Archive for the ‘Economic Development’ Category

MEPs are Essential to Rebuilding American Manufacturing Competitiveness

Tuesday, April 18th, 2017

Last month, President Trump submitted a “Skinny Budget” with the goal of removing some of the “fat” within Washington DC. Unfortunately, one of the programs eliminated in his budget is not “fat.” The Manufacturing Extension Partnership (MEP) is the only federally funded national network dedicated to serving small and medium-sized U. S. manufacturers. The MEP program was re-authorized by both Houses of Congress by unanimous consent earlier in January when the MEP program went back to 1:1 cost matching. The reality is that the MEP network is essential to helping manufacturers be competitive in the global marketplace and rebuilding American manufacturing. Eliminating the MEP program seems contradictory to President Trump’s focus on manufacturing.

The MEP website states, “Since 1988, the Hollings Manufacturing Extension Partnership (MEP) has worked to strengthen U.S. manufacturing. MEP is part of the National Institute of Standards and Technology (NIST), a U.S. Department of Commerce agency…MEP is built on a national system of centers located in all 50 states and Puerto Rico. “Each center is a partnership between the federal government and a variety of public or private entities, including state, university, and nonprofit organizations. This diverse network, with nearly 600 service locations, has close to 1,300 field staff serving as trusted business advisors and technical experts to assist manufacturers in communities across the country.”

This public-private partnership provides a high return on investment to taxpayers. “For every one dollar of federal investment, the MEP national network generates $17.9 in new sales growth for manufacturers and $27.0 in new client investment. This translates into $2.3 billion in new sales annually. And, for every $1,501 of federal investment, MEP creates or retains one manufacturing job.”

The top challenges reported to MEP by manufacturers are:

  • Cost Reduction 70%
  • Growth 54%
  • Employee Recruitment 47%
  • Product Development 45%

In FY 2016, the MEP national network interacted with 25,445 manufacturers and achieved these results through their wide range of services:

  • $9.3 Billion New and Retained Sales
  • 86,602 New and Retained Jobs
  • $3.5 Billion New Client Investments
  • $1.4 Billion $1.4 Billion Cost Savings

I have long been aware of the work of the California MEP, California Manufacturing Technology Consulting (CMTC), headed up by Jim Watson, but when I visited Cincinnati, Ohio last fall, I had the pleasure of meeting with Scott Broughton, Director of the Advantage Kentucky Alliance (Kentucky’s  MEP), and David Linger, President & CEO of TechSolve, one of the Ohio MEP affiliates.

I contacted all three for input for this article, and Scott Broughton was the first to respond. He said, “AKA has generated over $88 million in impacts with 50 clients working with over 1,300 employees in the past 12 months alone. We are currently working with small manufacturers in Eastern Kentucky, who used to work in the coal industry to identify, vet, and implement change allowing them to work in non-coal industries and helping them to be sustainable in the future. These companies have worked with other entities with mixed results. AKA’s programs are centered on AKA facilitators mentoring and training employees, allowing them to be the driver of change with continued support. This allows the employees to ‘learn by doing’ with the support and assistance of AKA’s specialists. AKA’s average engagements are over 12 months with monthly interactions allowing for sustainable support, change, and implementation.”

He added, “For every federal dollar spent, it has resulted in $170K in impacts in Kentucky! Specific impacts in the past 12 months are below and that does not include the 762 new jobs created/retained:

  • $9.9 million in new sales
  • $21.6 million in retained sales
  • $10.8 million in cost savings
  • $40.3 million in investments made”

Broughton provided me with case studies for six clients, which are too lengthy to cite in detail in this article. Three of the six received training in Lean manufacturing through AKA, two were helped to find new markets, and two were helped with new product development. Highlights of the results are:

  • Skillcraft Sheetmetal, Inc. – “a reduction in labor equating $27,000 in 2014 alone”
  • Post Glover Resistors – ” 12% reduction unnecessary Labor”
  • Outdoor Venture Corporation – “Increased sales by $500,000 and increased cost savings by $1 million”
  • Cumberland Mine Service, Inc. – “Uncovered 17 potential industries/business opportunities and 21 potential future customers”
  • RT Welding & Fabrication, Inc. – “Uncovered 21 potential industries/business opportunities other than mining and identified 13 potential revenue streams”
  • Taper Roller Bearings – “$10 Million in retained sales, $200,000 in cost savings, and $20,000 in new product development”

David Linger responded, “The Ohio Manufacturing Extension Partnership, located in Columbus, OH, provides technical services for small and medium-sized manufacturers to drive productivity, growth and global competitiveness; and can ultimately help Ohio’s manufacturers become more profitable and competitive. From October 2015 – September 2016, the Ohio Manufacturing Extension Partnership served 439 Manufacturers resulting in new and retained sales of   $277,900,000, created and retained 2,399 jobs, facilitated cost savings of over $41,700,000, and created new investments of $132,600,000.”

He commented, “An often overseen benefit of the relationship of a MEP and their regional clients is the two-way information exchange. That is, the MEP receives constant Voice Of the Customer information from the regional clients throughout the year. This allows the MEP to proactively develop new solution packages that meet those needs,  needs that are often unique to small and midsized manufacturing firms. This feedback loop drives the MEP to be current with the latest technology or methods and be an ongoing subject matter expert to push this new know-how back out to the manufacturing community. A few great examples of this are the work MEP’s are doing in regards to Cyber Security as it relates to manufacturing, Additive Manufacturing or 3D Printing, Data Analytics, and System Integration (Industrial Internet of Things, IIOT).”

Jim Watson responded, “Last year, CMTC was awarded a five-year agreement to be the California MEP. In 2016 CMTC served 1,065 small and medium-sized manufacturers, creating or retaining 8,575 high paying jobs statewide resulting in $169 million in cost savings, $647 million in total sales, and $305 million in total investment. For every manufacturing job, there are 3-4 full-time jobs created elsewhere in the United States to support manufacturers. Manufacturing is critical to the California economy, employing more than 1.2 million workers at more than 39,000 companies.”

He added, “CMTC’s services provide innovation, growth, technology and operational solutions that foster profitable growth for small manufacturers impacting personal income, tax revenues and the California economy. A study by the LAEDC Institute for Applied Economics indicated that the annual economic contribution from California MEP projects with customers surveyed in 2014 was an estimated $1.8 billion to California’s GDP and more than $450 million in federal, state and local tax revenues. The California MEP program is a valuable partner for manufacturers and generates a significant dividend for the State of California.”

There were four client case studies mentioned in their 2016 end of year report, which I have briefly summarized below:

Amflex Plastics – a woman-owned company making polyolefin co-polymer formulated plastic hoses and spiral hose equipment. Amflex needed help getting prepared to get their ISO 9001:2008 certification to retain current business and get new customers. After CMTC coaching, they passed their audit and got their certification, resulting in $675,000 in projected increased sales, $300,000 in retained sales, three new jobs, 10 jobs retained, and $209,000 in cost savings.

Summertree Interiors is a minority owned business that builds finely crafted baby and children’s furniture. The company needed help reducing lead times and improving on-time delivery. CMTC provided them with Lean manufacturing training, which resulted in:

  • $400,000 in increased sales
  • 1,000,000 in retained sales
  • 6 jobs created
  • 12 jobs retained
  • $250,000 in cost savings
  • $115,000 in capital investments

Space Systems Loral is a manufacturer of communications satellites and satellite systems. Because former customers are now making their own satellites, “SSL needed programs to reduce costs and lead times as well as provide an in-house team to lead and implement their continuous improvement philosophy. CMTC provided Yellow Belt Lean training and a “Train the Trainer” program, which resulted in $7,500,000 in retained sales, 17 jobs retained, $1,861,000 of cost savings, and $500,000 in capital investment.

OHIO Design is a builder of custom, made-to-order, modern furniture and interiors. The company needed help with their manufacturing processes, finding qualified workers, and access to capital. CEO coaching helped OHIO to understand and implement business metrics a cost structure to track their manufacturing expenses, and a continuous improvement program to focus on solutions to fix problems. As a result, they experienced $500,000 in increased sales, retained 7 jobs, achieved $150,000 in cost savings, and made $55,999 in capital investment.

One of the companies I represent as a manufacturers’ sales rep has been a repeat client of CMTC. President Steve Cozzetto of Century Rubber Company wrote me, “As the business climate has become more demanding, CMTC has been instrumental in providing the training that we need to remain competitive. In the past 10 years, we have used their resources and expertise to develop our Lean Manufacturing procedures, to upgrade our marketing methods, and most recently to take our quality program from ISO: 9001 and prepare us for our AS9100D certification which should occur this year. As a small company, the variety of programs offered by CMTC makes it possible to accomplish goals that would otherwise be difficult to achieve.”

These success stories illustrate why the nationwide Manufacturing Extension Partnership network is essential to the growth of the United States economy. When the President submits his budget, it is the first step in the long process that results in a federal budget. No President’s budget ever gets approved without substantial amendment by Congress, and Congress has the final say on governmental spending. To support the MEP program, you should contact your Congressional Representative to urge them to keep funding for the MEP program in the federal budget.

San Diego Tackles Housing Affordability and Skills Gap for STEM Careers

Tuesday, January 31st, 2017

Workforce development is critical to San Diego’s economy, so this topic was featured at the 33rd Annual San Diego County Economic Roundtable I attended on January 19, 2017. After the two presentations by the two economists covered in my last article, the next presenter was Tina Ngo Bartel, Director of Business Programs and Research for the San Diego Workforce Partnership, which has about a $40 million budget. She said, “My department does the research for new programs and then implements them. We did research on small business and found that 95% have fewer than 50 employees. We collaborate with the San Diego Employers Association to provide H.R. services for small businesses and have set up a free hotline for help on such topics as Workers Compensation, changes to labor law and wages, termination, employee discipline issues, etc.”

She described a new program they have to connect employers with job seekers instead of doing all day job fairs. They are doing Hiring Happy Hours at a local brewery where job seekers and employers can connect in a more informal, fun atmosphere. They are customized and targeted to specific industries, such as health care and manufacturing.

Next, she described their Connect2Careers program, which is “a summer employment program that addresses San Diego’s ongoing skills gap by providing meaningful work experiences that prepare young adults ages 16–24 for in-demand jobs. By aligning the career aspirations and educational backgrounds of young adults with businesses committed to developing our emerging workforce, C2C creates a positive experience for both employers and youth.”

Ms. Ngo Bartel said that they had released a report on Apprenticeship programs in November 2016. San Diego County has employers in a variety of industries that sponsor or participate in apprenticeship programs. According to the report, specialty trade contractors and local government provide the most apprenticeship opportunities. SDWP is working with the building industry on an apprenticeship career pathway in which there is no cost to the participants for the training and employment. At the end of the apprenticeship, there is guaranteed employment. She also said that the Urban Corps has a pre-apprenticeship program for youth without a high school diploma.

She stated that Able-Disabled Advocacy (A-DA) received a federal grant in November 2015 to develop apprenticeship programs for occupations that do not traditionally have registered apprenticeships in the region: project managers, computer support specialists–networking, and computer support specialists–cyber security (i.e., project management, ICT). The Able-disabled Academy offers an ICT program training in ICT skills.

She added, “San Diego has the first life science apprenticeship program in the nation created by Miramar College in partnership with Rx Research Services.” The press release of January 29, 2016, stated, “San Diego Miramar College will receive a $600,000 Innovative Apprentices for the Life Sciences Industry grant to grow the number of apprenticeships in nine areas: microbiology quality control technician; chemistry quality control technician; regulatory compliance associate; regulatory affairs specialist; clinical research coordinator; quality assurance associate/GXP auditor; clinical trial assistant; drug safety advocate; and clinical data coordinator. Miramar College, home of the Southern California Biotechnology Center, will be the lead education agency in partnership with Rx Research Services Inc., the apprenticeship sponsor.”

She concluded by saying that the SDWP will be doing an update on San Diego’s priority sectors of Advanced Manufacturing, Clean Energy, Health Care, Information and Communication Technologies, and Life Sciences and will release the report at their Workforce Conference in November 2017.

The lack of affordable housing in California’s metropolitan areas of San Francisco, Los Angeles, and San Diego has reached crisis status. Historically, San Diego salaries have been substantially lower than the other two regions, so it has become even more critical. The median home price hit $507,500 in November 2016, up 11 percent from a year ago. Rents have been escalating due to the high demand and limited supply of affordable homes. Both of these factors are impacting employers being able to recruit skilled workers from other parts of the country and impacting our region’s ability to keep new college graduates in the region.

This is why the next speaker was Deborah Ruane, Executive V. P. and Chief Strategy Officer of the San Diego Housing Commission, whose mission is “To provide affordable, safe and quality homes for low-and moderate-income families and individuals in the City of San Diego and to provide opportunities to improve the quality of life for the families that the San Diego Housing Commission serves.” The SDHC website includes this statement as part of its mission: “Become a national model in initiating and implementing new, progressive ideas to address affordable housing needs across the country.”

