South Carolina beckons to offshore manufacturers

The (Columbia) StateSeptember 7, 2013 

COLUMBIA -- Manufacturing is finding a sweet spot in South Carolina as the economy slowly recovers, and with television maker Element Electronics already in hand, the state could become a player in ''reshoring'' efforts.

Rising wages in China, increased shipping and transportation costs, quality control concerns, logistics and other issues have companies rethinking decades of moving manufacturing offshore in chase of cheaper labor.

The rural counties in South Carolina are particularly attractive to overseas companies looking to move manufacturing back to the U.S., state officials and a Boston consulting group say.

Consumer electronics, for example, had all but vanished from the U.S. manufacturing scene, finding a home in Asia, where workers labor for a fraction of the pay here, officials said.

However, Element Electronics last month announced plans to establish a new $7.5 million manufacturing plant in Fairfield County, where the company will make flat-screen televisions -- previously produced in China -- for regional distribution by international retail giant Wal-Mart.

Element surveyed several sites across the state, officials said, but settled on a 315,000-square-foot existing facility in Winnsboro --

population 3,494 -- where in phases it will create 500 jobs that pay $12.50 an hour to start.

South Carolina is courting other off-shore manufacturers interested in moving production closer to the populations they serve, said S.C. Secretary of Commerce Bobby Hitt .

Some of the projects constitute a return to production in the United States or South Carolina, while others would be first-timers, he said.

"We're looking at projects in a whole variety of areas, including textiles and others, where we're talking to companies that are interested in coming to the United States," said Hitt, noting that textile production was once a manufacturing staple in the state.

"A lot of these reshoring projects are tailor-made for some of our rural areas," many of them in search of wage rates lower than you'd find in big cities, but that are just right for the economies in some of the rural areas, Hitt said.

One prospect looking to reshore in South Carolina involves a Chinese company, Hitt said, in which an announcement is expected soon.

The company, Hitt said, is looking to hold onto its market in China, but more efficiently serve its market in the U.S.

"We think these projects are just perfect for us, so we are very ambitious, have a number of people working on them, and I have every reason to believe we will get not only our share, but maybe a little bit more," Hitt said in an interview Friday.

Ford Motor Co., Apple computer, NCR, Michelin, computer vendor Lenovo, and dozens of other companies have in recent months either moved some manufacturing production back to the U.S., or publicized their intentions to do so.

A recently released report by New England's The Boston Consulting Group said U.S. manufacturing could bring back $70 billion to $115 billion of export business by 2020, as a result of decisions by companies doing business overseas about where to add capacity.

The August report, titled ''Made in America, Again: Why Manufacturing Will Return to the U.S.,'' states that within five years, the total cost of production for many products will be only 10 to 15 percent less in coastal regions of China, than in some parts of the U.S. where factories are likely to be built.

"When all costs are taken into account, certain U.S. states, such as South Carolina, Alabama and Tennessee, will turn out to be among the least xpensive production sites in the industrialized world," the BCG report states.

China's rising wages, insufficient Chinese productivity to offset those rising wages, and the limits of automation to offset the higher labor costs all are factors that will increase the reshoring trend in the next couple of years, according to the report.

Higher electricity and land costs and extended supply chain problems also likely will hamper increased Chinese manufacturing production, the report said.

"We still believe the labor cost scenario is there, but because of the evolution of the energy cost equation in the U.S. around shale gas and that evolution, we also believe that energy costs play a role in that equation today," said Michael Zinser , a partner at The Boston Consulting Group in Chicago and a lead author of their U.S. manufacturing research.

"The lower energy costs in the U.S. contribute to that positive benefit for manufacturers," he said.

China's manufacturing disadvantages, in many ways, are the U.S. and South Carolina's advantages, experts say.

The Southeast tends to be a lower-cost region of the U.S., Zinser said, and labor flexibility, with many states fostering right-to-work laws also tends to be attractive to manufacturers, he said.

"We also find that many of the Southeastern states have had much more forethought about how to attract manufacturers to the U.S., and so have gotten out ahead of many others," in terms of putting in place good business environments, Zinser said.

Some states in the region, but South Carolina in particular, also excel in dealing with government issues that arise in a move or manufacturing expansion, and tend to have ''shovel-ready'' sites available, Zinser said.

