You Rank, We Rank, Some Stank

Rankings on the value or worth of places have been all the rage for some years now. Many magazines and news organizations rank places according to some secret sauce formula that we are usually unsure about, but which we will still hold up as true and credible when it serves our purposes.

And on the flip side, rankings are to be ignored and even scoffed at when they do not recognize our place as being the better place. This is especially so when it comes to best places to start a business, run a business, live, work, retire and die.

Yahoo, my default home page, is especially adroit at picking up these type of stories from different news outlets. Last week, I may have read best places for aromatic breezes from stockyards. I should have saved that one.

Indeed, if your community is ranked high for just about anything where a positive spin can be spun, the local economic developer will likely jump on that like a dog on a bone for purposes of marketing, proving that some independent third party thinks your community is particularly notable.

Dungtown: Best City for Collecting Buffalo Chips. Compacton: Best City for Landfill Reclamation. Sootville: Most Affordable Place for Cremation. These are great achievements.  Such rankings set a community apart and differentiates it from the competition, which is what brand consultants say we must do.

Hell: Worst Place to Spend a Summer Vacation or Eternity Suffering for the Sins of Your Past. I’m pretty sure I read that somewhere.

So you probably heard that Texas has been ranked as No. 1 yet again for best business climate in the United States by CNBC.  This is the sixth year that CNBC has ranked the states for business climate and no doubt it has resulted in economic developers nationwide either nodding their heads in approval or shaking their heads in disapproval, depending on where their respective states landed in the rankings.

Go Where You Need to Be

For companies considering a simplistic approach to where to sink capital investment, this could be seen as a rough guidebook of sorts, although I happen to believe that would be a huge mistake. And I am not just saying that because I am site selection consultant.

Rather, I believe a company should consider location for business reasons after much internal due diligence. In short, senior management should not decide to invest millions into a place because of what a cable television network may say. You do it because it makes the most sense in terms of your long-term strategic plans of serving your customers well.

Dallas, where I choose to relocate after doing some of my own self-evaluation, makes a lot of sense for my consulting business, which is national and international in scope, for many different reasons. And while I truly enjoy living here, I cannot afford to be and would not be serving my clients well if I were a shill or homer for Texas.

As I tell corporate clients, I work to take them where they need to be. As such, the search is always a tailored process and can take us to just about anywhere.

One Place to Avoid

So the question poses itself, do these magazine and cable network rankings color or skew my thinking in any way? The answer is not really. I mean, I read the stories, maybe file them away in the back of my mind, but I do not put a lot of weight in them.

I do believe, however, that Hell is a one place to avoid.

We all know there are certain places in this country, where the cost of doing business is higher for a variety of reasons — labor costs, taxes, regulatory climate, real estate, logistics, etc.  But does that necessarily mean there should be an investment stampede into Mississippi and an exodus from California?

Sometimes, and this a might come as a bit of shocker to some of you but it shouldn’t,  a company actually needs to be in a place where the operating costs might be higher, but which are offset by other special factors. For example, if a company needed precision machinists – workers who had highly specialized technical skills – to say rehab jet engines, New England or Germany just might be the right place.

The Complicated Truth

Even though the labor rates are significantly higher, the skilled workforce is there and because of the nature of the work, in which the cost of labor does not figure prominently in the overall total costs of the work to be performed.

In other words, if site selection was exclusively all about labor costs or taxes or fill in the blank, which thankfully it is not, then Caterpillar or GE might not be moving manufacturing capacity back to the United States. In short, it’s more complicated than that.

That is not to say that companies have not migrated investment dollars from high-cost places to lower-cost places to maximize profits. Sometimes that makes sense, but sometimes it does not.  Sometimes companies need to be where the talent and the technical skills are higher, and are willing to pay the price in order to better compete. More often, they need to be in proximity to their customers.

So I look at published rankings with a bit of a jaundiced eye. Do I believe that Texas is a better place for business? Well, yes and no. There is certainly a positive vibrancy to the business climate here, and I’m happy with my choice of moving my business here. And I may even have developed a bit of swagger.

But Texas will not work for everyone. (First, you have to learn to walk in boots.) The better choice, depending on the needs of the company, might be South Dakota, or Arkansas, or Pennsylvania or even, gulp, California.  The better choice means a deeper dive into the data and motivations of a company willing to take a hard look at itself and its customer base.