Ms. Ruane said, “Our Board of Directors asked me to find out why it was so expensive to build affordable housing. It costs $300,000 per unit.” She said that one problem is that they have constraints from many of their funders for housing, such as must have solar, must be near a school, near public transit, look as nice as neighborhood, all of which add to the cost. Economist Lynn Reaser of Point Loma Nazarene College estimates the costs related to government are $40 billion. This impacts our regional GDP in the amount of $2.4 billion.

She explained, “We started with the McKinsey Global Institute report, ‘Tackling the Affordable Housing Challenge” and came up 60 factors that affect cost, most of which are related to local, state, and Federal government. We narrowed the list down to the top 11. The first eight are within San Diego’s purview to change. One is related to state government, and two to the Federal government.” The list is:

  1. Set annual production goals
  2. Incentivize more 80/20 development
  3. Defer development fees
  4. Reduce parking requirement
  5. Reduce commerce space requirements
  6. Unlock land and increase ground leases
  7. Approve community plans with Master Environmental Impact Report
  8. Support California Environmental Quality Act reform
  9. Increase state and Federal resources
  10. Align state oversight
  11. Increase State and Federal resources

She said that McKinsey was so impressed with the work they were doing that they issued a subsequent report in October 2016 on “Closing California’s Housing Gap,” which “provides a tool kit for fixing a chronic housing shortage in the world’s sixth biggest economy.”

She concluded saying, “If we can make these changes, the City could reduce the costs of market rate housing by $54 million and by $23 million for affordable housing. We have made movement on nine of the issues, and we will issue a year-end report next month.”

The next speaker was Gina Campion-Cain, CEO of American National Investments. Her presentation was focused on the commercial real estate market. The most interesting points of her presentation with regard to my focus on manufacturing is that corporate campuses are being developed with rich amenities for employees, such as fitness centers, restaurants, coffee stops, and “grab and go” marketplaces. She also touched on the changes in the design of open office floor plans instead of cubicles to facilitate more collaboration among workers.

The last speaker was Matt Doyle, Ed.D, Assistant Superintendent of the Vista Unified School District who spoke on “Innovation in Education – Addressing Student Engagement and Lifelong Success.” Dr. Doyle said the Vista school district has 22,000 students of which 10% are homeless, some since kindergarten, who are now getting “full-ride” scholarships. (Vista is located about 30 miles northeast of the City of San Diego.)

Highlighting the most important points of his presentation, he stated, “The biggest education issue is student engagement. In our school district, student engagement drops from 76% in elementary school down to 44% in high school. When I started four years ago, I had conversations with about 2,000 students. I took all of the words students had to say about school and put them in a program called ‘Wordle’ and the one that came up was ‘irrelevant.’ It is a similar trend around the country.”

He stated, “To resolve the engagement issue, we need to re-imagine education and develop work-ready talent using a Strengths-based Education Model. It’s not about preparing for college, but more about preparing students for careers. We are using tools used by industry and work with business partners of the Vista Innovation Center. We use technology as an infrastructure and are one-to-one in devices for students.”

He explained, “The goal is to be a self-regulated learner. We create a personal learning pathway for students and develop a student profile. We have developed a competency-based program so as soon as student demonstrates their knowledge in a subject, they can move on. What we are finding is many of our students are able to move into college classes as a junior or senior. The goal is to prepare the student or the pathway…not the path for the student.”

Continuing, he said, “Students are working alongside teachers. We are creating opportunities for students to learn. Our learning environment is different. A teacher is no longer at the front of a class with rows of student desks. At the center of student success is the concept of collaboration. It’s a brave new world. We are trying to move beyond the traditional mindset.” Dr. Doyle stated, “The results in our super school have been a  99% reduction in disciplinary incidents, a 50% reduction in absenteeism, 62% of increasing GPA by one percentage point in half a year, a 27% reduction in ‘Ds’ and a 33% reduction in ‘Fs’.”

He concluded saying, “We are reaching out to business and having meaningful conversations about essential skills. Clean energy is one of the priority sectors in north San Diego County along with advanced manufacturing. This is part of a project called the Talent Cities Solution to narrow the talent gap and feed the talent pipeline. We are working with Solatube in the clean technology field, and middle school students are having conversations about what skills are needed in that industry. We are trying to ‘marry’ companies with students so they students can be employable when they finish their education. We want to help companies “on-board” students. We are creating learners that are flexible and nimble because that is what industry needs.”

Public/private collaborations that incorporate new ideas and innovative  programs for solving the housing affordability crisis, solving the skills gap in workforce development, and educating the next generation of youth for STEM careers make San Diego a role model for other regions.

 

CONNECT’S MIP Awards range from Pure Fun to Life-Saving

Tuesday, December 13th, 2016

On December 1st, the winners of the 2016 CONNECT Most Innovative New Product Awards were announced at the 29th annual dinner event held at the Hyatt Regency Aventine in La Jolla.

CONNECT is a premier innovation company accelerator in San Diego that helps start up entrepreneurial teams become great companies in the technology and life sciences sectors by providing access to the people, capital, and technology resources they need to succeed. CONNECT has assisted in the formation and development of more than 3,000 companies since 1985. Lead sponsors for the event were Cubic Corporation, and JP Morgan Chase & Company.  Tom West, San Diego Executive Director & Regional Manager of JP Morgan Chase, presented CEO Greg McKee with a check for $200,000 to support CONNECT.

CONNECT CEO Greg McKee said in part, “This event gives us an occasion to celebrate what we do best in San Diego ? innovate. From genomics to robotics, Bluetech to biotech, and data analytics to medical devices the breadth of our innovation economy is staggering. In fact, it’s a quarter of our GDP. You, as innovators, matter. And, I would bet, that many of the products we see here tonight will have an equally profound impact. For over thirty years CONNECT has been, and continues to be, an organization driven by discovery, innovation, economic empowerment, and the opportunity to change the world. But, changing the world isn’t always about a single sweeping gesture or one grand moment, it’s hard work, it’s a blend of small insights and little steps forward, it’s about sharing discoveries and thriving on others’ inspiration.”

There were a record 111 entrants this year across the ten categories listed below. To be eligible, the product must have been first introduced after January 1, 2014, never been selected as a MIP finalist, and generated revenue from sales (except for free mobile apps and companies submitting for the Life Science Products – Clinical Stage category). Each semi-finalist demonstrated their products in front of an expert judging panel in early October, from which 30 were selected as finalists. The winners and other finalists were:

Bluetech:  Water Pigeon – a fast, simple, secure way to deliver automated metering infrastructure (AMI) capability without replacing existing water meters or building wireless networks. Water Pigeon is a graduate of CONNECT’s Springboard program and a resident of EvoNexus.

After winning the award, CEO/CoFounder Clay Melugin said, “The MIP award from Connect is an outstanding honor to win. With so many great startup companies in San Diego in all categories, being recognized for Innovation delivers a boost to our team as we continue to push forward on goals that improve the world. Innovation is clearly not dead in the US and we want the world to see how innovation emboldens a supportive city like San Diego.

The outreach from others after the award has been amazing. It is very inspiring when people take time to understand our mission and offer to help us continue the journey both as investors and people who simple want to help. This only happens in a vibrant technology community like San Diego where startups encourage and help each other move forward towards success.”

Other Finalists:

Diver6a life-saving diver tracking system used to wireless supervise divers position and monitor their vital information provides services and technology for government and industry with extensive experience and capabilities supporting complex scientific and maritime operations.

Planck Aerosystemsits flagship drone brings high performance, autonomous unmanned aerial systems to moving vessels previously only possible from manned helicopters.

Cleantech, Sustainability, and Energy:  Camston Wrather LLC – recovers gold, precious metals, and polymers from electronic waste using proprietary patents and green chemistry.

Other Finalists:

  • Measurabl – an all-in-one commercial real estate energy and sustainability management software.
  • SDG&E – a regulated public utility that invented the Renewable Meter Adapter (RMA) as an alternative for private solar rooftop customers to avoid costly panel upgrades.

Defense, Transportation, and Cybersecurity:  Cubic Corporationdesigns, integrates and operates systems, products and services that increase situational awareness for customers in the transportation and defense industries.

Mike Twyman, President of Cubic Mission Solutions, said, “Cubic is honored to receive the Most Innovative Product (MIP) award from CONNECT in the Defense, Transportation and Cybersecurity category for our inflatable satellite communication system. Cubic GATR’s industry-leading inflatable satellite antenna is changing the satellite communications industry and receiving innovation awards, such as the MIP from CONNECT, validates the push for innovation at Cubic. We look forward to continuing our support of CONNECT and fostering innovation in San Diego region.

Other Finalists:

  • B&B Technologies LP – developer of the DAMPS advanced magnetic suspension/propulsion shock mitigation technology R&D for the military, medical and professional/commercial markets.
  • Space Microthe Micro-STAR-200M is a space qualified sensor observing start and delivering precision pointing information to its host spacecraft.

Information Communications Technologies: Aira develops remote assistive technology and services that bring greater mobility and independence to blind and low-vision people in daily living by connecting them to a network of certified remote agents via the blind user’s wearable smart device.

The impact of winning the CONNECT Most Innovative Product (MIP) Award certainly marks an important milestone at Aira, including our place as a recognized technological innovator in the San Diego region” said CEO Suman Kanuganti. “We believe that San Diego, because of its supportive and engaging technological environment, is truly the best community for startups like Aira, and we thank CONNECT for the work they do to grow the region, and of our peers who continue to inspire and challenge us to be more competitive, smarter, and committed to thrive and succeed here in San Diego. Equally important, Aira’s winning of the MIP Award allows further light to be shed on the often-forgotten challenges that people with vision loss face on a daily basis in functioning in a sighted world, and how the power of technology and innovation can play a major role in alleviating these challenges.”

Other Finalists:

  • Creative Electron – the TruView Cube is an innovative x-ray machine used to count the number of semiconductors without the need to open protective cases.
  • Qualcomm Technologies, Inc. – The SnapdragonTM 820 processor represents a rare feet in the engineering and design of semiconductors, in which every major IP block in the system is a new and custom design.

Life Science Diagnostics and Research Tools:  Echo Laboratories Inc. – developed the Revolve, a new hybrid microscope that easily transforms between upright and inverted configurations, merging the capabilities of two instruments into one. Echo Laboratories graduated from CONNECT’s Springboard program two years ago.

CEO/Founder Eugene Cho said, “Winning the event was a big achievement for us. Just two years ago we were at the same event, sitting in the audience as Springboard graduates. It was incredible validation to our team of how far we’ve come since then.”

Other Finalists:

  • DermTech – a non-invasive gene expression platform that works with samples collected using DermTech’s Adhesive Skin Biopsy Kit to facilitate the diagnosis and treatment of psoriasis and other inflammatory skin conditions.
  • NanoCellect Biomedical– the WOLF Cell Sorter is the new benchmark for access and performance to make flow cytometry and cell sorting technology more affordable and accessible for life science researchers to perform cellular analysis, develop molecular diagnostics, and improve personalized medicine.

Medical Devices:  Onciomed, Inc.the Gastric Vest System™ (GVS) is a revolutionary, minimally invasive implantable device to treat obesity and diabetes.

Other Finalists:

  • Innovative Trauma Care – created the ITClamp Hemorrhage Control System which is designed to address massive hemorrhage – a leading cause of death in traumatic injury – by controlling critical bleeding in seconds.
  • 11Health – a connected medical device company, where all patented devices use Bluetooth® wireless technology to send secure real-time data to mobile devices, including smart phones, tablets and watches.

Pharmaceutical Drugs and Biologic Therapies:  ACADIA Pharmaceuticals, Inc. – NUPLAZID is the first FDA-approved treatment for hallucinations and delusions associated with Parkinson’s disease psychosis.

Bob Mischler, Senior Vice President, Strategy and Business Development said, “We’re honored that NUPLAZID was chosen as the winner of the Pharmaceutical Drugs and Biologic Therapies category. Even more importantly, we are gratified that this innovative treatment offers renewed hope to patients with Parkinson’s disease psychosis, a debilitating condition that affects around 40 percent of people with Parkinson’s disease, and the loved ones who care for them.”

Other Finalists:

  • Ardea Biosciences– Zurampic is the first new oral medication for treatment of gout approved by the FDA in 60 years.
  • GlyConMedics LLC – Pre-biotic (OZ101) tables advance the treatment for type 2 diabetes by providing an affordable and effective long-term ADD-ON treatment to existing SU therapies to improve glucose control, educe hypoglycemia and weight gain.

Robotics and Unmanned Vehicles:  Clever Pet – a connected game console that intelligently trains and engages dogs using their normal daily food automatically, whether their humans are home or not. CleverPet is a resident of EvoNexus.

