehaul

Doug Holtz-Eakin, former director of the Congressional Budget Office and now president of a conservative policy group called the American Action forum, says our tax code, trade policy, and regulatory system are all anti-manufacturing and need rehauling. And he is probably right.

But what about all the good news of late? Manufacturers added 37,000 jobs in March and 120,000 so far this year.

“It’s on everybody’s mind in terms of how we are doing, but that’s relative to the dark days of the recession. Manufacturing in this country is still struggling. Some companies are doing well, but it is still struggling relative to 30 years ago or what it could have been doing,” said Stephen Gold, president of the Manufacturers Alliance for Productivity and Innovation. (MAPI)

“The real story is that the environment here is not as competitive for manufacturing as it is in other countries. And that is our fault.”

Part of our problem is cultural, Gold said. Young people, their parents and their high school guidance counselors have inaccurate and off-putting views about manufacturing. Also, young people are no longer being equipped with the prerequisite knowledge needed.

“We actually started looking at manufacturing as something that we didn’t want to do. And our schools at the same time started moving away from teaching math and science,” Gold said.

Couple young people’s lack of interest with many US manufacturers’ de-emphasis of in-house training programs  based on the rather bizarre and short-sighted belief that worker training is somebody else’s job (community colleges) and a skills shortage has become all too real and apparent, with many manufacturing jobs going unfilled.

But the corporate tax rate in America is also to blame as it is the second highest among developed nations, putting manufacturing here at a huge competitive disadvantage.

Finally, the US must get tough with predatory trade practices of certain countries, most particularly China, but also India and Brazil, according to Rob Atkinson, president and founder of ITIF. Trade holds the key, he said.

“ … the central reason why manufacturing matters is that it is a key enabler of traded sector strength. And, in a global economy, it is impossible to have a vibrant national economy without a globally competitive traded sector,” Atkinson told a congressional subcommittee last week.

Why Economic Developers Don’t Do Hair

Traded sector jobs are important, Atkinson said, because they have high employment multipliers.

“This is the primary reason why all 50 states – regardless of whether they are “red” or “blue” states – focus their economic development efforts on traded industries like manufacturing and software, and not on non-traded industries like retail trade and personal services like hair salons,” he said.

All these competitive shortcomings demonstrate a need for a national manufacturing strategy, a means by which we redesign our nation’s tax, regulatory, and innovation policy environments to make the US the world’s most attractive location for advanced manufacturing (including both domestic and foreign direct investment).

“But you don’t put a strategy together the way you put together a leftover stew. You don’t do it in a piecemeal fashion. You don’t say, let’s take this part of the tax code, this part of the regulatory code, and we’re going to do this over here in trade,” Gold said.

A national manufacturing strategy should focus on the larger picture of “creating an environment in which manufacturers want to be here,” Gold said.

Key to success is getting the private sector to invest more in human resources (training) and government providing funding for basic research when the market does not create the right incentives, Gold said.

In his remarks to Congress, Atkinson said to restore U.S. manufacturing competitiveness, America needs a corporate tax code focused on spurring investment in the United States.

Second, the federal government needs to take much more aggressive and determined action to combat and roll back what ITIF terms “innovation mercantilism” practiced by many U.S. competitors, particularly China. And third, the federal government needs to invest in a national manufacturing technology system.

The Four T’s

“ … It would be extremely risky to assume that government can sit back and not do anything and expect a manufacturing recovery to naturally emerge,” Atkinson said. “Effective public policies that support and underpin the U.S. manufacturing economy are required if the United States is to experience sustained recovery and revitalization of manufacturing. We need a comprehensive national traded sector, manufacturing-focused strategy that addresses the “4 Ts” of technology, talent, tax, and trade.”

Both Gold and Atkinson believe that the federal government should play a key partnership role with industry in investing in early stage, pre-competitive manufacturing technologies.

“For a variety of reasons, companies under-invest in key manufacturing technologies. This is especially the case in the United States where financial markets pressure U.S. companies to invest for short-term returns, which means they often skimp on longer-term technology investments,” Atkinson said.

U.S. can compete effectively only if it produces more advanced and complex products in more efficient ways. But the U.S. manufacturing economy is increasingly less high-tech than that of Germany, South Korea and Japan, Atkinson said.

