Dean Barber

The Canary in Our Mine

In Corporate Site Selection and Economic Development, Manufacturing, Site Selection on September 14, 2014 at 8:43 am

I am frequently asked by economic developers and to a lesser extent corporate execs if my firm specializes in serving any particular industry group or sector in site selection projects.

While I can put together a special ops team that can serve the needs for just about any company in any industry, I do have an unashamed bias toward companies that actually make things.

Manufacturers typically are favored, partly because I can usually understand the potential and the implications of something that I can actually see and touch.

Temperamental Beasts

“So these nasal strips for horses, you have found a market for them?”

“Oh yes indeed, Mr. Barber, and now we are expanding our product line for cattle, sheep, goats and llamas. However, we are finding that goats will often try to rub our products off on a tree or fence post.”

“You know, I’ve always found goats as hard to please. Temperamental beasts. So these come in multiple colors?”

Companies will make the darndest things because they found that some people somewhere will buy them, which never ceases to amaze me.

I am also partial to manufacturers because they not only can make products that can change and even save lives, although in fact few probably do, but these companies can truly transform an economy.

I was recently in Costa Rica where the medical device industry employs some 17,200 people, while exports of medical and precision devices reached over $1.5 billion in 2013. Now that is strong.

The Multiplier Effect

Economists, business professors, and pontificating consultants like me will tout the importance of manufacturing because of its multiplier effect in the creation of ancillary jobs. But I think few of us really can fathom how far that really goes.

An Airbus or Boeing jetliner may have 3 million parts, coming from a vast array of suppliers. As a result, a whole host of jobs are created in logistics and transportation, customer service, technical support, regulatory and safety specialists.

National Association of Manufacturers has cited studies stating that the average manufacturing multiplier is 1.58. But in some advanced manufacturing sectors, such as electronic computer manufacturing, the multiplier effect can be as high as 16 to one.

So manufacturing can and does have a mighty ripple effect and its importance to our financial health here in the United States cannot be underestimated. Still, I must tell you that I do not believe U.S. manufacturing is as healthy and robust as some pundits would have you believe.

Look at Trade

Recent Wall Street Journal reports would indicate that U.S. factories continue to lose ground on the global stage, with trade being a key factor. Simply put, many economists cannot foresee how U.S. factories will experience the kind of growth that would warrant terminology like “renaissance” without a strong, sustainable increase in exports.

The U.S. deficit on trade in goods swelled in the first half to $371.59 billion from $354.64 a year earlier. Imports rose 3.3 percent, while exports increased 2.6 percent. But manufactured exports rose a scant 0.8 percent—far below last year’s modest 2.1 percent gain.

During a time when China and other countries are pursuing aggressive export strategies, the U.S. has lost a significant amount of its manufacturing skills after shifting production overseas.

When I am around manufacturers, I almost invariably hear about how difficult it is for them to find the skilled workers that they need. I believe this is true. More importantly, I believe that they believe this is true.

A Problem of Our Own Making

But there are truths, half-truths, lies and statistics, all of which I will use in some form or fashion to make a point. My point? I think much of this skill set deficit that we hear so much about from the U.S. community has been brought on by themselves.

One reason is that many manufacturers are so extremely focused on making a product in an efficient and cost-productive way that other things, like people, often come as an afterthought.

It should come as a shock to no one, especially to senior management at manufacturing companies, that baby boomers are retiring, shop floor automation is increasing the technical skills required, and that young people are by and large disinterested in pursuing a manufacturing career.

Companies deduce, wrongly if I might add, that if they just donate money to local schools for computers, school supplies and scholarships, that the problem will fix itself. But in terms of truly partnering with local education, a minority will actually take that extra step.

They will also do little if any actual in-house training for in-demand skilled positions, all the while thinking that it is someone else’s job (high schools and community colleges) to do that for them.

Make Your Own

Don’t get me wrong, I have seen robust partnerships between industry and education in many towns and cities across this great nation where relevant skills are taught. Still, I cannot help but think that if manufacturers are truly serious about hiring the right people, they should implement their own skills training programs.