We were honored to receive CONNECT’s Most Innovative Product award in our category,” commented Co-founder Leo Trottier. “We could not have built CleverPet without the support of the San Diego community and organizations like Connect. We see this award as validating a business and idea that when we started felt at best a pipe dream.”

Other Finalists:

  • NXT Robotics – provides service robots to support increased security monitoring and alerting requirements.
  • Robolink – aims to make STEM education accessible, engaging and fun for children and hobbyists by producing robotics educations kits and providing educational lessons that teach core principles of engineering and programming.

Software, Digital Media, and Mobile Apps:  Guru – an app that features beacon-enabled technology that interacts with smartphones to create digital experiences for museums, aquariums and zoos. Guru is also a CONNECT Springboard graduate and a resident of EvoNexus.

Hilary Srole, Project Manager said, Entrepreneurship is hard, so receiving recognition like this from CONNECT is awesome. Winning gave us a great sense of validation. Not only for us, but for the San Diego Museum of Art for taking a chance with us. It really feels good to show that their faith in us wasn’t misplaced. This whole process has been rewarding. Springboard’s mentorship has helped us avoid some of the pitfalls commonly associated with start-ups and has helped us to move in the right direction faster.”

Other Finalists:

  • Nanome, Inc. – developed the world’s first immersive and scientifically accurate molecular modeling tool in Virtual Reality.
  • South Doctors, Inc. – the leading platform that connects patients from around the world with the best doctors and facilities in Mexico.

Sport and Active Lifestyle Technologies:  Bixpy LLCthe world’s first portable and modular personal water propulsion device that runs on lithium batteries for snorkelers and scuba divers, with attachments available to motorize kayaks and standup paddle boards.

Founder/CEO Houman Nikmanesh, said, “We were absolutely humbled by our selection as a finalist for the MIP Awards by Connect. We were among some brilliant people, amazing products, and innovative ideas. So when we won, we were absolutely beyond ourselves. It has taken us more than two years to develop the Bixpy Jets and we have worked tirelessly on a project that at times seemed like a pipe dream. Winning such a prestigious award validates our vision and paves the way forward for us. We’re proud and attribute much of our success in our product development to being in San Diego. Aside from being the perfect hub for an outdoor lifestyle company, the San Diego startup and innovation community has been instrumental to our drive and success.

Other Finalists:

  • ElliptiGO Inc.the world’s first elliptical bicycle, combining the best of running, cycling, and the Elliptical trainer for a fun and effective way to exercise outdoors.
  • FlyDivethe X-BOARD connects to a personal watercraft for hydro jet propulsion, empowering riders to hover and fly above the water. It is the most advanced hydro flight system designed and engineered to support both beginners and professional riders.

It was a very exciting night for me because I had been one of Bixpy’s mentors in the CONNECT Springboard program this year. Bixpy graduated in July, and in only four short months, they conducted a successful Indiegogo crowdfunding campaign, were selected as a finalist, and won this prestigious award.

CONNECT has a built an unbeatable roster of over 500 highly-qualified individuals to serve as Springboard Entrepreneurs-In-Residence and Mentors who volunteer their time as mentors to help entrepreneurs develop successful companies. I look forward to mentoring more companies in the future.

 

Cincinnati’s Cintrifuse Connects Entrepreneurs, Big Companies and Tech Funds

Monday, December 12th, 2016

During my visit to Cincinnati earlier this month, I had to pleasure of meeting key people from Cintrifuse and a few of the regional accelerators. The website says Cintrifuse is “Where Dreamers, Disruptors and Doers Connect” because “the world needs innovation. Entrepreneurs, BigCos and Tech Funds need each other. An active network ensures they can connect. And at the heart of that network is Cintrifuse.”

At Cintrifuse, I met with Wendy Lea, who has been CEO since 2014, and Eric Weissmann, Director of Marketing. Ms. Lea is “an accomplished Silicon Valley executive with deep experience in marketing, sales, and customer experience.” Ms. Lea serves on several boards, including Corporate Visions (San Francisco) and Xyleme (Boulder) as well as still being the executive chair of Get Satisfaction (San Francisco.)

Ms. Lea said, “Cintrifuse was born to answer this question: What will it take to create a thriving startup ecosystem in Cincinnati? Cintrifuse is a not-for-profit public/private partnership that exists to build a sustainable tech-based economy for the Greater Cincinnati region. Our purpose is to advocate for entrepreneurs leading high-growth tech startups– attracting, inspiring, and supporting them on their journey. The goal of Cintrifuse is to lower starting costs of business, especially businesses with the potential for high growth and that are disruptive technology. The Cincinnati Business Committee wanted to see how they could be relevant and formed Cintrifuse in partnership with the City of Cincinnati and EY. They wanted their kids to be able to come back to Cincinnati. The Cintrifuse Syndicate Fund is at $57 million and invests in VC firms outside of the region with the understanding they (VCs) create a regional engagement plan. There’s no stipulation that they invest in Cincinnati startups, but just be involved in the ecosystem. This includes reviewing deals, participating in events, and meeting our Limited Partners (LPs) most of whom they would love to meet with anyway – Procter & Gamble, Kroger, the University of Cincinnati, etc.”

She said, “We own and manage a 38,000 sq. ft. building in the economic area known as “Over the Rhine.” We got the building mortgage free, but put $17 million into improving the building. We opened in 2012. We provide services to 285 members companies – advisory services (such as mentoring and office hours), connections to talent, funding, and customers, as well as operating co-working space in downtown Cincinnati. We are part accelerator, part incubator, and part co-working space to move a company to the next ‘Lily pad’.

Ms. Lea added, ” The ‘headroom’ at Cintrifuse is wide. There is a strong appetite for new technology, new ideas, and disruption. Cintrifuse is a census taker – 300 startups are on our database across industries. We have brought is $160 million into the region for their startups, and we give them lots of exposure to VCs. One of our success stories is Everything But the House, which started in Cincinnati. They just raised $41 million, and Cintrifuse made the introduction to their investors.”

She explained, “Cincinnati has more Fortune 500 companies than anywhere else outside of San Francisco Bay area, so we created a Customer Connections program to share information between large companies and small companies. Our Customer connections program is taking 15 startups to Israel to present “innovation briefs.”

She would like to see Cintrifuse expand all over the world similar to TechStars in Boulder, CO with which she was involved when she lived in Boulder. She said, “Tech Star is the largest global network in the world with 28 centers, and their graduates have created 800 companies. Cintrifuse hosted their   reunion of graduates called FounderCon in the fall of 2016.”

The next day, I met Jordan Vogel, now V. P. of Talent Initiatives with the Cincinnati Chamber of Commerce, who worked for Cintrifuse for three years as director of the entrepreneurial ecosystem., He gave me more background information on Cintrifuse, saying, “It was created by Cincinnati Business Committee, composed of the top 30 CEOs in region and  the Cincinnati Regional Business Committee, composed of about 100 CEOs of somewhat smaller companies. When Chiquita left, the leaders became concerned and asked “What does the future look like? What should it be? They decided they needed to promote the next P&Gs of the world. Entrepreneurship was the key. They commissioned McKinsey & Company to conduct a comprehensive study on what would make the Greater Cincinnati region more attractive to startup entrepreneurs and outside investment. The study revealed the region’s strengths and gaps. Cintrifuse was formed to leverage the strengths and fill in the gaps. There are four universities in the region, but there was no path to commercializing technologies being developed”.

He added, “Funding was needed, so they created a fund of funds. They raised $78 of which $57 million went into a syndicate fund. To be part of the syndicate, Venture Capitalists had to commit to take a look at startups and be committed to engage with two to four trips per year to the region to meet with entrepreneurs. The purpose was to create a food chain.”

According to its StartupCincy Resources page, “Cincinnati lays claim to one of the most vibrant startup ecosystems between the coasts.” Home to The Brandery, one of the nation’s Top 10 accelerators; HCDC, the #1 incubator in the State of Ohio; CincyTech, one of the Midwest’s leading seed-stage investors; Queen City Angels, a private, seed-stage venture capital investor ranked #2 in the nation; four universities committed to innovation; and now the country’s only faith-based accelerator – there is a ton of innovation activity in this town!”

The Cintrifuse webpage lists the following accelerators as collaborative partners:

  • ArtWorks CO.STARTERS (formerly SpringBoard) “is a nine-week business development program that helps aspiring and seasoned entrepreneurs examine assumptions and turn business ideas into action.”
  • Bad Girl Ventures “is an educational and micro-finance organization dedicated to inspiring and supporting women entrepreneurs in all the key elements of their business.”
  • The Brandery “is a seed stage startup accelerator ranked as one of the top programs in the United States. It runs a 4-month program in Cincinnati, Ohio, focused on turning your great idea into a successful brand driven startup.”
  • First Batch ”It is a five-month accelerator that is the first business accelerator in the nation to focus on scaling physical product companies using local manufacturing. Cincinnati’s long history as a center for consumer products, branding, and manufacturing make it THE place for growing a business creating and selling tangible goods.”
  • MORTAR was started by three minority community members in the downtown area called “Over the Rhine.” “It is called ‘Mortar’ because people are the mortar between the bricks of the buildings and the founders believe that the neighborhood’s residents have the potential to create booming enterprises – just footsteps from their homes.”
  • Minority Business Accelerator – “its mission is to help accelerate the development of sizable minority business enterprises and to strengthen and expand the regional minority entrepreneurial community. It works with companies under $1 million in revenue to connect them with large companies who want to diversify their supply chain.”
  • Ocean is a faith-based “accelerator for startup growth by focusing on the purpose that drives founders…and their companies.”
  • UpTech “is designed to attract and accelerate entrepreneurs who have the next big idea to make the world a better place. Its mission is to create an informatics industry in Northern Kentucky. It is especially well suited to support entrepreneurs who benefit from our partnership with the NKU College of Informatics.”

It lists the following incubators in the Cincinnati region, which also collaborate with Cintrifuse:

  • bioLOGIC is a life sciences incubator.
  • Hamilton Mill “is a Southwestern Ohio small business incubator for green, clean, water, digital and advanced manufacturing technologies. Conveniently located between Cincinnati and Dayton in the original pioneer town of Hamilton, OH.”
  • Hamilton County Development Center (HCDC) “is a nationally recognized startup incubator in Southwest Ohio that helps entrepreneurs launch successful innovative businesses. It just spun off an accelerator called Pipeline for water product development.”
  • The Northern Kentucky ezone (NKY ezone) – “It works collaboratively with several organizations that provide funding assistance to fast-growth, high-tech companies. Its team will work with you in assembling the necessary information, plans, and presentations to apply for these opportunities.”

Over dinner at Cintrifuse, I met with the heads of three of the accelerators, Matt Anthony and John Spencer with First Batch and JB Woodruff with Uptech. Two entrepreneurs also joined us for dinner, Konrad Billetz, CEO of Frameri, and Paul Powers, CEO of Zoozler LLC and Physna LLC. Frameri makes the world’s first interchangeable prescription frame and lens system. Mr. Billetz was previously part of the Brandery four month accelerator program in 2013. He said, “We got $20,000 as part of the program, and then we did an Indiegogo crowdfunding and got about $100K to get into full production. We were on Shark Tank in 2015, but we turned down the deal we were offered. We found a lens manufacturer in Dallas, TX, but still do some production in-house.

Mr. Powers said, “Physna is a member of Cintrifuse. I started Physna in December 2015, and we are developing software that will lead the revolution in 3D printing. I am also the CEO of Zoozler LLC that is about two years old. Zoozler is a tech development company (including websites, apps, digital marketing and media) and has an initiative for local startups requiring help in tech development.”

I connected with Matt Anthony by phone after I returned from my trip to find out more about First Batch. Mr. Anthony said, “I founded the accelerator in 2013 to overcome the gap between a well made early prototype and being able to make the first batch of product at manufacturing scale. Over the next four years we grew the program to educate and connect entrepreneurs to overcome the additional hurdles to scale, including legal, marketing, distribution, and more. We’re unique nationally in that we’ve focused on utilizing the strength of our local manufacturers, which tied with the heritage in physical consumer products and branding make for a perfect set of resources to grow new physical product companies. We operate out of a 10,000 sq. ft. maker space on the 4th floor of a former brewery, located in the “Over the Rhine” area. The program itself is five months of rigorous learning from regional experts, product testing, development, one-on-one mentorship, and $10,000 in funding to get into actual production. Companies must all come in with a working prototype and an understanding of their business to really get the most of the five short months. Some of our companies have been making their product for years and are looking to expand their production beyond themselves. The goal of the program is to get the companies into the first stage of production and actually selling products in order to set them up for future growth and funding.”

For example, one of their companies, Textile House, used the funding to make a couple hundred garments for their fall fashion line. They already raised an additional round of funding through a Kiva micro loan to bring their spring line to market in early 2017.