“The solution to this challenge needs to go beyond partisan differences: we need a more competitive tax code and smarter regulations, but we also need increased public investment in manufacturing technology programs and programs to ensure a trained manufacturing workforce at all levels. Absent robust and sustained action by Washington, I fear that in a decade U.S. manufacturing will be have continued its decline, with the negative consequences for jobs, income and GDP growth,” Atkinson said.

Profound Country and Western Analysis

Back in the 1980s, when we had a spate of manufacturing job loss, although nothing compared to the gutting we would experience 20 years later, the great Merle Haggard, who I would rank up there as having as much if not more knowledge most economists, wrote and sang about our national dilemma in the most poignant of terms.

“Stop rolling down hill like a snowball headed for hell.”

The song was called “Are the Good Times Really Over.” Well, we know today that they were not. Prosperity did return. And so it can again if we only vow to do no further harm and embrace a national manufacturing strategy that goes beyond any self-serving politics.

For this, I vote yes.

Dean Barber is the principal/owner of Barber Business Advisors, LLC., a site selection and economic development consulting firm based in Plano, Texas. He can be reached at 972-767-9518 or at dbarber@barberadvisors.com Please visit our website at www.barberadvisors.com

A Kick in the Gut: What Really Happened to American Manufacturing

The Florida economic developer was being kind. We were having a telephone conversation, and he said that he read my blogs “religiously” and took what I wrote as “gospel.” But he said this the day after Easter, which made me squirm.

“Now look here,” I protested. “I can get things wrong.”

And so I can. Now how often do you hear that from a business consultant?

Yes, it’s an absolutely fact — your all-knowing, sage-like consultant has gotten some things wrong, and for that I do apologize. I could ignore it, which might make better business sense, but the journalist in me (I was a newspaper business reporter a long time ago), compels me to get it right. The site selection consultant in me (today) demands as much.

During a high-profile government hearing, a critic of the influential British economist John Maynard Keynes  accused him of being inconsistent. Keynes shot back: “When the facts change, I change my mind. What do you do, sir?”

So what has been the error of my ways? Well, it’s on a subject that I have a great passion for and thought that I knew a lot about – manufacturing. It just goes to show, when you think you might know something, sometimes you can be in for a shock. But only if you keep an open mind. Learning is a wonderful if not humble thing.

My Big Toe

Now the bandwagon happy story is that we are about to see a big wave of re-shoring or on-shoring in this country, meaning that manufacturers have either recognized the errors of their ways or a new reality and will soon be returning production to the United States. It all started with a report by the Boston Consulting Group.

Just this week, I read a couple such articles, one from a big commercial real estate firm in Atlanta, espousing the same thing. But most of these articles, always citing rising transportation costs, rising wages in Asia and issues on quality, offer about as much in-depth analysis and hard data as my big toe.

In short, I cannot help but conclude there is a whole lot of shakin’ and wishful thinking going on. Certainly you can point to anecdotal evidence that some re-shoring has and will take place. GE appliance and Caterpillar are examples that come to mind and there are more. But the predicted huge wave has yet been but a small ripple. And it may remain so.

There is a magazine publisher who is predicting 3 million new manufacturing jobs in the Southeast alone. Truly I don’t know how he came up with such numbers. I will say that whatever he might be smoking could very well be illegal. (I doubt that I will be writing for him anytime soon.)

I’m Guilty, Too.

But my skepticism does not make me any more accurate. I have been just as guilty in my spread of misinformation. I have perpetuated upon you, my good readers, the myth that most job losses in the US manufacturing have been the result of great strides in production efficiencies. You know, automation and robots.

The magnitude of the manufacturing job loss in the first decade of this century is staggering. From January 2000 to January 2010, the U.S. lost one-third of its manufacturing jobs, almost 5.5 million jobs. This surpasses even the rate of loss in the Great Depression, according to a startling report that I am about to tell you about.

And yet many economists have postulated that U.S. manufacturing, which has been adding jobs for the past two years, is doing great. They look at the change in real manufacturing value-added relative to real GDP.  They see industrial output as being steady with fewer people, meaning that the manufacturing sector is more efficient and more productive.

And while I am no economist, nor do I play one on TV, I bought the party line.

Slapped and Kicked

My turnaround moment came a result of recent report from the Information Technology and Innovation Foundation, which while not gospel does offer a more compelling view on the state of manufacturing in this country. And I will tell you right now that it was a kick in the gut.