But sometimes companies are not so introspective and wise. Sometimes senior management takes a simplistic approach, hence the herd rush to offshore certain (not all) production. Sometimes it makes imminent sense to have a plant in China, especially if your aim is to serve a Chinese market with your goods or services.

Net Zero

Lately, the Obama and Romney presidential campaigns have been pointing at each other claiming that the other has a poor record or a contributing record to this bad thing that we think of as offshoring.

The Obama camp has labeled Republican nominee Mitt Romney the “outsourcer-in-chief” for his past private-equity investments in companies that moved jobs abroad, even as the president touts signs of manufacturing jobs coming back home.

But the reality is that companies continue to ship jobs abroad and any re-shoring trend has been quite limited. For every company bringing work back to the U.S., there’s another shipping jobs out of the country, a Bloomberg review of petitions filed with the U.S. Labor Department on behalf of displaced workers shows.

“Our conclusion was a net zero,” Michael Janssen, author of a new study of the trend for the Miami-based Hackett Group, told Bloomberg. “Some of these jobs that are coming back get a lot of press. But there are just as many that get no press coverage still going offshore.”

Manufacturers have added 495,000 jobs since January 2010, when factory employment bottomed at almost 6 million below the 2000 level, according to the Bureau of Labor Statistics. Of that 6 million, almost 40 percent were lost to other countries, says Robert Scott of the Economic Policy Institute. At the current pace, it would take another 25 years for the U.S. to regain all the factory jobs lost in the past dozen years.

Strategic Re-thinking

Some of the best-known re-shoring examples have not meant a shutdown of production offshore, but rather a re-examination by management of building products closer to customers. When Caterpillar announced in February that it would move production of small tractors and excavators from Japan to a new plant in Athens, Ga., to create 1,400 American jobs, none of the 1,000 Japanese workers lost their jobs. The company simply moved production because demand for those products was higher in North America.

It is true that China’s cost advantage is eroding, according to the Hackett Group’s “total landed cost” measure, which includes raw materials, manufacturing, transportation, inventory and taxes and duties. In 2005, production in China was 31 percent cheaper than in advanced nations. By 2013, the gap will be down to 16 percent — small enough for U.S. production to make sense in some cases.

But many jobs that China will lose will simply shift to other low-cost Asian locations. Factories in Vietnam, Indonesia, Thailand and the Philippines will benefit, but that won’t help American workers.

Tim Leunig, an economics professor at the London School of Economics, told Bloomberg what may be the sad truth: “The next president of the United States — whoever he is– will end his term with fewer Americans working in manufacturing than he inherited.”

Dean Barber is the principal 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

Wanted: A Tough Pragmatist Willing to Fight

I am fast coming to the conclusion that what this country needs is a good old fashioned trust buster, ala Theodore Roosevelt, a Republican president who was not afraid to tangle with certain big business interests in order to do what was right for the country. And ultimately help business.

We also need a Franklin Roosevelt, a Democratic president who was not afraid to put millions of people back to work during a Great Depression by building public infrastructure via a Public Works Administration. And even if some critics called it “socialism.”

We could use another Dwight Eisenhower, another Republican president who understood that we had to build something big and important for the country, like an interstate highway system, which would make us more competitive on the world stage.

These three presidents, all of different political persuasion and beliefs, exercised leadership and had vision, which is in rather short supply these days. Leadership and vision emanating from our nation’s capital would help business define and invest in a future. It would bolster a diminished middle class and would do wonders in helping people get back to work.

The Courage to Compromise

As you might suspect, I am a bit of a political junkie, but I don’t plant my flag exclusively in any one camp. I have seen both conservatives and liberals that I respect if they demonstrate that they are thinking people who can get past political dogma and take the mantel of governance seriously and as a sacred obligation.

These three past presidents live now only in history. But if there is a common thread to their time in office, I would suggest that they all learned the fine art of be compromise, and had the courage to engage in it, sometimes even fighting their own party in the process.

Sadly, “compromise” is seemingly a dirty word these days in Washington where politics is a blood sport to obliterate the other side. Today, if a congressman or senator reaches out in a bi-partisan fashion, that person is viewed as weak and somehow tainted. It is always the other side’s fault. They are hopelessly misguided. There is no point in even talking to them.

So we have this toxic waste atmosphere in Washington, and no EPA regulations are going to be able to clean it up. Rather, only the American people can clean it up by pressuring their elected officials to get real and govern.