 

He added, “We started out with two companies in 2013, four in 2014, five in 2015, and six this year. We started this year in June and our 2016 class just culminated in a Demo Day on November 9th. We try to check in with graduates to continue to ensure growth, and about half of the companies each year choose to stay on as members of the maker space.”

When I asked him to describe how their program works, he said, “After an open application, our companies are selected through a series of interviews that end in a final juried selection. Once the program starts our cohort meets as a group twice a week, and one-on-one at least once, often with speakers, manufacturer visits, branding support, and other individual consultation sprinkled in between. We start the week on Monday mornings reviewing business concepts and readings, ranging from learning more about the types of entrepreneurial personalities via E-Myth, and later how to start prototyping and quickly testing product ideas via Lean Startup and marketing channels via Traction. We are primarily funded through grants and donations of time and materials, and don’t currently take an equity position in our companies. We look to help grow companies by connecting to resources down the line from ECDI, Queen City Angels, Cintrifuse, even other accelerators.”

With so many accelerators and incubator programs to nurture startup companies, Cincinnati is off to a good start to achieve its goal of re-industrializing the Cincinnati region. Other cities in the United States that were formerly major industrial centers would do well to follow the example of Cincinnati in setting a goal of re-industrializing their city to create more higher paying jobs and restore prosperity.

 

Cincinnati Focuses on Re-industrialization to Create Prosperity

Thursday, December 8th, 2016

Last week, I spent two and a half days in Cincinnati, Ohio as the guest of Source Cincinnati, an independent, multi-year national social and media relations initiative that works to enhance perceptions of Cincinnati as a world-class Midwestern region. I met with Julie Calvert, Executive Director, during my visit, but my personal guide and host was Paul Fox, VP of Strategic Initiatives at Proctor & Gamble and “Executive on Loan” to Source Cincinnati for a year.

From Mr. Fox, I learned that Cincinnati is the third largest city in Ohio and had such interesting nicknames as “Porkopolis” in the past because it was the largest pork packing center in the world and the “Queen City of the West,” for its ideal location on the Ohio River and its rich culture and heritage of a predominantly German population who settled Cincinnati in the late 1700s.

After arriving late Tuesday afternoon, Mr. Fox and I had dinner with David Linger of TechSolve, and Scott Broughton, Center Director for Advantage Kentucky Alliance at the WKU Center for R&D at Western Kentucky University in Bowling Green, KY. TechSolve is a 30-year old consulting firm that is a State of Ohio Manufacturing Extension Partner (MEP) affiliate, and Advantage Kentucky Alliance (AKA) is the MEP for Kentucky. Mr. Linger just took over the reins as President and CEO on September 1, 2016 after Gary Conley retired from 20 years of service.

Mr. Linger, said “There are about 2,500 manufacturers in the Ohio region of metropolitan Cincinnati, and Cincinnati used to be known as the “Machine Tool Capital of the U. S.”, but very few machine tool companies exist today, including its most well-known machine tool company, Cincinnati Milacron,” after its machine tool line was sold to Unova. TechSolve provides manufacturing and health care consulting. It has a focus and strength in process improvement, machining, and innovation — applying these skills to help businesses find long-term solutions and promote problem-solving cultures.

Mr. Broughton said, “AKA is a not-for-profit partnership that provides assistance and training to help manufacturers of all sizes grow, improve their manufacturing and business strategies and processes, adopt advanced technologies, increase productivity, reduce costs, and improve competitiveness. Manufacturing in Eastern Kentucky was mainly related to the coal mining industry, and two-thirds of the companies have gone out of business. We have focused on helping the remaining manufacturers to understand their core competencies to market to new industries, such as aviation and automotive. Our services include:  business growth services, continuous improvement services, and workforce solution services.”

On Wednesday morning, we had breakfast with Laura Brunner, President/CEO, and Gail Paul Director of Communication Strategy of the Port of Greater Cincinnati Development Authority. She told me that the Port Authority was established by the City of Cincinnati and Hamilton County in 2001 and is the second largest inland port covering 26 miles from the Indiana/Ohio border. In 2008, the Port Authority was reformed and empowered to take a leadership position in regional economic development. It is a quasi-public agency that operates collaboratively with dozens of economic development, community and corporate partners.

Ms. Brunner presented me with a report prepared for me, titled “Manufacturing in the Greater Cincinnati Region. As background, “The Port Authority leverages its infrastructure strengths and development-related expertise to design and execute complex projects to improve property value, catalyze private investment and promote job creation.”

I was astounded when she told me, “The Cincinnati region has lost 67% of its manufacturing jobs.” The report states, “Manufacturing was a primary component of Cincinnati’s economy until its peak in 1969 when 43 percent of the workforce in Hamilton County was employed in manufacturing jobs. Today, lower-wage service-providing jobs far outnumber manufacturing jobs by about 7:1…From 1969-2015, the number of people employed in manufacturing decreased from 146,000 to 48,000.”

She said that the Port Authority Board of Directors has established a vision to transform Cincinnati to prosperity by 2022 through “repositioning undervalued properties and re-building neighborhoods.” The report she gave me states that the strategies for success are:

  • “Industrial Revitalization – redevelopment of 500 acres of underutilized industrial land along key transportation corridors
  • Neighborhood Revitalization – transform ten communities for lasting impact, including residential properties and commercial business districts
  • Public Finance Innovation – cultivate a nationally-recognized public finance program that supports economic and community development efforts

The projected Return on Investment for these strategies is:

500 industrial acres redeveloped 10 revitalized communities
8,000 new jobs 300 quality homes
$565 million in annual payroll 50 commercial acres with 400K SF
$550 million in capital investment 130 new businesses
$8 million in income taxes Increased property & income taxes
$14 million in real estate taxes Improved lives of residents

In June 2015, the PGCDA Board approved establishment of the industrial and neighborhood strategy, development of internal resources, communication strategy, and the financing and fundraising plan to support the strategies.”

The report states, “The proposed redevelopment of approximately 2,000 acres of industrial land through Hamilton County for Manufacturing uses will have a considerable impact on the Greater Cincinnati Region.”

The first sites for the Redevelopment Pilot program have been selected, and the first funds have been obtained for acquisition of land parcels, demolition/remediation of existing buildings, and site preparation. The first site is assembled and is scheduled to open in 2017.

In the meeting with Ms. Brunner and Paul, I was also provided a “Manufacturing Attractiveness Study” by Deloitte Consulting LLP presented on October 3, 2016 to the Greater Cincinnati Port Development Authority, TechSolve, and Cushman and Wakefield.

The study states, “The current lack of easily developable real estate (cleared, access to utilities, free from environmental concerns, etc.) in the Cincinnati area likely puts the city at a significant disadvantage for attracting manufacturing investments.

The Port Authority’s operations focus on transportation, community revitalization, public finance and real estate development makes it especially well-equipped to evaluate and address opportunities to redevelop and reposition sites formerly occupied by industrial operations.”

The Port Authority seeks “to achieve the following objectives:

  • Analyze the last 5 years of manufacturing deployments in the Ohio Region (Ohio and surrounding states)
  • Understand trends in urban manufacturing through case studies
  • Identify demand-side location factors that drive location decisions in the advanced manufacturing, food and flavoring, and Bio-Health (Life Sciences) industries
  • Understand the strengths/ weaknesses of Cincinnati as business location”

In analyzing the Manufacturing Investments for the Ohio Region from 2011-2016, the study revealed:

States # of Project Announcements Capital Investment Jobs Created
Indiana 350~ ~$13.4 ~37,000
Ohio 271 ~$17.6 ~34,000
Kentucky 230 ~$9.0 ~24,000

“Indiana, Ohio and Kentucky saw the most number of project announcements along with largest amounts of capital investment over the past five years.”

“The majority of the manufacturing investments in Ohio over the past 5 years are spread throughout rural areas within commutable distances of large metropolitan areas (Cincinnati, Dayton, Columbus, Akron and Cleveland.) Based on FDI data, 14 manufacturing projects were announced in Cincinnati within the past 5 years.”

The Deloitte study stated “Advanced manufacturers are highly interested in labor quality and availability as well as minimizing risk related to site development and neighboring use concerns.” The two highest factors are: “Labor Quality and Availability (engineers, technicians and operators) and Real Estate (Site readiness, Capacity and availability of utilities, and Neighboring use/pollution). Labor quality, labor availability and supply chain tend to be the key drivers for food industry in making location decisions.

The study showed that “A 1-hr drive time from downtown Cincinnati allows access to a significant labor force, with over 2.5 million in population.” The manufacturing industry represents 14.34% of the Cincinnati Metro economy. Persons with Associate degrees (20.12%), Bachelor degrees (11.97%), and graduate degrees (8.42%) represent 50.51% of the population, and another 45.71% of workers have a high school diploma (26.08%) or some college (19.63%).

Other advantages are: “When compared to the states surrounding Ohio, Ohio has a relatively low average industrial electricity price;” and “Cincinnati is located right in the heart of the most utilized truck routes in the country and has a relatively low percentage of roads requiring significant maintenance when compared to nearby states…”

The summary findings of the report were:

  • “Cincinnati has an advantage in the presence of industrial engineers, machinist and tool/ die makers, as well as a large supply of lower skilled production workers, giving the area a talent proposition to attract manufacturing deployments
  • However, a key driver of the evaluation process for manufacturing deployments is developable sites… Cincinnati currently lacks suitable real estate options to entice most manufacturing operations
  • Given Cincinnati’s availability in key manufacturing skill sets and low/average cost in several talent segments, an investment program to prepare site options would enhance its ability to attract manufacturing investment.”

Our next meeting was with Kimm Coyner, V. P. Business Development & Project Management of REDI Cincinnati, which was spun out of the Cincinnati Chamber in 2014 with the support of Jobs Ohio. REDI Cincinnati covers 15 counties ? five in Southwest Ohio, seven in northern Kentucky, and three in Southeast Indiana, through which the Ohio River runs in the center.

Ms. Coyner said, “REDI is solely focused on new capital investment and attracting and expanding manufacturing to create good paying jobs. We have 165 public and private members. Our team identifies opportunities to attract businesses to the region by developing relationships with companies and new markets – domestically and across the globe. We provide connections to the resources that take startups to the next level and grow existing businesses. We connect companies to the region’s assets, advantages and business leaders to secure Greater Cincinnati’s place as one of the world’s leading business centers.”

She told us that railroads were the key to industrial development of the region in the 19th Century to provide transportation beyond the river. She said, “While Cincinnati arguably stayed too long in the manufacture of carriages and missed out on being a primary automotive manufacturing center like Detroit, we remain a major tier 1 supplier to that industry with hundreds of manufacturers and a significant talent base. We have five key industry clusters:  Advanced Manufacturing, Information Technology, Food and Flavorings, BioHealth, and Shared Services. Advanced Manufacturing is made up of automotive, aerospace, chemicals and plastics and additive manufacturing/3D printing. Our region is the #1 supply state to Boeing and Airbus. We have nine Fortune 500 companies headquartered in Cincinnati, and four of the nine are manufacturers: AK Steel Holding, Ashland, Kroger and Procter & Gamble.”

I was subsequently emailed a list of the top ten employers, nine of which are manufacturers:

  • Kroger 21,646 employees
  • GE Aviation – 7,800 employees
  • AK Steel Holding Corp. – 2,400 employees
  • United Dairy Farmers – 2,029 employees
  • Ford Motor Co. – 1,650 employees
  • Mubea NA – 1,360 employees
  • Bosch Automotive Steering – 1,300 employees
  • Intelligrated Inc. – 1,100 employees
  • Hillenbrand Inc. – 1,080 employees
  • Milacron LLC – 1,020 employees

She added, “We participated with JobsOhio in a booth at the IMTS show in Chicago and focused on promoting Cincinnati as a site destination to companies from Germany.” She noted that Cincinnati has the second largest Oktoberfest outside of Munich, Germany. I told her that we have a strong German-American club in San Diego that puts on a good Oktoberfest featuring a band they bring from Germany.

It is obvious to me that Cincinnati leaders recognize the important role that manufacturing plays in a local and state economy. I had mentioned to everyone I met that manufacturing is the foundation of the middle class, and if we lose manufacturing, we will lose the middle class. Cincinnati learned this lesson the hard way, but I am confident that their new vision to re-industrialize Cincinnati will create good paying jobs for residents and restore prosperity to the Cincinnati region.

I was honored to be invited to give a presentation on “How to solve the skills shortage and attract the next generation of manufacturing workers” that was based on several articles I have written in the past four years (all are available at www.savingusmanufacturing.com under Workforce Development category). If Cincinnati’s leaders achieve their vision, more skilled workers will be needed. Specific recommendations I made were: (1) start to engage youth in middle school through summer camps, and robot contests (2) provide career technical pathways in high schools and community colleges, plan a Maker Faire, promote establishment of a Maker Place, and become more involved in future Manufacturing Day (www.MFGDAY.com).