Even the title of the report slaps you up beside the head. “Worse Than the Great Depression: What the Experts Are Missing about American Manufacturing Decline,” debunks widely held myths about productivity gains, restructuring, and a manufacturing renaissance and reveals the stark reality of a historic decline in U.S. competitiveness and unprecedented deindustrialization.

In reviewing the productivity of different manufacturing industry sectors, the ITIF found that 13 of the 19 manufacturing sectors (employing 55 percent of manufacturing workers) were producing less in 2010 than they there were in 2000 in terms of inflation-adjusted output. That would be a first in US history or at least since World War II.

The report also finds that between 2000 and 2010 U.S. government data significantly overstated manufacturing labor productivity by 122 percent, in part by vastly overstating value-added growth in the computer and electronic products sector and by miscalculating the price of imports of intermediate manufacturing inputs.

A Disturbing Truth

“What we discovered flies in the face of nearly all the reporting and commentary on manufacturing and reveals a disturbing truth,” said ITIF President Robert D. Atkinson, the report’s chief author. “U.S. manufacturing jobs have been lost not simply because the sector is more productive. It is producing less.

“And unlike some high-wage nations, America is not replacing low-value-added manufacturing with high-valued-added manufacturing or opening new plants to replace closed ones. There is difference between restructuring and decline. American manufacturing is in decline.”

As you can see, Atkinson is not one who pulls punches. But he sincerely believes, as do I, that manufacturing, which adds $1.6 trillion to GDP, remains critical to our nation’s economic health, and that this train can be turned around if only we muster the political will and gumption to do it. I had the opportunity to speak with Atkinson on Friday who said his report was getting considerable pushback.

“There are people who are used to think that it was all productivity, but then they looked at the data and have changed their view. I put myself in that category,” Atkinson said. “Then there are people who just don’t bother to look at the data, who look only at the one topline number. And then there are the people who read all of what we have said, look at it, and say, “So what, I still think it’s productivity.”

You Want More?

Among the findings in the ITIF report are the following:

• Output: Rather than rising by 16 percent from 2000 to 2010, according to government data, manufacturing output during that period actually fell by 11 percent. If manufacturing output had increased at the same rate as the rest of the business sector, the US would have 3.8 million more manufacturing jobs and the multiplier effect would have added another 4 to 6 million jobs.

• Job Losses: Today, more Americans are unemployed – a total of 12.8 million – than there are Americans who work in manufacturing, 12 million. On average, every day for the last 12 years, the US lost 3,643 jobs – 1,243 net manufacturing jobs plus 2,400 additional jobs because of manufacturing’s multiplier effect.

• Manufacturing Capital Stock: While the amount of capital (e.g. machines, factories, computers) grew by between 20 and 40 percent per decade prior to 2000, in this last decade it grew by less than 2 percent.

• Plant Closings: Since 2000, a net 60,300 manufacturing plants closed. That’s 15 a day.

• Recovery: While the economy has been adding manufacturing jobs during the current recovery, for every six jobs lost in the 2000-2010 period, only one was restored as of January 2011. At the rate of job gain in 2011, it would take until 2020 to restore manufacturing employment to where it was at the end of 2007.

ITIF said the U.S. manufacturing sector lost jobs because it lost output, and it lost output because “its ability to compete in global markets — some manipulated by egregious foreign mercantilist policies, other supported by better national competitiveness policies, including much lower corporate tax rates — declined significantly.”

Maintaining Our Vibrant Base

We mentioned the pushback this report has generated. The National Association of Manufacturers (NAM) has remained curiously silent, but not so with the Manufacturers Alliance for Productivity and Innovation. (MAPI)

“ … Rob Atkinson isn’t saying manufacturing’s not important. He’s saying this nation (from its government policies to its cultural evolution) has done little in recent decades to help maintain US manufacturing competitiveness in an increasingly global marketplace,” said Stephen Gold, president of MAPI.

“ITIF’s report just adds to a growing list of studies (e.g., Michael Porter and Gary Pisano in the January edition of the Harvard Business Review) that demonstrate a need for new efforts to maintain and increase manufacturing competitiveness. These reports all share a common underlying theme: the US needs to maintain a vibrant manufacturing base.”