Ronald Reagan and House Speaker Tip O’Neal were able to overcome their political differences and broker ideas that would fly in both of their respective camps. Now that is my idea of governing, and both men are now viewed largely by historians as effective leaders. Despite their differing philosophies on how the country should work, they made it work. They compromised. They were grownups. They even liked each other.

Two Harvard Men

When I look at President Obama and his GOP challenger Mitt Romney, I see two very intelligent and analytical men, and both Harvard men, mind you. I do not question their love of country as some might. But I do wonder whether I am witnessing great leadership and vision in either man.

And yet, I am confident that the Republic will survive whoever is elected president. We have proved to have a very resilient nation, even when duds have occupied the White House.

(Ok, here is where you partisans can launch into a tirade about my profound misunderstanding of your respective candidate and/or the other guy. Obama supporters, I am not calling the president a dud. Romney supporters, I am not calling your guy a hopelessly out of touch elitist because he climbs on a jet ski during a family vacation.)

Admission: I kinda actually like both of these men in a weird sort of way.

But I’ll not tell you the way I will vote come November. That is surely not the purpose of this blog. Heck, I couldn’t convince you one way or the other if I wanted to. But I do think you ought to look for grownups of both parties, even if you disagree with them on certain issues.

We need reasonable people who want to do good by our country.  Unflinching radicals, left and right, need not apply. Those who want to crush the opposition rather than work with it, need not apply.

Wanted: Tough Pragmatists

I’m not suggesting that our elected officials should not have core beliefs. Rather, I am suggesting there is often a middle ground to be found in governance.

Again, I can respect and see the wisdom of both liberal and conservative points of view, as both positions are quite defensible as a political foundation for belief. But I’m not looking for purists. I’m looking for tough pragmatists, people who can get the job done and will fight for the middle class.

Whichever party is in power in the White House, a loyal opposition should be just that — loyal to the interests of the country, loyal to making the country work and working with the president. That is a huge responsibility, and again, I believe that means the art of compromise rather than the practice of demonization.

Having said that, let me now change direction and do a little demonizing of my own. But I won’t be talking about any politician. No, I’ll be talking about a more dangerous lot.

Poor, Poor Pitiful Wall Street

I find it just short of amazing that with the fraud and greed that almost certainly brought our financial system to near total collapse and did result in the loss of trillions of dollars of wealth, that no criminal indictments ever resulted from the shenanigans on Wall Street.

The abusers were left untouched. But Wall Street, which backed Obama in 2008, gets miffed if the president plays to his base and tosses out words like “fat cats’’ when suggesting the rich should pay a slightly higher rate in income taxes.

Mind you, the administration never showed any intention or desire to bring anyone to heel for the wrongs wrought on our financial system, some of which I truly believe was of criminal intent. Nope, that never happened.

So let me get this straight, you are left unscathed, your industry is treated with kid gloves, but your feelings are hurt because of some rhetoric used by the president? Really?

Now please understand that I am not anti-bank. I like community banks. I like credit unions even more. But if a bank, particularly a Wall Street investment bank, is too big to fail, then maybe it’s too big to begin with.

Maybe it should be cut down to size, again, ala Teddy Roosevelt who promoted and strengthened capitalism by busting up anti-competitive trusts that were doing more harm than good. Maybe it’s time for a president, if not this one the next, to wield a big stick and start swinging.

Collusion to the Tune of Trillions

Now let us turn our attention across the pond to Barclays, Great Britain’s second-largest bank, which has admitted that it deliberately reported artificial borrowing costs from 2005 to 2009. The false reports were used to set a benchmark rate, the London interbank offered rate, or Libor, which affects the value of trillions of dollars of derivatives contracts, mortgages and consumer loans.

Yes, I said trillions, $800 trillion to be exact, which makes me wonder why we are not reading and hearing more about this. Frankly, I didn’t even know the world economy was worth that much.

But here comes a bank that defrauds the market with fake interest rate figures, thereby stealing from other banks and customers. Regulators and criminal prosecutors in Europe and the United States are investigating at least a dozen other firms to determine whether they, too, colluded to rig the Libor rate.

E-mails have been released showing collusion between bank traders, looking to protect profits and bonuses, and senior banking officials, who were hoping to convince markets that their banks weren’t in financial difficulty.