These meetings provided so much information that I will devote my next article to my visits to local manufacturers:  GE Ceramic Matrix Composite Laboratory at the GE Aviation plant in Cincinnati, Balluff North America in Florence, KY, and TSS Technologies in West Chester, OH, as well as the Center for Intelligent Maintenance Systems at the University of Cincinnati.

 

Why Should the U. S. Have a Specific Productivity Policy?

Wednesday, July 27th, 2016

This question is answered by  Robert D. Atkinson, President of the Information Technology & Innovation Foundation (ITIF) in Part II of the  report, “Think Like an Enterprise: Why Nations Need Comprehensive Productivity Strategies.” He states, “Rather than think of an economy as a large market with self-interested actors transacting on the basis of price and seeking to maximize productivity, it is more accurate to conceive of an economy as a large, integrated enterprise that requires coordination of activities that individual enterprises will not effectively undertake on their own.”

 

His opinion is contradictory to that of most Anglo-Saxon nation economists, whose policies are based on two major competing doctrines vying for influence: “neoclassical and neo-Keynesian economics, neither of which supports a national productivity policy.” In a nutshell, he states, “the neoclassical economic doctrine is focused on limiting government’s role in the economy, even as neo-Keynesians see the government’s main role as managing the business cycle and supporting a fairer distribution of income.” His definitions were so simple that even non-economists like me could understand them:

Neoclassical ? focuses on the “managing scarce resources in such a way that maximizes the net benefit from their use, and that produces the quantity and mix of goods and services most beneficial to society.”

Neo-Keynesian ? is “grounded in the core belief that demand for goods and services from business investment, government spending, and consumer spending drives growth.”

Atkinson particularly criticizes neoclassical economists because they “do not study how societies create new forms of production, products, and business models to expand productivity; rather, they study markets to see how commodities are exchanged.”

He criticizes neo-Keynesian economic policy prescriptions because they “revolve around increasing government spending to keep the economy at full employment and ensuring economic fairness and redistribution, because…their goal is not productivity growth, it is full employment.”

Atkinson states. “Thus, the first step for any policymaker seeking to maximize the economy’s productivity is to reject the conventional neoclassical and neo-Keynesian economic advice and embrace an alternative economic doctrine grounded in an understanding of the economy as an integrated, complex enterprise.”

He adds, “This approach is grounded in understanding that productivity is less about markets and more about organizations and systems, in particular about how technology is developed and deployed to drive productivity.”

Atkinson concludes, “Few conventional economists bother to “look inside the black box” of actual organizations or industries and crossindustry systems. Yet it is there that the keys to raising productivity and the keys to the right productivity policy will be found.” He comments that “conventional economics is of little help in understanding the sources of productivity growth, much less in providing useful or actionable advice on productivity policy.”

The rest of Part II discusses how “public goods, externalities and other enterprise failures, and system interdependencies for development and adoption of productivity-enhancing tools all mean that markets alone will not maximize productivity.”

Public goods are “a good or service provided without profit to all members of a society—to increase their productivity.” Some examples are transportation infrastructure such as roads, highways, bridges, airports, seaports or the education infrastructure for K–12 and higher education. Atkinson comments,”… though public goods are necessary, they are not sufficient.”

Atkinson comments that rather than maximizing productivity companies “can maximize profits from increasing revenues or reducing costs. Many companies focus less on boosting productivity and more on increasing revenues, either by getting more customers or increasing revenue per customer by selling products or services with higher margins.”

What he does not cover is that the best way for companies to boost productivity is to transform themselves into lean companies through the adoption and implementation of lean principles, tools, and strategies.

In addition, “some industries do not have strong incentives for driving productivity because “productivity increases hurt its implementers…In such industries, workers ‘control the means of Production’ and therefore productivity is a direct threat to their jobs.”

I found his brief discussion on the effect of system interdependencies on productivity interesting in how he shows that there is a relationship between product innovation and “interdependencies that are only observable and actionable at the industry or economy level.” For example, “when Apple developed the iPod, it needed customers with broadband Internet access and it needed music to be available for purchase online. Without either, the iPod would have gone the way of the Newton (an earlier, failed Apple attempt at creating a PDA).”

Market failure can stem “from markets tending to be poor at coordinating action when multiple parties need to act together synergistically and simultaneously. These chicken-or egg challenges must be overcome for productivity-enhancing innovation to occur in many technology platforms…Unless government plays a facilitating role, relying on markets alone can mean significantly delayed implementation.”

Atkinson identifies another challenge:  “Many technology solutions require mutual adoption and coordination for them to be effectively deployed… For example, when automobiles were first developed few paved roads had been built. Only after a certain number of autos were sold was demand strong enough that the government needed to build roads. But initially cars could be driven on dirt roads that horses used, so adoption could grow gradually in the absence of government construction

In Part III, Atkins lays out a comprehensive and actionable agenda for spurring productivity growth, which can be used as a guide to tailor national productivity policy policies. This agenda includes policy recommendations…and the ways in which governments need to organize themselves to advance effective productivity policies.”

He states, “The conventional theory holds that the only thing government can do is to remove barriers and fix policy failures so that firms reacting to price signals can do whatever they may choose to drive productivity. This overly passive framework ignores the complexity and enterprise-like nature of economies, which actually require more strategic productivity policies.” He recommends that an “effective productivity policy needs to go beyond the standard limits to embrace four other key components:”

  1. Incentives, including tax policies, to encourage organizations to adopt more and newer “tools” to drive productivity…In particular, governments should use the tax code to provide incentives for acquisition of new capital equipment
  2. .Policies to spur the advance and take-up of systemic, platform technologies that accelerate productivity across industries. Many of the information technologies central to driving future productivity have chicken-or-egg network effects which mean that adoption will lag unless governments adopt smart, technology-specific policies.
  3. A research and development strategy focused on spurring the development of productivity-enabling technologies, such as robotics…Governments need to focus a much larger share of their R&D budgets on advancing technologies that will reduce the need for labor.
  4. Sectoral productivity policies that reflect the unique differences between industries. In terms of productivity and productivity policy, industries differ in significant ways…Any effective national productivity policy will need to be grounded in analysis-based, sector-based productivity strategies.

Within these four policy components, Atkinson makes some recommendations that are more controversial, such as:

Roll back policies favoring small business – “special benefits to small business and discriminatory policies that place tax and regulatory burdens only on large businesses. He recommends, “To boost productivity, governments should embrace firm-size agnosticism in all policies.” (pages 70-73)

Replace the term informal with the accurate term the illegal economy – “individuals are breaking the law by not registering their businesses and paying taxes. Informality is a drag on productivity growth, not a progressive force.” (pages 73-74)

Set a reasonable set minimum wage indexed to inflation – this helps make it more economical for organizations to substitute capital for labor” and “in some sectors may expedite the adoption of automated equipment and new technology to increase labor productivity.” (page 81)

Atkinson warns, “Countries that protect entrenched, incumbent, or politically favored industries from market-based competition only damage their own country’s productivity and economic growth potential… This limits the ability of firms at the productivity frontier to take market share away from firms with lower productivity.”

Atkinson acknowledges that “The challenge is that few governments have designed their scientific research programs explicitly around advancing technologies to drive productivity. Instead, they follow the advice of neoclassical economists that governments should not pick particular technology areas and should focus on curiosity-directed basic science… if economies are to maximize productivity growth, they need to craft technology research agendas specifically around productivity.”

In fact, Atkinson recommends that “Governments need to focus on identifying and funding many more research and engineering projects that are specifically targeted to developing Technology that can replace human labor.”

He explains, “Productivity policy cannot be fully effective unless it is grounded in a sophisticated understanding that industries differ significantly with regard to their productivity dynamics… Three key factors differentiate industries when it comes to considering productivity policy.” They are

  • Scale ? Industries differ in terms of average firm size.
  • Competition ? Industries differ in the extent to which they face competition.
  • Incentives ? The third factor is intensity of incentives for an industry to increase productivity.

This is why Atkinson recommends that “An effective national productivity policy needs to be based on an analysis of individual industries and when appropriate, broader production systems.”

In his conclusion, Atkinson recommends, “The single most important step governments can take to boost productivity is to make higher productivity the principal goal of economic policy, more important than managing the business cycle, defending liberty, or promoting equality.”

He adds, “National governments should also identify or establish one agency or laboratory whose main mission is to support development and adoption of productivity technology as well as of platform and sectoral productivity strategies. In the United States, this might be the National Institute of Standards and Technology.”

Finally, Atkinson states: “Productivity is the key to improving living standards—so policymakers should ignore conventional economists who say there is little government can do about it and instead make it the principal goal of economic policy.”

Even if you do not agree with all of his premises, recommendations, and conclusions, this is an important report that should be widely read and debated for some time to come.

 

 

This question is answered by  Robert D. Atkinson, President of the Information Technology & Innovation Foundation (ITIF) in Part II of the  report, “Think Like an Enterprise: Why Nations Need Comprehensive Productivity Strategies.” He states, “Rather than think of an economy as a large market with self-interested actors transacting on the basis of price and seeking to maximize productivity, it is more accurate to conceive of an economy as a large, integrated enterprise that requires coordination of activities that individual enterprises will not effectively undertake on their own.”

 

His opinion is contradictory to that of most Anglo-Saxon nation economists, whose policies are based on two major competing doctrines vying for influence: “neoclassical and neo-Keynesian economics, neither of which supports a national productivity policy.” In a nutshell, he states, “the neoclassical economic doctrine is focused on limiting government’s role in the economy, even as neo-Keynesians see the government’s main role as managing the business cycle and supporting a fairer distribution of income.” His definitions were so simple that even non-economists like me could understand them:

 

Neoclassical ? focuses on the “managing scarce resources in such a way that maximizes the net benefit from their use, and that produces the quantity and mix of goods and services most beneficial to society.”

 

Neo-Keynesian ? is “grounded in the core belief that demand for goods and services from business investment, government spending, and consumer spending drives growth.”

 

Atkinson particularly criticizes neoclassical economists because they “do not study how societies create new forms of production, products, and business models to expand productivity; rather, they study markets to see how commodities are exchanged.”

 

He criticizes neo-Keynesian economic policy prescriptions because they “revolve around increasing government spending to keep the economy at full employment and ensuring economic fairness and redistribution, because…their goal is not productivity growth, it is full employment.”

 

Atkinson states. “Thus, the first step for any policymaker seeking to maximize the economy’s productivity is to reject the conventional neoclassical and neo-Keynesian economic advice and embrace an alternative economic doctrine grounded in an understanding of the economy as an integrated, complex enterprise.”

 

He adds, “This approach is grounded in understanding that productivity is less about markets and more about organizations and systems, in particular about how technology is developed and deployed to drive productivity.”

 

Atkinson concludes, “Few conventional economists bother to “look inside the black box” of actual organizations or industries and crossindustry systems. Yet it is there that the keys to raising productivity and the keys to the right productivity policy will be found.” He comments that “conventional economics is of little help in understanding the sources of productivity growth, much less in providing useful or actionable advice on productivity policy.”

 

The rest of Part II discusses how “public goods, externalities and other enterprise failures, and system interdependencies for development and adoption of productivity-enhancing tools all mean that markets alone will not maximize productivity.”

 

Public goods are “a good or service provided without profit to all members of a society—to increase their productivity.” Some examples are transportation infrastructure such as roads, highways, bridges, airports, seaports or the education infrastructure for K–12 and higher education. Atkinson comments,”… though public goods are necessary, they are not sufficient.”

 

Atkinson comments that rather than maximizing productivity companies “can maximize profits from increasing revenues or reducing costs. Many companies focus less on boosting productivity and more on increasing revenues, either by getting more customers or increasing revenue per customer by selling products or services with higher margins.”

 

What he does not cover is that the best way for companies to boost productivity is to transform themselves into lean companies through the adoption and implementation of lean principles, tools, and strategies.

 

In addition, “some industries do not have strong incentives for driving productivity because “productivity increases hurt its implementers…In such industries, workers ‘control the means of

Production’ and therefore productivity is a direct threat to their jobs.”

 

I found his brief discussion on the effect of system interdependencies on productivity interesting in how he shows that there is a relationship between product innovation and “interdependencies that are only observable and actionable at the industry or economy level.” For example, “when Apple developed the iPod, it needed customers with broadband Internet access and it needed music to be available for purchase online. Without either, the iPod would have gone the way of the Newton (an earlier, failed Apple attempt at creating a PDA).”

 

Market failure can stem “from markets tending to be poor at coordinating action when multiple parties need to act together synergistically and simultaneously. These chicken-or egg challenges must be overcome for productivity-enhancing innovation to occur in many technology platforms…Unless government plays a facilitating role, relying on markets alone can mean significantly delayed implementation.”