Do the Right Thing

Despite the huge losses, Atkinson said if the US will only muster the political (bi-partisan) will to do so, it can enact pro-manufacturing policies, such as lowering the corporate tax rate and getting tough with China on unfair trade practices, that could indeed create millions of manufacturing jobs. He is reminded of a quote from Winston Churchill.

“Americans can always be counted on to do the right thing … after they have exhausted all other possibilities.”

Ladies and gentlemen, it is time for us in the country, Democrats and Republicans, conservatives and liberals, to come together and develop a national manufacturing strategy that protects and grows what I would argue is the most important part of our nation’s economy. Said Atkinson:

“We will need new policies to build a new manufacturing foundation. This is a central economic task for America for this decade.”

I’ve been wrong before, but on this one, I’m convinced. We can do the right thing.

Dean Barber is the principal/owner of Barber Business Advisors, LLC., a site selection and economic development consulting firm based in Plano, Texas. He can be reached at 972-767-9518 or at dbarber@barberadvisors.com Please visit our website at www.barberadvisors.com

Getting the Bulge on Aviation MRO

If it is your intention to compete within or serve a particular industry, it is best that you know that industry.

Now that might sound like an obvious statement, but I continue to be amazed how certain business people do not take that to heart.

I cannot help but wonder how many of the economic developers who attended Aviation Week MRO Americas trade show this past week in Dallas took the time to do any basic research in an attempt to figure out what makes the aviation maintenance industry tick. What are the trends? What are the drivers to growth if there is growth?

Mind you, I know and can appreciate that some economic developers – I will refer to them in my best southern dialect as the “good uns” — do take industry research very seriously. They develop a deep understanding of their target industries, especially when they coincide with their existing industries, so as to better serve and compete for capital investment in their respective communities.

Then there are the others, a huge block, who too often have no depth of knowledge in economic development in terms of experience and training and sometimes are not even particularly dutiful students of business. They seem to just float along in the hope of somehow snagging a prospect at any industry trade show they should attend.

Well, good luck with that.

You’ve heard the old saying that knowledge is power. It can also be translated to bottom line results. Companies become and remain players, indeed industry leaders, by understanding and acting upon the market forces and trends within their industry group, thereby getting a leg up on the competition.

During the Civil War, an otherwise uneducated but rather brilliant Confederate cavalry leader Nathan Bedford Forrest referred to getting the “bulge” on his opponents.  Essentially, he saw, he recognized and  quickly acted upon information that he gathered and processed, thereby beating his often West Point-educated adversaries to the punch.

The Aviation Week MRO Americas conference has come and gone, but there still might be opportunities for business development with only a basic cursory understanding of what is happening within the $51 billion aviation maintenance industry. If business is war, as the Japanese would suggest, then let’s get our bulge on.

We should begin with some very basic and thereby very important facts about the MRO industry, starting with the term itself. We are talking about companies that perform maintenance and repair on commercial and military aircraft, hence the term “Maintenance, Repair  and Overhaul.”

Today’s active air transport fleet around the world numbers nearly 26,000 and is growing by about 1,000 aircraft per year. So by 2021, we should be up near the 36,000 mark. Most of this growth is taking place in emerging markets, specifically the Middle East and Asia.

Currently valued at $51 billion, the global MRO market is expected to grow annually by 4 percent to $76 billion by 2021, according to Kevin Michaels, vice president of ICF SH&E, an aviation industry consulting firm based in Ann Arbor, Mich. I had a nice sit down with Mr. Michaels, who was gracious enough to explain to me the drivers of the MRO industry and his thinking as where the industry was going.

Again, most of the industry growth will be taking place in emerging markets in Asia, where a sizeable middle class is developing. Increased wealth among more people in Asia means, in short, that more people there are flying, creating more industry demand. Michaels says that China will see a $6.3 billion increase in MRO spending by 2021, compared with only a $1 billion increase in North America

“What we are seeing in the emerging economies are large groups of people reaching that point where they can afford to travel. There is an emerging middle class happening throughout Asia,” Michaels said.

Conversely, MRO industry growth is not projected to happen in a big way in the mature economies of North America and Europe, where there have been increasing pressures on a struggling middle class just to maintain.

Another contributing factor to slower growth of the MRO industry in North America might also be due to the fact that virtually all the major airlines in the United States are now placing aircraft orders in an effort to replace their aging fleets with new and more fuel efficient aircraft. The newer aircraft coming online in the North America will simply require less maintenance than the airplanes they replaced.