What is evident already is a total lack of self-restraint in an industry that should not be trusted to regulate itself. This comes following billions of dollars of trading losses at JPMorgan Chase & Co.’s out-of-control London unit, yet another example of a big-bank folly.

A Rigged Game

Where were the controls? Are these banks too big and complex to control, even for their own respective management teams?

With lackluster job growth in this country and stagnant wages, it is not surprising that many Americans have this gut feeling that they are being duped. A recovery that showed promise in the first six months of this year has stalled and now comes more stories of unfathomable amounts of money being gamed, largely at their expense.

No, I think it’s about time we see some prosecutions of those that have defrauded the system. I don’t care if they are in New York or London. If they broke securities laws, they need to go down.

I am not asking for sacrificial lambs to make us all feel better. Rather, I am asking for the pastures to be cleared of the wolves. Now it’s time to put a stop to this nonsense.

Teddy Roosevelt or “Old Hickory” Andrew Jackson would never have stood by and just watched. They would have launched into a fight to protect the American people from these predatory, anti-competitive behemoths who skew markets at the expense of others. That’s not capitalism. That’s not free markets. That’s highway robbery.

And, by God, we need a sheriff.

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

What Does Obamacare Mean for Business?

Now that the Supreme Court has spoken, businesses of all size are going to have to figure out just how to comply with a very complex and not well understood Patient Protection and Affordable Health Care Act.

While some see the specter of higher costs, others are excited at the prospect of a wider insured pool that spurs increased demand for healthcare services and even a lowering of costs. Critics contend that consumers will spend less on other goods and services in reaction to new costs, while proponents argue they’ll spend more as their out-of-pocket medical costs fall.

Job growth may be curbed by new costs, or helped as a higher proportion of the population flows into a modernized and more efficient health-care system. The fact of the matter is that we just don’t know yet. Taking partisan politics out of it for just a moment, if that is possible, the reality is one of uncertainty. At least for now.

We do know that by January 2014, employers will have to come up a plan that meets the requirements of Washington or opt out and pay a penalty. Most large companies have been pushing more costs onto their employees and cajoling higher-risk ones into wellness programs to keep costs down. For them, the debate around health care has offered cover to make these shifts by drawing attention to soaring health costs and the burden that employers bear.

Companies with 50 workers or more will be required to offer insurance to their workers or pay a penalty. Faced with the prospect of higher costs to comply with the law, they just might choose to stop offering coverage altogether if they decide the penalties are cheaper than the administrative costs of running a broader plan.

We do know that insurance companies will have to sell coverage to everyone, regardless of their medical history, and will have to restrict how much they vary premiums based on age.

Nobody has a handle on the kind of coverage you’ll get for your money on a health insurance exchange. Workers may pay more than if premiums are negotiated as part of group coverage. Or they may pay less as insurers compete for business. Employees could be happy to get a bigger paycheck or resentful at being forced to foot the bill for their own coverage.

All-knowing, sage-like consultants like me who work on a contract or freelance basis may no longer feel the lingering insecurity of being uncovered in the event of an illness or accident. (Notice I said “may,” because I really don’t know either.) Right now, I can run five miles, which is pretty good for an old coot, but I cannot buy health insurance because of a pre-existing condition. I don’t like that.

Last week, I had the pleasure of visiting the brass of the Cox School of Business at SMU here in Dallas. I knew Al Niemi, the dean of the business school, as our paths had crossed many years ago when I was the business editor of the Birmingham News and he was dean, ever so briefly, at the University of Alabama at Birmingham. He had the fortune to escape UAB for a much better job at SMU, and I found myself in Dallas years later as a business consultant.

It was clear that my business school hosts were convinced that the landmark healthcare law would  make the lives of business people harder as an additional tax, which was what the Supreme Court called it. One of the professors went so far as to opine that the president was beyond a socialist but a purposeful and deliberate “wealth destroyer.” I listened with dutiful respect, because the food was good and my hosts were nice. Sometimes nodding is the best policy.

I happen to believe that the 2,700-page healthcare law is insanely complex and poorly understood. Tax credits contained in the law could help millions of small businesses obtain healthcare coverage for their workers, if they don’t already offer it, or lower the cost of coverage if they do. Yet a recent Wall Street Journal/Vistage International poll shows that 66 percent of small-business CEOs don’t know about the credits, and another 24 percent think their business doesn’t qualify.