 

Atkinson identifies another challenge:  “Many technology solutions require mutual adoption and coordination for them to be effectively deployed… For example, when automobiles were first developed few paved roads had been built. Only after a certain number of autos were sold was demand strong enough that the government needed to build roads. But initially cars could be driven on dirt roads that horses used, so adoption could grow gradually in the absence of government construction

 

In Part III, Atkins lays out a comprehensive and actionable agenda for spurring productivity growth, which can be used as a guide to tailor national productivity policy policies. This agenda includes policy recommendations…and the ways in which governments need to organize themselves to advance effective productivity policies.”

 

He states, “The conventional theory holds that the only thing government can do is to remove barriers and fix policy failures so that firms reacting to price signals can do whatever they may choose to drive productivity. This overly passive framework ignores the complexity and enterprise-like nature of economies, which actually require more strategic productivity policies.” He recommends that an “effective productivity policy needs to go beyond the standard limits to embrace four other key components:”

 

  1. Incentives, including tax policies, to encourage organizations to adopt more and newer “tools” to drive productivity…In particular, governments should use the tax code to provide incentives for acquisition of new capital equipment.

 

  1. Policies to spur the advance and take-up of systemic, platform technologies that accelerate productivity across industries. Many of the information technologies central to driving future productivity have chicken-or-egg network effects which mean that adoption will lag unless governments adopt smart, technology-specific policies.

 

  1. A research and development strategy focused on spurring the development of productivity-enabling technologies, such as robotics…Governments need to focus a much larger share of their R&D budgets on advancing technologies that will reduce the need for labor.

 

  1. Sectoral productivity policies that reflect the unique differences between industries. In terms of productivity and productivity policy, industries differ in significant ways…Any effective national productivity policy will need to be grounded in analysis-based, sector-based productivity strategies.

 

Within these four policy components, Atkinson makes some recommendations that are more controversial, such as:

 

Roll back policies favoring small business – “special benefits to small business and discriminatory policies that place tax and regulatory burdens only on large businesses. He recommends, “To boost productivity, governments should embrace firm-size agnosticism in all policies.” (pages 70-73)

 

Replace the term informal with the accurate term the illegal economy – “individuals are breaking the law by not registering their businesses and paying taxes. Informality is a drag on productivity growth, not a progressive force.” (pages 73-74)

 

Set a reasonable set minimum wage indexed to inflation – this helps make it more economical for organizations to substitute capital for labor” and “in some sectors may expedite the adoption of automated equipment and new technology to increase labor productivity.” (page 81)

 

Atkinson warns, “Countries that protect entrenched, incumbent, or politically favored industries from market-based competition only damage their own country’s productivity and economic growth potential… This limits the ability of firms at the productivity frontier to take market share away from firms with lower productivity.”

 

Atkinson acknowledges that “The challenge is that few governments have designed their scientific research programs explicitly around advancing technologies to drive productivity. Instead, they follow the advice of neoclassical economists that governments should not pick particular technology

areas and should focus on curiosity-directed basic science… if economies are to maximize productivity growth, they need to craft technology research agendas specifically around productivity.”

 

In fact, Atkinson recommends that “Governments need to focus on identifying and funding many more research and engineering projects that are specifically targeted to developing Technology that can replace human labor.”

 

He explains, “Productivity policy cannot be fully effective unless it is grounded in a sophisticated understanding that industries differ significantly with regard to their productivity dynamics… Three key factors differentiate industries when it comes to considering productivity policy.” They are

 

  • Scale ? Industries differ in terms of average firm size.
  • Competition ? Industries differ in the extent to which they face competition.
  • Incentives ? The third factor is intensity of incentives for an industry to increase productivity.

 

This is why Atkinson recommends that “An effective national productivity policy needs to be based on an analysis of individual industries and when appropriate, broader production systems.”

 

In his conclusion, Atkinson recommends, “The single most important step governments can take to boost productivity is to make higher productivity the principal goal of economic policy, more important than managing the business cycle, defending liberty, or promoting equality.”

 

He adds, “National governments should also identify or establish one agency or laboratory whose main mission is to support development and adoption of productivity technology as well as of platform and sectoral productivity strategies. In the United States, this might be the National Institute of Standards and Technology.”

 

Finally, Atkinson states: “Productivity is the key to improving living standards—so policymakers should ignore conventional economists who say there is little government can do about it and instead make it the principal goal of economic policy.”

 

Even if you do not agree with all of his premises, recommendations, and conclusions, this is an important report that should be widely read and debated for some time to come.

 

 

USITC Report Reveals TPP Will Shrink U. S. Manufacturing

Wednesday, June 1st, 2016

On May 18, 2016, the U.S. International Trade Commission (USITC) released their report, “Trans-Pacific Partnership Agreement: Likely Impact on the U.S. Economy and on Specific Industry Sectors,” relative to the Agreement that President Obama signed in February with Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam.

The USITC analysis concedes that the TPP will cause manufacturing to shrink in terms of employment, output and share of the US economy. Our manufacturing trade deficit will become worse.

Reaction to the USITC report has been mixed at best. “The U.S. Chamber Executive Vice President and Head of International Affairs Myron Brilliant welcomed the release of the U.S. International Trade Commission (ITC) report on the likely impact of the Trans-Pacific Partnership (TPP) on the U.S. economy with the following statement:

“While we have yet to fully digest the ITC’s assessment, the report at first glance provides substantive support for the Chamber’s view that the TPP is in our national economic interest. By eliminating thousands of tariffs and other barriers to the export of U.S.-made goods and services, the TPP will create new opportunities for American workers, farmers, ranchers, innovators, and companies.”

On the other side of the spectrum, AFL-CIO President Richard Trumka issued a statement, which in part said, “This ITC report is so damaging that any reasonable observer would have to wonder why the administration or Congress would spend even one more day trying to turn this disastrous proposal into a reality. Even though it’s based on unrealistic assumptions, the report could not even produce a positive result for U.S. manufacturing and U.S. workers. One of many shockers is just how meager the purported benefits of the TPP are. A mere .15% of GDP growth over 15 years is laughably small…”

The Politico Morning Trade blog of Friday, May 20, 2016 included this rebuttal:” FROMAN FIRES BACK: U.S. Trade Representative Michael Froman continued his effort to capitalize on the ITC report. Speaking to business owners by telephone Thursday, the top U.S. trade official pointed out that the independent commission “conservatively” estimated the TPP would boost both U.S. exports and national income by $57 billion by 2032 – gains that would continue annually.

“This was really the president’s direction, to make sure we’re doing trade right,” Froman said. “And that meant making sure the trade agreement worked for American workers, and we think we’ve achieved that in this agreement…Froman said the study focused heavily on tariffs and didn’t project the economic benefits of other major parts of the agreement, including rules on state-owned enterprises, labor and the environment.”

Coalition for a Prosperous America CEO Michael Stumo participated on a “listen only” basis during the business group conference call on May 20, 2016. Afterward, he commented on his blog, “Despite the fact that the report nullified Froman’s entire economic case for the TPP, you would never know it from his talk. Froman created a parallel universe which was enabled by the Business Forward group sponsoring the call.”

Let us consider some of the highlights discussed in the 792-page report. The Executive Summary that the USITC “used a dynamic computable general equilibrium model to determine the impact of TPP relative to a baseline projection that does not include TPP….The model estimated that TPP would have positive effects, albeit small as a percentage of the overall size of the U.S. economy” by year 15 [2032].” The main findings were:

  • S. annual real income would be $57.3 billion (0.23 percent) higher than the baseline projections (which statistically means zero growth).
  • Real GDP would be $42.7 billion (0.15 percent) higher (again, statistically zero).
  • Employment would be 0.07 percent higher (128,000 full-time equivalents).
  • S. exports and U.S. imports would be $27.2 billion (1.0 percent) and $48.9 billion (1.1 percent) higher, respectively, relative to baseline projections.
  • S. exports to new FTA partners would grow by $34.6 billion (18.7 percent).
  • S. imports from those countries would grow by $23.4 billion (10.4 percent).
  • Output in manufacturing, natural resources, and energy would be $10.8 billion (0.1 percent) lower with the TPP than without the agreement.

Do you notice that the first four projections are less than 1 percent? Our economy has been limping along at only 1.5 percent growth in GDP, which is considered terrible. Yet, the TPP is only estimated to increase GDP by 0.15 percent in 15 years, or 0.01 percent each year. How could anyone be excited about this level of growth? For the first time, the USITC projected a worsening trade deficit with the world, which nullifies any meager net export benefit with new TPP countries. Page 21 admits that the overall U. S. trade deficit will worsen by $21.7B.

The Coalition for a Prosperous America released a flyer, “USITC Report: No Economic Upside to Trans-Pacific Partnership – Manufacturing Decline and Worsened Trade Performance” that states, “TPP Will Only Create 128,000 Jobs in 15 Years. That’s less than the 160,000 jobs created in April 2016…The US International Trade Commission projects increased national income less than one quarter of one percent [0.23%] – well within the margin of error and a statically meaningless growth over 15 years.”

The flyer points out that “the report is still too optimistic because it makes these false assumptions:

  • TPP countries will not manipulate currency
  • Job losers will immediately gain new jobs with no transition costs
  • TPP countries will stop all mercantilistic state-capitalism strategies”

Returning to the rosy projections, the USITC report states, “Among broad sectors of the U.S. economy, agriculture and food would see the greatest percentage gain relative to the baseline projections: Output would be $10.0 billion, or 0.5 percent, higher by year 15.” That is about equal to just one-year’s worth of sorghum production!

The Executive Summary states that the services sector represents the largest share of the U.S. economy, and it would expand the most:

  • “U.S. imports of services would be 1.2 percent higher
  • S. exports of services would be 0.6 percent higher
  • Services sector would have a gain of $42.3 billion (0.1 percent) in output
  • Employment would be 0.1 percent higher.”

If the service sector is supposed to expand the most and it is only 0.1 percent, why does page 34 state that the Services trade balance will worsen by $2.2B? This doesn’t sound good to me, especially when all of the projected benefits of past agreements were proved to be way too optimistic.

Chapter 4 discusses the impact on Manufactured Goods and Natural Resource and Energy Products. The Introduction states, “The TPP Agreement is likely to have a limited impact on U.S. production and trade of manufactured goods and natural resource and energy (MNRE) products. The U.S. manufacturing sector is already more liberalized than other sectors, such as agriculture and services, and duties are generally low.” This means that because duties are already low, the TPP will be less beneficial to the manufacturing sector.

Even with the “most optimistic possible” scenario for its projections, you noticed above that “Output in manufacturing, natural resources, and energy would be $10.8 billion (0.1 percent) lower with the TPP than without the agreement.”

This means that U.S. manufacturing will decline, and the manufacturing trade deficit will worsen by $24B (pages 30-31). Manufacturing employment will decrease by 0.2% (0.2% is 240,000 workers based on 12M mfg employment in 2013). Obviously, the 128,000 jobs the TPP is supposed to create in 15 years will not be the higher paying manufacturing jobs.

Chapter 4 also “examines in more depth five sectors for which there will be significant U.S. trade liberalization with the full implementation of TPP: (1) passenger vehicles; (2) textiles and apparel; (3) footwear; (4) chemicals; and (5) titanium metal.”

Passenger Vehicles: Buried in 40 pages of discussion, the report states that “Overall U.S. passenger vehicle exports would increase by more than 2 percent ($2.9 billion), and parts exports would increase by 1.5 percent ($2.1 billion) by year 30, relative to the baseline estimate.” However, ” (page 232)

“U. S. passenger vehicle imports would increase by $4.3 billion above the baseline upon full implementation of the agreement (table 4.15). Imports from Japan would increase by $1.6 billion, and imports from NAFTA partners would increase by $1.8 billion, making up the majority of the increase. Parts imports would increase by $4.5 billion, with imports from NAFTA partners increasing by $5.5 billion.” (page 249)

Textiles: “TPP would result in a 1.4 percent ($1.9 billion) increase in U.S. imports of apparel over the 2032 baseline (i.e., expected level of imports in 2032 without TPP), and a 0.3 percent ($10 million) increase in U.S. exports.” (page 254)

Footwear: “…U.S. imports from all TPP countries would rise by $1.6 billion (23.4 percent). Most of this increase would be accounted for by imports of footwear from Vietnam, the second-largest supplier overall and the biggest TPP supplier of footwear to the U.S. market.” (pages 272-273)

Chemicals: “…U.S. exports of chemical products, including pharmaceuticals, would be $1.9 billion (0.7 percent) higher than 2032 baseline estimates and U.S. imports would be $5.3 billion (1.3 percent) higher than the baseline, due in part to tariff reductions.” (page 284)

Titanium: The most significant detrimental effect of the TPP would be on the Titanium industry. The report states, ” U.S. titanium metal641 imports from TPP members, according to Commission estimates, would likely increase by $202.1 million (109.7 percent) as compared to the 2032 baseline. U.S. output would decrease by $202.4 million (1.2 percent) and employment would similarly decline by 1.3 percent, as compared to the 2032 baseline. Japan is the principal source of U.S. titanium imports,642 despite a 15 percent U.S. import duty on both unwrought titanium (i.e., titanium sponge, ingot, billet, and powders) and wrought titanium (e.g., bars, sheets, and tubes) (box 4.12), and would benefit the most from the removal of duties. U.S. exports of titanium would be slightly lower—other TPP members already apply low or zero duties on imports of these products.” (pages 292-293)

Since all other above industry sectors would be adversely affected by the TPP), it strengthens my opposition to it being approved by Congress. If you work in the manufacturing industry, I strongly recommend that you contact your Congressional Representative and urge them to oppose approval of the TPP. We don’t need a further decline of U. S. manufacturing and more loss of manufacturing jobs!