Chris Doan, chairman and chief executive officer of TeamSAI Inc., a Denver-based industry consulting group, said the North American fleet will shrink until 2017 and then start to grow again, despite the overall growth of the global fleet.

“The Americas growth, it really represents not a very pretty picture from the standpoint of what’s happening to MRO,” said Doan. “It’s not a growing market. It’s one that is going to have to be focused on very carefully from the standpoint of strategy.”

As a result of the Asia’s rise, the aviation industry is scrambling to establish new operations there.

“We see a lot of the OEMs, original manufacturers of airplanes, engines and components, certainly moving into the Asian market and in most cases forming some kind of a joint venture or in a few cases, building their own infrastructure,” Doan said.

So if the big story for the MRO industry is the globalization of the supply base, what will that look like? As Doan alluded to, it will mean many U.S. companies forming partnerships and alliances with their Asian counterparts as well as new startups in that part of the world.

“There is enough growth there to support lots of new players, but they just won’t all be as much North American or Western Europe. It’s going to be a richer tapestry,” said Michaels.

The rise of Asia will force many US-based MRO companies to throw into the game in order to stay relevant and an industry leader. But first they must come up with a game plan.

“All this growth in the emerging economies, what do I need to do? How do I tap into that? Do I get a partner or do I go stand alone with my own facility? How do I do it,” said Michaels. These are the kind of questions that MRO managements are asking themselves worldwide in response to increased demand in Asia.

The other big story is the continued push for newer technologies in response to higher fuel costs, which can represent 35 to 40 percent of an airline’s total operating cost, surpassing even labor.

“High fuel prices are stimulating production of new aircraft right now, because we are obsoleting thousands of aircraft much sooner than anticipated because they are economically obsolete,” Michaels said.

So new aircraft save airline companies money on two ends – they are more fuel efficient and they need less maintenance, all of which prompting the retirement of older aircraft and the production of new models. This may be leading to an over exuberance in airplane orders.

Both Doan and Michaels see a possible overproduction bubble in the making as the result, a bubble that would have to eventually pop because of hyper demand that is unsustainable. The result could mean a market flooded with an oversupply of jets, which would not bode well for manufacturers, the airlines or the MROs.

But just because the MRO market will remain relatively flat for North America, does not mean that opportunities might not present themselves.

Michaels believes that heavy air frame maintenance, which is a very labor intensive operation, could eventually see growth in the Southeast. Under the current market dynamics, it often makes more financial sense for a company to fly an airplane from the United States to China for “heavy check” maintenance that could entail tens of thousands of hours because of the lower labor costs there.

“But if you look at the macro environment, fuel costs have gone up a lot and labor costs are going up very fast in China. And one of the trends we could see is more of the maintenance staying in North America,” Michaels said.

The Southeast could become more attractive location for airframe maintenance, in which labor accounts for 70 percent of the total costs, because of MRO demands for flexible labor and flexible work rules, Michaels said. That is not true for engine maintenance, in which labor typically accounts for only 25 percent of the total costs. The result is the engine maintenance shops can compete and flourish in higher cost areas such as New England or Germany, where higher skilled labor is required.

In the Southeast, Florida and Georgia dominate in the aircraft maintenance industry, both of which rank as top MRO states.

The aviation maintenance industry employs 20,191 workers in Florida, with an annual economic impact at $2.684 billion, according to the Aeronautical Repair Station Association. Aviation employment is Georgia is 13,741, with an economic impact of 1.705 billion.

California and Texas are the leaders, however. Calfornia employs 37,566 in aviation maintenance with an annual impact of 5.005 billion. Texas falls in second with 32,673 workers and an annual impact of 4.430 billion.

In that same Fort-Worth-Dallas to Wichita axis, Oklahoma employs 13,485 with an annual impact of 1.463 billion. Kansas comes in at 9,792 industry workers, with an annual impact of 1.647 billion.

Nationwide, ARSA pegs the total U.S. civil aviation maintenance workforce at 274,634. The industry’s direct and indirect impact on the U.S. economy is $39 billion.

There are six times more people working for repair stations – independent MRO companies — than are employed by the airlines to perform maintenance work “in house”. Repair stations (many of which are small businesses) employ 199,913 people, while only 33,324 are working directly for airlines at base maintenance facilities and line stations.