“With the shortage of adequate candidates, the best alternative to trying to get lucky is to make your own,” wrote W.Terrence Glover, owner of W.T. Glover & Associates, a Pittsburgh staffing firm.

Over the last three decades, however, in-house training and apprenticeship programs have steadily declined across industry sectors. Many programs were cut for budgetary reasons during the Great Recession and never revived.

High school graduates with STEM backgrounds are now in equal if not higher demand in the job market than college graduates who don’t have STEM skills, according to a new Brookings Institution report, “Still Searching: Job Vacancies and STEM Skills.”

Polish a What?

An article on the Brookings report was published last month in IndustryWeek, which I read online regularly and would recommend. After this particular story, one reader responded with some colorful if not insightful comments.

“How many times and ways do we have to keep polishing this turd?” wrote the person with pen name of “Blueneck.”

“It’s absolutely ridiculous to be discussing labor shortages, skilled, semi- skilled or otherwise during times of persistent un(employment) and underemployment. These assertions never look at the root causes of such “shortages,” like unrealistic expectations from HR departments looking for purple squirrels, companies unwilling to train workers or candidates for industry/job specific skills, companies not willing to pay wages appropriate for the education and experience levels they seek, unwilling to assist with relocation and so forth.”

Now I wouldn’t started my argument with quite the same metaphor (I did not know you could polish one of those things) but I think there is some merit to what Blueneck opines.

The Road to Failure

A survey of Harvard Business School alumni released last week revealed that more than 40 percent of the respondents foresee lower pay and benefits for workers.

Roughly half favor outsourcing work over hiring staffers. A growing share prefer part-time employees, and nearly half would rather invest in new technology than hire or retain workers.

A failure by companies to develop a skilled workforce could not only hurt those companies in the long run but also the competitive standing of the U.S. economy, said Jan Rivkin, one of the survey’s lead authors.

And get this, the survey noted that only 27 percent of respondents said their companies have partnerships with community colleges. There was no indication of levels of in-house training from the survey, but with the reported findings  you have to wonder.

“The bleak picture facing middle and working class Americans are the canary in our coal mine,” said Rivkin, a Harvard business professor, in an interview with the Associated Press. “Eventually, that will come back to haunt business.”

We know that much of the economy, and particularly manufacturing, is driven by consumer spending. But the survey of from 1,947 Harvard Business School graduates, 40 percent of whom are CEOs, indicates they don’t see incomes rising much anytime soon.

Indeed, 41 percent see lower wages and benefits ahead; while only 27 percent expect pay raises. Keep in mind that the median household income in July was $54,045, about 4.6 percent lower than it was when the recession began in late 2007.

So to recap, if companies are not stepping up and training for a skilled workforce and are also being tight-fisted in giving pay increases to employees, you have wonder where that can take us. I’m afraid it’s not such a pretty place. Lord knows I hope I am wrong.

In the meantime, let us hope that nasal strips are developed that goats can tolerate, and that the canary doesn’t die.

I’ll see you down the road.

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

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

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

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  1. I love the way you write! Clear and concise…but always with humor. Thank you for hitting the major points of the trouble with the talent pipeline so eloquently. I would add to these thoughts that we also need to consider: The H1B visa system and what it is really doing, the arrogance of CEO and corporate boards regarding their salaries, the lack of middle income potentially drying up sales of these manufactured things because the workers have no purchasing power left, the difference between job training and job creation (one does not equate to the other), the lack of collaborative training by industry…largely because business engagement from workforce professionals has been abominable…uncoordinated and nopt catalogued…and has consisted of “please take our indigent on and give them a job…we will even pay you to take them!” Instead of, what are your talent needs Mr. Industry person? If you do’t have enough people to train in your organization to make it worthwhile…are you willing to join up with some of your competitors to do a joint training effort?

    I could go on and on…. Suffice it to say, I so agree with you!

  2. Very good blog today. You are singing my song!

    Sent from my iPhone

  3. You’ve really focused a critical issue that is preventing this recovery from being as robust as it could be. Of course employers can’t get the skills they need because the wages being offered are not competitive and don’t offer the chance at a living wage. All the job training in the world won’t benefit the so-called skills gap so long as wages are depressed. What’s a potential approach to deal with this? One way would be to completely another wholesale rewrite of our job training programs to focus on businesses training people for jobs in their factories and paying a living wage with benefits. Then, separate out the safety net programs from the skills training programs to help with the continuing fallout. We might just see that we train fewer people, but overall help more people actually get jobs. Well written, Dean.