Excessive regulation has become the biggest concern of business owners, which probably is a primary reason why most view the expansive and perplexing new healthcare law with a jaundiced eye and as just another layer to the cake of local, state and federal regulations that choke their businesses. And who can blame them?

So what does Obamacare really mean? How will this all play out? Will this be good or bad for business? There are plenty of theories out there floating about, but the fact is, we really don’t know yet. We will eventually to be sure. But not yet.

I’m not always so mamby pamby. In the last few weeks, I have been invited to speak to gatherings of economic developers in Oklahoma, Georgia and Florida. It’s something that I enjoy doing, because I like meeting economic developers and learning about their efforts in their respective communities.

In business, relationships matter because most people are instinctively social animals. But lately, I have been feeling like the lone wolf in the wilderness.

Barber the Contrarian

In these conferences of late, I have sat on panel discussions with other site selection consultants who provided very good counsel on what they are looking for in terms of information and how to best communicate with them (I prefer English).

I have been in total agreement with my colleagues on the nuts and bolts advice they have given on the best practices for maintaining and strengthening relationships between economic developers and site selection consultants.

While on a panel discussion this past week at the annual meeting of the Florida Economic Development Conference in Tampa, I think I may have praised the inventor of the pdf and suggested that buying me a beer was always appreciated. So much for my in-depth analysis on what site selection consultants want from economic developers.

But when it came to speaking about future economic conditions and resulting project activity, I was not so reticent, but did feel a bit guilty for calling it like I see it.

And I was speaking from experience of late — postponed or cancelled projects and interviews with CEOs and CFOs who tell me that they have no immediate expansion plans because of the uncertainties faced.

And then I look at the data, the raw numbers which plainly show anemic growth at less than 2 percent for the last four quarters, recalcitrant unemployment remaining above 8 percent, with falling consumer demand (and confidence) with a backdrop of stagnant wage growth and a possible unraveling of Europe.

In the latest quarterly report from the Business Roundtable, 75 percent of CEOs expect their companies’ sales to grow over the next six months, but only 36 percent plan to add jobs in the U.S. over the next six months (down from 42 percent three months ago.) And only 43 percent say they expect  to boost capital spending.

Clearly, companies are holding back. And yet, I’m the only person saying this at these conferences. Whaddup with that?

The Conference Board Consumer Confidence Index, which had declined in May, fell further in June, the fourth consecutive moderate decline. Consumer spending stalled in May as stagnant wages and slackening employment continues to put a damper on growth.

So I am supposed to tell economic developers that everything is hunky dory out there right now with strong project flow?

Maybe I’m just delusional. Maybe it’s all just a bad dream. Maybe I should just make happy talk and tell people what they want to hear.

If it means any difference to you, I am optimistic about the long term. Our nation’s economy will eventually rebound to a position of strength because our demographics are good and we remain a favored and chosen place in terms of investment from a worldwide perspective.

But we are in for a bumpy ride for the next year at the very least with unemployment remaining in the 7.5 to 8 percent range amid weak consumer demand and flat wage growth. And that’s regardless of whoever is elected president in November.

By the way, there will be about 40 presidential or head of state elections worldwide in the coming year. And more and more, it looks like stock markets are reacting to government actions as a key driver rather than to traditional factors such as corporate earnings reports.

What governments do, and this is particularly true here at home and in Europe, will matter more to the private sector in terms of how, if and when future investments are made. And with tax and spending measures unresolved in our country, a climate of uncertainty remains. And we all know that uncertainty is never a friend to business investment.

And that, my friends, is why many companies are sitting on their hands.

But Here’s  a Big Honkin’ Deal

Naturally, as I rail on about slowing growth, a very big project is expected to be announced in Alabama as early as Monday

Airbus should create about 2,500 construction jobs to build a new $600 million airliner assembly plant in Mobile, and 400 to 500 full-time jobs once production starts in 2017. The European planemaker, owned by EADS, is poised to announce plans to build the plant for its single-aisle A320 passenger jet that will begin producing four planes a month in 2017. The plant should attract a number of key suppliers to the region, including jet engine makers and companies that produce key aircraft components.

This is a big win for Alabama, a state that has a penchant for announcing big wins in terms of manufacturing projects.This gratifies me because I have an unabashed affection for this state, which I called my home for a good portion of my life.

And while this project has absolutely nothing to do with college football, for some reason, I feel compelled to say “Roll Tide!” and “War Eagle!” in the same sentence, which is unheard of in Alabama.

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