The potential “game changer” for North America is if American Airlines, now in Chapter 11 bankruptcy reorganization, decides to farm out most of its maintenance and repair work to MROs as is the airline industry norm. If American does that, it could mean as much as $2 billion more in business for MROs, said Doan.

Well, there you have it, some useful MRO industry intel. There’s a lot more information out there to be mined and refined to your liking. But now it’s your turn with an industry of your choice.

Dean Barber is the principal/owner of Barber Business Advisors, LLC., a site selection and economic development consulting firm based in Plano, Texas. He can be reached at 972-767-9518 or at dbarber@barberadvisors.com  Please visit our website at www.barberadvisors.com

Where’d You Come From, Where’d You Go?

As we all know, sad songs and sad stories say so much. And last week we focused much of our attention on the sad stories of others, principally unemployed people in their 50s who were struggling to get back into the workforce.

But in the darkness there is light. And I have always been struck by how inherently hopeful that American people remain. There may be times when we are down, but we are never out.

So to balance the pain and suffering from last week, I offer you Bubba’s story, which reaffirms the notion that good things can and do happen to those who do not just sit and wait.  I’ll also serve up words from the cheerful traditional fiddle tune “Cotton Eyed Joe” to remind us that we are on a never-ending journey. But first, Bubba’s story:

“I was laid off in early 2009, when the employment marketplace was practically at a standstill.  March 4th was my last day.  A recruiter got me my only personal interview, which led to nothing.  I had lots of informal discussions over the phone, only one of which led to a phone interview with human resources, after which the hiring manager didn’t care to speak with me.

“Afterward, things got mighty quiet other than more informal discussions.  The inquiries & applications kept going out; weeks later, the ding e-mails came in.  I was inquiring in all sorts of industries in which I had no experience, though they were related to my prior work with alloys.  Suddenly, a small company in Texas wanted me to visit.

“At the same time, things began to click with one of the world’s leaders in aviation, defense and security.  On the 4th of June, three months to the day after my last day at the prior employer, I had my offer from the aviation company — based entirely on phone interviews, and with no prior experience in aviation and defense.  There were no relocation benefits, but I negotiated a “signing bonus” to make up for it.  Compared with my prior salary, I GAINED!  Benefits & working conditions are terrific.

“The only down side was losing 25 percent on my home when it finally sold, but that was a side-effect of the depressed marketplace. I was just glad to be back to work with a great company.  It’s approaching three years now, and the whole experience still feels surreal.  It has been the adventure of a lifetime.”

Bubba acknowledges that his story may be the exception, but he wants to inspire others not to give up. Hang in there and keep at it. Thank you, Bubba, for sharing your story.

Things Really Are Looking Up

Business Roundtable‘s first-quarter survey of 128 CEOs, released Wednesday, found that 81 percent expect sales to increase in the next six months  and 48 percent say their firms will increase U.S. capital spending.

That is encouraging news to corporate site selection consultants, of which I am one, and economic developers, who yearn for investment and jobs in their respective communities.

But these CEOs remain a cautious lot. Despite the positive outlook for sales and capital spending, less than half of them – 42 percent of  respondents – said their company will increase hiring in the next six months. Indeed. 16 percent of CEOs expect to trim staff in the next six months.

Still, it is noteworthy that large U.S. manufacturers including General Electric Co and Caterpillar Inc. have been adding workers in response to rising demand for their products. A Labor Department report last week showed new jobless claims in the United States at a four-year low.

And in my home state, the Texas Workforce Commission reports that 25,000 new manufacturing jobs were created in Texas within the past year. That’s not shabby.

Most economists would agree that the post-recession rebound of manufacturing employment has been a driver of our economic recovery. The nation had 3.7 percent more manufacturing jobs in February 2012 than in February 2010, representing a more robust rate of growth than that for overall employment, which rose by only 2.7 percent during the same time period.

So Where Did We Come From?

But to fully understand the growth in manufacturing jobs, you have to have some perspective and understand the deep hole from where we have been. A recent report by the Information Technology & Innovation Foundation (ITIF) shows that manufacturing has declined more during the last decade than it did during the Great Depression of the 1930s.