  4. #1 — manufacturing is not the only sector that “makes things.” Mining, agriculture, and construction do that as well. The issues are usually two-fold; (a) can the firm sell to those outside the community, and thus bring revenue into the community; and (b) can the firm buy resources (labor, but also materials, machines, expertise, etc.) from the community? In the “good ol’ days” a local plant of a larger firm got high scores on both items. It would hire (and then train) locals, including high-school dropouts, and it would spend lots of money in the community for both business and charitable purposes. New firms, for many, many reasons, often score much lower on both (a) and (b). They hire the already trained, from elsewhere, and they exist to sell into the community, not out of it.

    #2 — also in the “good ol’ days” At least some firm management understood that their employees were part of the demand, as well as the supply. If you underpay and outsource, who has the income to buy your products? The auto companies in particular were good about understanding that their own employees were a key market for their products, and undertook all sorts of activities to serve that market, but also to create it. I see very little of that understanding in “modern management.”

    In today’s world, a firm that scores high on (a) and (b) might actually be an educational institution or a health one — universities and hospitals have the potential, though NOT the guarantee, of being very good members of a local community. The Mayo Clinic, and Stanford University, I would argue, are way more valuable to their local communities than any “manufacturing plant” would be. But a “run-of-the-mill” hospital or college might score much less than these world-class institutions.

    Rollie Cole, PhD, JD
    Founder, Fertile Ground for Startups, Small Firms, and Nonprofits
    “Think Small to Grow Big”
    Author of WHOLESALE ECONOMIC DEVELOPMENT http://preview.tinyurl.com/wholesaleeconomics

  5. There is also a strain of thought, actually, criticism, of government’s participation in the workforce aspect of economic development, that the public sector shouldn’t “subsidize” corporate lack of investment in its own workforce. In that view, funding for customized training that promotes partnerships between local colleges and manufacturers is simply paying companies for what they should be doing already. It is true that many companies have avoided extraordinary workforce investment through benefit of decades of population growth and abundance of workers. I think, however, that those jurisdictions who foster business/government/college partnerships are the ones who will win in the more complex future in which everyone has a stake in solving a workforce problem that is only going to get worse.

    • Mark, I think you have touched on some important distinctions. The first is the role of both local government and nonprofits working in partnership with education and business in skills development. The second distinction is government’s leadership and driving role in basic skills development for those who are more difficult to employ. In the latter, there is a legitimate societal safety net role for government. In the former, the drivers should be business and government should support. The challenge today is when business has abdicated its responsibility, government and non profit can do a lot to push in the right direction.

  6. Good piece as always… but there are often sweeping events that occur without policies. The Boomer Effect wasn’t a strategy, it just happened and this rising tide kept all ships afloat for a long time. Their legacy of wealth in inheritances will sustain the economy for a while.
    Remember when manufacturers started looking at Mexico? They assumed low wage costs would result in more profits – but without labor force skill, they needed to implement as much automation as possible – which resulted in a totally different labor force skill set requirement.
    China was terrific, cheap and fairly reliable. But guess what… the workforce demanded more – China has more people in the middle and upper class than the USA. So manufacturers there are automating and changing the skill needs to automation tech (and all the support companies to install and maintain equipment). At considerably increased relative costs – The cost delta is shrinking.
    If automating is the new black, then guess what? With wage demands in China increasing, more manufacturers start doing a balance sheet that includes transportation, time to markets and political risk and start looking back at the USA. .
    Co-Op training should be a main focus for all areas as a priority. Get em while they’re young, get them used to that type of employment.

  7. Reblogged this on Barberbiz and commented:

    No new blog today as the holiday weekend had me traveling, but here’s a recent one that created some buzz. Your views are always welcomed.

  8. Thanks Dean for another well written article. You are telling it like it really is. Many writers sugar coat things to please everyone that’s in charge of business and only the bottom line.

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