Still, there are potential obstacles, said Lewis Gossett, South Carolina Manufacturers Alliance president and CEO. ''There's a great threat out there, and it's the TPP with the Vietnam issue,'' Gossett said, referring to the Trans-Pacific Partnership, a proposed free trade agreement between Brunei, Canada, Chile, New Zealand, Singapore, Australia, Malaysia, Mexico, Peru, the United States and Vietnam.

"If this country doesn't get that right, it will be a bad thing for the textile industry,"Gossett said.

There are reasons, however, the U.S. textile industry continues to survive in this country, despite setbacks such as bad trade agreements, he said. "These companies that are here, are great business people. They know business," Gossett said, and are the kings of innovation.

''Reshoring is (happening) and will happen in the United States,'' said Sonny White , Midlands Technical College president. "What's so important is that the states that are going to attract those companies and those jobs are going to be the ones that have the skilled workforce."

Most of the manufacturing jobs coming back to South Carolina and the United States are high-paid jobs, White said, even in textiles, and present the state a major opportunity.

The college is training students for advanced manufacturing positions at local companies such as Nephron Pharmaceuticals, which will make generic drugs in Lexington County, International Paper, Michelin, engine and injector manufacturer Pure Power and many others, he said.

Most of the technician-type jobs such manufacturers seek to fill require a certificate or a two-year associate's degree, White said.

But the jobs mostly pay from $50,000 a year to more than $100,000 a year, he said.

Students can come in, get the training and land jobs that offer good pay working in good, clean environments, White said.

"We're working very, very closely with these manufacturers to provide them with the skilled labor that they need," White said. The college also works with the school systems to help emphasize the importance of science and math to help prepare future workforces, White said.

''What we're trying to show them is there are many pathways to success,'' White said. ''The real job for all of us is to change the perception of these kinds of jobs in the minds of the parents and the students and the counselors and the teachers. They think about the old industry -- they think about it dirty and not clean and not safe. But you can go out to Michelin and you can eat off the floor,'' White said.

Manufacturing, from automotives to paper production, has attracted nearly $19 billion in capital investment in the state since 2008, according to the South Carolina Manufacturing Alliance, the state trade group, and created more than 62,000 jobs.

But the industry has had its share of troubles, too.

Employment in the manufacturing sector fell from about 275,000 workers in 2003 to a Great Recession-low of 207,000 in 2010, but the levels began to rise again two years ago.

Nearly 220,000 people worked in manufacturing at the close of 2012, statistics show, while 221,000 held production jobs in March 2013 and 221,500 worked in the sector at the end of June.

What may be surprising is that wages (average annual pay not including benefits) for manufacturing jobs in South Carolina are up every year since 2002.

In 2002, average manufacturing wages in the Palmetto State were $37,604 a year, rising to $46,942 in 2009.

In 2011, average manufacturing wages in the state rose to $51,153 and this year South Carolina has the fastest-growing gross domestic product in manufacturing on the East Coast, according to the U.S. Department of Commerce.

South Carolina shares the lead in the Southeast in manufacturing growth with North Carolina, where Lenovo, the world's second-largest PC vendor, opened a manufacturing line in June. Experts say the Southeast, with its abundant workforce, plentiful energy supply and cheap fuel costs, has become the focal point for resurgent manufacturing.

Now, with the siting last month of an Element Electronics plant in Fairfield County, South Carolina has seen its first significant instance of a "reshore" manufacturer arrive in the Palmetto State.

For decades, U.S. companies and others have shipped manufacturing and production jobs overseas looking for cheaper labor.

The practice has been scorned over the years by middle-class U.S. workers, and finally has begun to wane, as overseas labor costs in places like China and India have gone up dramatically and U.S. wages, meanwhile, have been almost stagnant.

But it's not just labor costs that advantage manufacturing in a place like South Carolina, said Mark Vitner , managing director and senior economist at Wells Fargo Securities.

''You can get low labor cost in a lot of places, but you can't get low labor costs in the heart of the fourth-largest economy in the world and in one of the fastest-growing economies in the world, and that has fully developed infrastructure," Vitner said.

"You look at where Fairfield County is and the executives of Element Electronics know they can get there relatively quickly. They can fly into Charlotte, drive down a modern interstate. Their products can be shipped by truck, rail or air, however they need to ship them and they can get them out quickly. They have a good connection to the Port (of Charleston) and a good network of suppliers," Vitner said. "It's that mix that matters."

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