According to the ITIF report, during the Great Depression, the United States lost about 31 percent of manufacturing jobs, but in the decade of 2000-2010, we lost about 33 of manufacturing jobs. That translates to 5.7 million manufacturing jobs lost in the first decade of the new millennium. The language of the report, supported by the facts, cannot help but be a bit alarming.

“On average, 1,276 manufacturing jobs were lost every day for the past 12 years. A net of 66,486 manufacturing establishments closed, from 404,758 in 2000 down to 338,273 in 2011. In other words, on each day since the year 2000, America had, on average, 17 fewer manufacturing establishments than it had the previous day.”

My in-depth, analytical, sage-like business consultant reaction: Holy cow.

Now it is absolutely true that we have had about two years now of consistent manufacturing job growth. But keep this in mind, too, all in the name of perspective, that in January 2012, there were more unemployed Americans (12.8 million) than there were Americans who worked in manufacturing (just under 12 million).

So we labor to pull ourselves from a very deep pit. But at least we are pulling. As the old fiddle tune relates, “Where’d you come from, where’d you go? Where’d you come from Cotton Eyed Joe?”

There are certain readers of this blog who believe that I should only report on the positive news of industry. Actually, I am a cheerleader of sorts. I care very much for the manufacturing base of this country and believe it is essential for our economic health and quality of life. I will say it now and say it again: Any local economy that does not have at least a seed or kernel of manufacturing is propped on a house of cards.

Manufacturing jobs create other spinoff jobs and remain the bedrock for innovation and economic growth for the nation as a whole. I think – although I am not absolutely certain – that the president understands this and wants to create a better environment for manufacturers in the US. Let us hope so, because manufacturing is central to other sectors of the economy doing well. It is the proverbial canary in the mine.

How Big the Wave?

But am I convinced there is going to be a tsunami of US-manufacturers bringing production back to the US? Maybe a wave, yes, but not of such proportion that it will bring back all the manufacturing jobs lost. It’s not even going to be close in spite of all the rah rah talk.

The Boston Consulting Group (BCG) suggests 600,000 to 1 million new U.S. manufacturing jobs could be directly created, as a result of re-shoring operations domestically. That’s great if it happens, but I will believe it when I see it. I only hope the good folks at BCG got it right.

The ITIF report would suggest that there are structural issues at work here beyond that of a business cycle.

“At the rate of growth in manufacturing jobs in 2011, it would take until at least 2020 for employment to return to where the economy was in terms of manufacturing jobs at the end of 2007. In reality… U.S. manufacturing has been in a state of structural decline due to loss of U.S. competitiveness, not temporary decline based on the business cycle.”

My Confession

Now here is where it gets a bit difficult for your all-knowing, sage-like consultant. If I am to take this ITIF report to heart (and I think that I will as I continue to read and think about it), I may have to come to terms with perpetuating a myth. Yes, it’s true. I can get things wrong.

I have been spouting off ad nausea that manufacturing job loss has largely been the result of increased productivity. But the fact is that manufacturing’s share of our gross domestic product has fallen from 15 percent to 11 percent in 2009. That has not been true in Germany and Japan.

In reviewing the productivity of different manufacturing industry sectors, the ITIF found that 13 of the 19 manufacturing sectors (employing 55 percent of manufacturing workers) were producing less in 2010 than they there were in 2000 in terms of inflation-adjusted output.

So what does this all mean? Well, let me get back to you on that.

But seriously, what it might mean is that manufacturers in this country should invest more in their  human resources through apprenticeships and in-house training programs for us to get smarter and better at manufacturing. We’re already investing in the automated technology in order to compete. Now let’s invest in the people to run the machines.

The trend has been, with notable exceptions to be sure, for companies to have community colleges provide the needed training. The results have been a bit spotty to say the least, although it is commendable and wise for communities to invest in such programs. We will soon be telling you about a new training center in Mount Pleasant, Texas.

But the fact is that we are in an economic war of sorts and we just have to get smarter faster. The massive decline in manufacturing in our country took place at precisely the same time that there was a massive incline in manufacturing in China. Are the two related? Well, what do you think?

Duh.

Dean Barber is the principal/owner of Barber Business Advisors, LLC., a site selection and economic development consulting firm based in Plano, Texas. He can be reached at 972-767-9518 or at dbarber@barberadvisors.com  Please visit our website at www.barberadvisors.com