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.
“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.
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