Reshoring has Become an Economic Development Strategy

Tuesday, May 24th, 2016

As a result of my writing and speaking about returning manufacturing to America through reshoring, I recently received information from the International Economic Development Council (IEDC) inviting me to educate my audience on the findings of their research and the tools and resources available when manufacturers are considering reshoring.

The IEDC is a non-profit membership organization serving economic developers with more than 4,700 members. Their mission as economic developers is to “promote economic well-being and quality of life for their communities, by creating, retaining and expanding jobs that facilitate growth, enhance wealth and provide a stable tax base.”

Last year, the IEDC received a grant from the U.S. Economic Development Administration to “examine current reshoring practices and create materials to spread awareness of reshoring trends, tools and resources that are available to ease the process.” For the past 16 months, IEDC has conducted research on why companies are choosing to reshore and what resources are available to assist American companies that are considering reshoring. In the past year, IEDC has provided educational training sessions with reshoring experts, such as Harry Moser of the Reshoring Initiative, for economic developers.

IDEC also created the Reshoring American Jobs webpage, a project funded by the U.S. Economic Development Administration (EDA). “It is the go-to place to learn about and find resources to support activities encouraging reshoring in communities. Economic developers will find the latest news, case studies, and in-depth research on reshoring activity to help them stay in-the-know on reshoring trends information.” The micro site is divided into three sections:

Understanding Reshoring” discusses the critical role reshoring plays in strengthening the economy, identifies challenges to reshoring, and highlights lessons learned from communities that have worked with reshored companies.”

  • Defining the Reshoring Discussion” White Paper
  • National Assessment of Reshoring Activities
  • Webinars: Defining the Reshoring Discussion, Reshoring Tools….They’re Out There
  • Tools for Reshoring “provides resources and best practices in reshoring American jobs to aid economic developers in assisting reshoring companies.”
  • Reshoring in the Media “tracks the latest discussions on trends covered by popular and trade media. The content will help demystify the reshoring movement and serves as a practical reference for economic development professionals.”

In March 2016, IEDC published a 30-page white paper on “Defining the Reshoring Discussion,” in which the introduction and historical perspective states, “…as foreign countries strengthened their manufacturing competitiveness over the years, American manufacturers struggled to maintain their cost and productivity advantages on a global scale. Some American manufacturers adjusted to foreign competition by shifting their focus to complex, high-value products and industries—and increasing manufacturing investment, output, and employment. Others either closed U.S.-based factories or sought cost savings by offshoring some, or all, of their operations to less expensive foreign locations. Shortly after China joined the World Trade Organization at the end of 2001, a large exodus of U.S. manufacturers occurred.”

Now, however, supply chain dynamics have changed, and the report states, “…the cost savings that American firms had enjoyed began to erode around the year 2010. Changing macro-economic factors, such as labor and transportation cost increases, absorbed much of the savings from which manufacturers had previously benefited. Also, after experiencing offshoring firsthand, many companies found that hidden costs often outweighed the cost benefits of manufacturing overseas. Some of these hidden costs that were not always considered include factors such as increased costs of monitoring and quality control, uncertain protection of intellectual property, and lengthy supply chains.”

While the white paper presents a broad overview of the discussion of reshoring, some common themes emerged from their review of resources:

  • “The decision to reshore is often described as a response by business to both macroeconomic and internal business-related factors.
  • The term reshoring is used to describe a range of activities that occur in numerous industries, not just manufacturing.
  • A company’s decision to reshore can be encouraged through the creation of favorable business conditions, a skilled workforce, and incentives that encourage innovative manufacturing practices.
  • Reshored jobs will likely be different from the jobs that existed before offshoring gained momentum or jobs that currently exist offshore.”

The reason economic development agencies have become interested in reshoring is that “The impacts of reshoring extend beyond individual companies and provide benefits for entire regions as the effects multiply through local economies.”

From an economic development viewpoint, “it is important to understand that reshoring is fundamentally a location decision. In this sense, a company’s decision to stay in the U.S. or relocate will be based on its total operation costs in a given location.”

The white paper highlights some of the findings of the data from 25 national economies research studied by the Boston Consulting Group (BCG) from 2004 to 2014. The BCG study

found that the following factors significantly impact manufacturing location decisions:

  • Increased wages – “China’s wages rose 15 to 20 percent per year at the average Chinese factory”
  • Fluctuating currency value – “when compared against the U.S. dollar, the Chinese yuan increased in value by 35 percent
  • “Labor productivity, which is measured as the gains in output per manufacturing Worker”
  • “Reduction of energy costs from 2004 to 2014, especially in energy-dependent industries such as iron and steel and chemicals industries”

Naturally, the white paper mentions the work of Harry Moser, founder of the Reshoring Initiative, in developing the Total Cost of Ownership Estimator™ in an effort “to help decision-makers estimate total costs of outsourced parts or products by aggregating, then quantifying all cost and risk factors into a single cost.”

The paper then discusses the different definitions of reshoring from a popular understanding to a more academic definition. The most common definition is “the return of Manufacturing to the U.S.” From an economic development perspective, the following definition may be more appropriate: “a manufacturing location decision that is a change in policy from a previous decision to locate manufacturing offshore from the firm’s home location.” (Ken Cottrill in his article titled “Reshoring: New Day, False Dawn, or Something Else.”) Cottrill divides reshoring into four categories:

In-house reshoring refers to the relocation of manufacturing activities, which were being performed in facilities owned abroad, back to facilities in the U.S.”

Relocating in-house manufacturing activities, which were being performed in facilities abroad, back to U.S.-based suppliers, is labeled “reshoring for outsourcing.”

Outsourced reshoring describes the process of relocating manufacturing activities from offshore suppliers back to U.S.-based suppliers.

Reshoring for Insourcing is “when a company relocates manufacturing activities being outsourced to offshore suppliers back to its U.S.-based facilities, it is considered reshoring for insourcing.”

The authors comment that reshoring applies to industries other than manufacturing, such as the information technology (IT) sector, stating that ”challenges such as time zone differences, identity theft, privacy concerns, and issues with utility infrastructure abroad led more companies to return their IT operations to the U.S.”

The white paper contains several pages describing what is currently being done to encourage reshoring by government programs such as the Make It in America Challenge and National Network for Manufacturing Innovation (NNMI), which are too lengthy to discuss in this short article. However, I do want to describe the following tools that can be useful to economic development professionals as well as companies in the reshoring process:

Assess Costs Everywhere (ACE) Tool: This U.S. Department of Commerce tool was developed within the Economics and Statistics Administration, in partnership with the NIST-MEP, and with support from various agencies within the U.S. Department of Commerce, the United States Patent and Trademark Office, and SelectUSA. “The tool provides a framework for manufacturers to assess total costs by identifying and discussing 10 cost and risk factors. These include: labor wage fluctuations; travel and oversight; shipping time; product quality; inputs such as energy costs; intellectual property protection; regulatory compliance; political and security risks; and trade financing costs.” ACE also provides case studies and links to public and private resources.

National Excess Manufacturing Capacity Catalog (NEXCAP): This resource was developed by the University of Michigan and “provides a catalog of vacant manufacturing facilities as well as critical data on skilled workforce supply, community assets, and other information pertinent to location decisionmaking.” It was funded by the Economic Development Administration.

U.S. Cluster Mapping Project: This is another project funded by the EDA and led by Harvard Business School’s Institute for Strategy and Competitiveness by “conducting research and publishing data records on industry clusters and regional business environments in the United States…[allows] users to share and discuss best practices in economic development, policy and innovation.”

The paper discusses the importance of “industrial commons,” a term coined by Harvard Business School’s Gary P. Pisano and Willy C. Shih in 2009,which refers” to a foundation of knowledge and capabilities that is shared within an industry sector in a particular geographic area. This includes technical, design, and operational capabilities as well as “R&D know-how, advanced process development and engineering skills, and manufacturing competencies related to a specific technology.”

Next, it discusses the impact of innovation and one point particularly worth noting is: “Manufacturing outputs have more than doubled since 1972, in constant dollars, even with a 33 percent reduction in employment…Improved output and efficiency is largely attributed to technological advancements that increase productivity and decrease labor-intensive activities. As gaps between wages in developed and developing economies continue to shrink, U.S. manufacturers will need to focus on innovation, using technology to improve productivity and reserving labor for value-added activities.”

In the section considering the need for more workforce development and what could be done in the future to encourage reshoring, “Mark Muro, Senior Fellow and Director of the Metropolitan Policy Program at the Brookings Institution, argues that offering incentives focused solely on manufacturing reshoring is not enough… the focus should be on building the vibrancy of the critical advanced manufacturing industry sector. Muro argues that the U.S. must strengthen the depth of the nation’s regional advanced industry ecosystems…he calls for governments, companies, and individuals to work collectively to rebuild the nation’s local skills pools, industrial innovation capacity, and supply chains.”

While no in-depth studies have been conducted on the potential effect of reshoring on creating jobs, the paper provides the following chart showing estimates under various scenarios (recreated):

Scenario Description Source Jobs Reshored Cumulative Total Jobs
Using TCI analysis Reshoring Initiative 500,000 1,000,000
If Chinese Wage Trends continue at 18%/year Boston Consulting Group 1,000,000 2,000,000
Adoption of better U. S. training, increased process improvements & competitive tax rates Federal Government’s Advanced Manufacturing Partnership 2,000,000 4,000,000
End of foreign currency manipulation Almost all manufacturing groups 3,000,000 6,000,000
Cumulative Total jobs is based on a two support jobs created for every manufacturing job reshored

The paper states, “The brightest reshoring prospects involve those that can profit from the current manufacturing environment. This would include manufacturers that depend on natural gas, require minimal labor, and need flexibility in production to meet changing customer needs.”

The authors’ conclusion in the paper echoes a conclusion in the second edition my book published in 2012:   They conclude that “there are opportunities for various levels of government, the private sector, and partnerships between the two to create an environment to support the manufacturers who can reshore.” Let’s not waste another four years coming to the same conclusion.

 

Mixed Messages at San Diego’s Economic Outlook Events

Tuesday, February 9th, 2016

Economists and industry experts presented conflicting outlooks at the three of the Economic Outlook events held in San Diego this month. I attended two of the three ? the 32nd Annual San Diego County Economic Roundtable and the San Diego 2016 Economic Outlook by the National University Institute for Policy Research ? and read about the third, the San Diego Business Journal (SDBJ) Economic Trends event.

The SDBJ event focused on the areas of expertise of industry panelists in banking, health care, insurance, commercial real estate, tax, and employment, which is why I did not attend this event. If you are involved in these industries, then you were happy to hear that these experts forecast a healthy year for San Diego with the U. S. economy growing about 2.5%. Home prices have increased, consumer spending is growing, wages are increasing, and commercial real estate vacancy rates are below the 10-year average.

The other two events paid more attention to the manufacturing sector in which I am involved. Marney Cox, Chief Economist for the San Diego Association of Governments (SANDAG) participated in both events, and he and Kelly Cunningham, Chief Economist at the National University Institute of Policy Research (NUPR) were more cautious, forecasting a more modest 1.9% growth in the region, 2.1% in California as a whole and only 1.8% growth in the U. S.

Kelly Cunningham stated that it took us 74 months after the last recession to get back to the job level we had in 2007, which was two to three times as long as the recessions of 1980-81, 1990-91, and 2000-2001. The average GDP growth after these three previous recessions was 4-5% annual growth, but the U. S. GDP has grown an average of only 2% since the Great Recession. At the SDWP event, Marney Cox opined that the regional GDP growth should be >3%.

San Diego is adding jobs faster than the rest of California, and he forecast that the San Diego unemployment rate would remain at the low of 4.8% reached in December 2015 compared to 5.8% for California. He emphasized that this is the commonly used U3 rate of employment, not the U6 rate that includes part-time and discouraged workers. The U6 rate is about double the U3 rate, and was 9.8% in December 2015. However, the U3 rate doesn’t include people who have dropped out of the labor force. At the SDWP event, Marney Cox stated that 698,000 people had dropped out of the labor force in San Diego since 2005.

What concerns me is that manufacturing is only 9.5% of the regional GDP (based on 2014 data), up from the low of 7.6% of GDP in 2008. This is still considerably down from the high of 30.1% in 1980. It had slipped to 24.8% by the end of 1999, but that is less than a 6% loss in 19 years, whereas we have now dropped another 15.3% in 15 years. Also, San Diego’s GDP dropped from 7th in 1999 to 17th in ranking of the top 35 metropolitan areas in the U. S.

According to NUPR report, San Diego has “added 7,000 manufacturing jobs back as 2015 ended. Half of the new manufacturing jobs are in non-durable goods, one-quarter in aerospace, and the rest among other durable goods production, including shipbuilding and recreational goods…” However, this is about 5% or 6,000 fewer jobs than we had in 2007 (102,400) and more than 26,000 fewer jobs in manufacturing than we had in 1999 (128,300).

Since you have to make it, grow it, or mine it to generate tangible wealth, it is questionable whether or not San Diego can even maintain its level of prosperity in the future. Agriculture did not even show up on the pie chart of GDP for San Diego, and natural resources only represented .5% of the GDP. Thus, it is critical that San Diego maintain a strong manufacturing base. Manufacturing jobs create 3-4 other support jobs, while service jobs only create 1-2 other jobs.

Construction dropped from 3.8% of the region GDP in 2008 to only 3.3% at the end of 2014, but there has been very little recovery in the number of construction jobs as the number of jobs is still down by 12% from what the number was in December 2007. The NUPR report stated, “In 2016 we do not foresee a significant increase of this part of the economy, in part because of the

relatively small number of housing permits approved in the County. Absent a fundamental change of that figure, this part of the economy will continue to struggle.”

Since manufacturing and construction represent good paying jobs for the middle class, this explains why middle wage jobs are decreasing. The NUPR report released at their event defines “middle wage jobs as those paying between $35,000 and $77,000 per year in 2014 dollars” and states that “in 2001 middle wage jobs accounted for 56.6 percent of all payroll wage jobs…the ratio continued to shrink, standing at 49.5 percent as of 2014.”

Essentially in San Diego, we are creating six times more low paying jobs than high paying jobs and double the number of low paying jobs than middle wage jobs. Higher wage jobs “increased from 21.2 percent in 2001 to 26.2 percent by 2014,” and lower wage jobs “increased from 22.3 percent in 2001 to 24.3 percent as of 2014.”

This trend is nothing new. I remember Marney Cox expressing concern over the shrinking number of middle wage jobs at economic roundtables I attended in the mid 1990s.

Another trend Marney Cox mentioned is that the percentage of workers age 55+ has increased from 25% of the workforce to 35.1%, and there has not been a recovery in employment for those ages 25-54. Since these years are supposed to be the “golden years” of making money in a career, this does not bode well for the future for this age bracket. My own son and daughter are in this age bracket, and my son has had to work as an independent contractor since early 2010 without being able to find a permanent, full-time job in an occupation related to construction. Neither of my children has been able to afford to buy a house because with rents as high as they are, they can never save enough money for a down payment. Their dad and I were able to buy our first house in our mid 20s when houses cost about 3-4 times a median annual salary, but now they cost 9-10 times an annual median salary.

As I have mentioned in past articles, San Diego has been an innovation hub of advanced technology for the past 30 years, and we now have many startup companies at various stages of development in the more than 45 different accelerator/incubator programs in the region. This is why I was very concerned when Marney Cox stated that venture funding being invested in San Diego companies has greatly diminished. Last year, venture fund investment was <$One Billion and represented only 2% of national investment compared to 4-5% previously.

If this trend continues, it would have far-reaching effects. San Diego’s diverse industry clusters derived from technology-focused R & D have always helped the region perform slightly better than the rest of the country. However, if early stage companies cannot get venture funding beyond the Angel investor stage, it will be more difficult for them to ramp up into the full production stage where the majority of job expansion occurs. As a mentor for startup technology-based companies for the San Diego Inventors Forum and the CONNECT Springboard program, I am witnessing the increasing difficulty entrepreneurs are experiencing in getting investment funds. Crowdfunding is helping more companies get off the ground, but they will not be able to succeed in the long run and scale up to full production without significant Angel and venture funding.

San Diego’s economy cannot depend on military/defense spending and tourism for growth in regional GDP. Tightening defense/military budgets because of sequestration have been a drag on the San Diego regional GDP growth for the past three years, and the slight increase in defense spending in the current fiscal year budget will not make much of a difference.

These considerations are why I think that the conclusion reached in the NUPR report is valid: “World and national headwinds suggest battening down the hatches with a prognosis for tightening economic conditions…San Diego will be fortunate to achieve a seventh year of continuous positive economic momentum in 2016. These indicators of economic activity, however, do not portend an acceleration, but rather uneasy movement going forward.”

Based on the economic indicators I am seeing for the national manufacturing industry, I would say that these words of caution should also be applied nationally.

Is Reshoring Increasing or Declining?

Thursday, January 21st, 2016

In December, two conflicting reports were released, one by A.T. Kearney and one by the Boston Consulting Group. The A. T. Kearney report states that reshoring may be “over before it began”, and the Boston Consulting Group report states that it is increasing. Why the difference in opinion and who is right?

This was the second report by A. T. Kearney, in which their “U.S. Reshoring Index shows that, for the fourth consecutive year, reshoring of manufacturing activities to the United States has once again failed to keep up with offshoring. This time the index has dropped to –115, down from –30 in 2014, and it represents the largest year-over-year decrease in the past 10 years.”

In fact they conclude that “the rate of reshoring actually lagged that of offshoring between 2009 and 2013, as the growth of overall domestic U.S. manufacturing activity failed to keep pace with the import of offshore manufactured goods over the five-year period. The one exception was 2011.”

The authors of the A. T. Kearney report identify the two main factors contributing to the drop in the reshoring index to be “lackluster domestic manufacturing growth and the resilience of the offshore manufacturing sector.”

With regard to the lackluster domestic manufacturing, the report states that data from the U. S. Bureau of Economic Analysis predicted that U. S. manufacturing gross output would shrink by 3.6% through the end of 2015 based on data through November [December data not available.]

On the other hand, the Boston Consulting Group survey results showed that “Thirty-one percent of respondents to BCG’s fourth annual survey of senior U.S.-based manufacturing executives at companies with at least $1 billion in annual revenues said that their companies are most likely to add production capacity in the U.S. within five years for goods sold in the U.S., while 20% said they are most likely to add capacity in China…The share of executives saying that their companies are actively reshoring production increased by 9% since 2014 and by about 250% since 2012. This suggests that companies that were considering reshoring in the past three years are now taking action. By a two-to-one margin, executives said they believe that reshoring will help create U.S. jobs at their companies rather than lead to a net loss of jobs.”

The difference of opinion is based on different data. A. T. Kearney notes that “The manufacturing import ratio is calculated by dividing manufactured goods imports from 14 Asian markets [list of countries] by U. S. domestic gross output of manufactured goods. The U. S. reshoring index is the year-over-year change in the manufacturing ratio.”

In contrast, the Boston Consulting Group data is based on “an annual online survey of senior-level, U.S.-based manufacturing executives. This year’s survey elicited 263 responses. The responses were limited to one per company…Respondents are decision makers in companies with more than $1 billion in annual revenues, across a wide range of industries.”

“These findings underscore how significantly U.S. attitudes toward manufacturing in America seem to have swung in just a few years,” said Harold L. Sirkin, a BCG senior partner and a coauthor of the research, which is part of BCG’s ongoing series on the shifting economics of global manufacturing, launched in 2011. “The results offer the latest evidence that a revival of American manufacturing is underway.”

The BCG survey identified such factors “as logistics, inventory costs, ease of doing business, and the risks of operating extended supply chains” are driving decisions to bring manufacturing back to the U.S. The primary reason for 76% of respondents reshoring production of goods to be sold in the U.S. was to “shorten our supply chain…while 70% cited reduced shipping costs and 64% said “to be closer to customers.”

The reasons cited by the BCG survey are consistent with the case studies that the Reshoring Initiative has captured, but the reshoring trend over the last few years has also been driven by a range of factors including rising offshore labor rates, especially in China, as well as the increased use of Total Cost of Ownership analysis to quantify the hidden costs of doing business offshore. The threat of Intellectual Property theft, cost of inventory (space to store and cost to buy larger size lots to get the “China price,) and quality/warranty/rework are also cited frequently. Longer delivery, cost and time of travel to visit offshore vendors, transportation costs, and communication problems also influence the decision to reshore.

About 60% of companies ignore these hidden costs and only look at wage rate, quoted piece price or at best, landed cost. Because of inaccurate data, many companies make the decision to offshore on the basis of faulty assumptions. The reality is that many companies are saving less than they expected, and in some cases, the hidden costs exceed the anticipated cost savings.

As an authorized speaker for Harry Moser’s Reshoring Initiative for the past five years, I have been conducting my own informal surveys of manufacturers that I meet at trade shows and conferences. Most of these companies are Tier 2 or 3 suppliers of assemblies, sub-assemblies and component parts. Each year, more and more companies have told me that they are benefitting from reshoring.

At the trade shows I attended last year and conducted my informal survey, I didn’t meet a single company that hadn’t gotten new business or recaptured an old customer because of reshoring. I believe that there is a great deal more reshoring going on than A. T. Kearney or even the Boston Consulting Group can quantify because it isn’t a whole product. It is an assembly, subassembly, or component part, such as metal stamped part, machined parts, sheet metal fabricated parts and assemblies, plastic and rubber molded parts, printed circuit boards, etc.

I now have slides for 300 case studies of companies that have reshored in the last six years provided to me by the Reshoring Initiative to use in my presentations. I can tailor my presentation to include slides for particular industries or geographical location. For example, when I spoke at the Lean Accounting Summit in Jacksonville, Florida in October, I shared case studies of companies that had reshored to the Southeast and when I spoke at the Design2Part show in Pasadena later that month, I shared case studies for companies that had reshored to California.

The Reshoring Initiative estimates that “if all companies used Total Cost of Ownership (TCO) analysis, 25% of the offshoring would come back.” Their data reveals that about 100,000 manufacturing jobs have already been reshored in the last six years. Harry Moser states, “Excess offshoring represents an economic inefficiency that can be corrected at low cost. It is less expensive to educate companies than to incentivize them.”

During a recent conversation with Harry Moser, he said, “The economic bleeding due to increasing offshoring has stopped. The rate of new reshoring is now equal to the rate of new offshoring. The challenge is now to reshore the 3 to 4 million manufacturing jobs that are still offshored.” He provided me with the following chart to use in the presentations I gave last fall:

  Manufacturing Jobs / Year
  2003 2013 % Change Feasible 2016
New offshoring * ~150,000* 30-50,000* – 70% 20,000
New reshoring    2,000* 30-40,000** + 1,500 % 70,000
Net reshoring -148,000 ~0 -100% +50,000

*Estimated / ** Calculated

In the past, corporate cultures, supply chain reward systems, and investment have been heavily focused on offshoring. Many companies followed each other offshore in what Harry and I call “herd behavior.” We are endeavoring to change the mindset from offshoring is cheaper to sourcing domestically may be the better choice.

Another way would be to change the way buyers/purchasing agents in supply chain groups are being evaluated and rewarded on the basis of their success in achieving purchase price variance; i.e., selecting sources on the basis of the cheapest price. Chief Financial Officers need to allow their company’s supply chain department to utilize expenses in the other accounting categories that need to be taken into consideration in doing a Total Cost of Ownership analysis, such as transportation costs, travel and communication costs related to the supply chain, and the cost of quality problems related to rejected parts and reworking of salvageable parts.

Transforming to the value stream method of Lean Accounting would also facilitate being able to do a Total Cost of Ownership analysis more than Standard Cost Accounting because all of the costs related to that value stream are put into the category of Conversion costs and not put in the separate accounting categories of standard cost accounting.

The reality is that companies will only bring back the majority of offshored work if the economics of producing in the U.S. improve. The actions needed for more reshoring are the same as needed for manufacturing in general. These include developing a national manufacturing strategy that encompasses skilled workforce training, corporate tax reform, regulatory reform, and Border Adjustable Taxes (aka VATs) while addressing the predatory mercantilist practices of other countries with regard to currency manipulation, product dumping, and government subsidies.

Let’s return to the question of the status of the reshoring trend. The government keeps no related data. ATK tries to measure reshoring indirectly by measuring imports. It would be better to measure the actual phenomenon. BCG uses surveys of reshoring plans, but companies’ actions often differ from plans. The Reshoring Initiative counts the actual reshoring cases and jobs reported in the media and privately by companies. Readers can help resolve the dispute by reporting their cases of successful or failed reshoring to Harry Moser or to me, so I can write about them in future articles.