A few years ago, there was hardly any U.S. manufacturer it seemed that wasn’t seriously thinking about China (if they hadn’t already), as part of their sourcing or manufacturing strategy.

But, how quickly things change.

A number of high-profile product recalls, a major slump in the U.S. economy and a falling dollar, topped off with a rocketing rise in oil prices that drove up shipping and transportation costs was enough to jolt some to their senses and temper the euphoria. It’s not that the opportunities associated with China have evaporated, because they clearly have not. Rather, it’s exposed a number of opportunities right here in the U.S. that many thought had dried up.

“The advantages of China are beginning to erode,” asserts Hank Cox, spokesman for the National Association of Manufacturers (NAM). “In 2000, it would have cost about $3000 to ship a forty-foot container from Shanghai to the East Coast. Today, it’s about $8000. That’s like adding a 15 percent tariff into your landed cost.” There’s also China’s currency, which has appreciated sharply in the last couple of years, he says, while government efforts designed to improve environmental standards and workers’ rights are also making it more expensive for foreign companies to invest in China. Indeed, the Beijing Olympics really served to highlight the environmental stress that’s been put upon the country, with factories being forced to shut down and cars banned during certain hours as a crude attempt to clean up the chronic air pollution.

Cox says the industry group has started to get some calls, mostly from smaller companies, about the situation in China and rising manufacturing costs. However, most executives are still in the “let’s watch it closely” mode, he says. One company, a manufacturer of outdoor gear and sleeping bags, announced they were pulling back production from China and expanding an existing plant in Alabama. Another company has also decided to move some of their manufacturing back to the U.S. because the shipping costs for their steep products had become too expensive. They will stay in China though, but it will be to serve the growing domestic market there. According to Cox, a lot of companies now have “one leg in China and one leg in the U.S.,” which allows them to leverage the unique advantages inherent to each market.

The growing strength of the U.S. export sector, which is being fed by the weak dollar, is also a reason to look for opportunities right here in the U.S., explains Cox.

“Our exports are rising at a much faster pace than imports and they’re much more competitive today. We actually have a trade surplus in manufacturing with those countries in which we have free trade agreements,” he points out.

The Midwest gets in on the trade game

As more companies review their supply chain strategy in light of the current business climate, many are finding that a robust international trade network has quietly been developing in what was once the unlikeliest of places—the nation’s Midwest.

Nebraska is a prime example. The state has been working aggressively to attract international investment and it’s been paying off.

“In 2005, our legislature made a significant overhaul to our tax incentive program,” explains Richard Baier, Director, Nebraska Department of Economic Development (www.neded.org). The resulting pro-business program, known as the Nebraska Advantage, has been responsible for generating a great deal of interest in the state, he says. Among other features, it has reduced or virtually eliminated various corporate income and sales taxes.

Over the years, the NAFTA has certainly helped to spur foreign trade in Nebraska and neighboring states that served as the road and rail links between the U.S., Canada, and Mexico. The strong infrastructure is an important component not only for moving freight, but for supporting a work force too.

“Nebraska offers some unique benefits to companies choosing to do business here, particularly in terms of labor,” Baier says. “We have a strong work force that’s highly qualified. Additionally, the lower cost of living attracts workers and keeps costs down for companies. We also have some of the shortest commute times in the country, which has become a greater consideration for many as gas prices have climbed higher.”

The state also boasts a 100 percent public power system—the only one like it in the U.S.—that provides customers and companies with some of the lowest electricity rates in the nation.

A pro-business climate coupled with a strong work force was influential in PayPal’s decision to open an office in Omaha in 1999. The company, a highly successful division of eBay, provides customer support and related services in more than a dozen languages from its Nebraska location.

“They have nearly 30 other facilities around the world, but their one here is consistently ranked highest when it come to employee satisfaction,” notes Baier. A PayPal executive last year stated that although the company had considered moving its operations to other cities, it stayed in Omaha because it offered financial businesses PayPal could hire from as well as support from local officials.

Meanwhile, Xpanxion, a global software engineering company, announced last September that they were expanding their software quality assurance center in Kearney, Nebraska and relying less on offices in Pune, India for part of the operation.

At that time, Paul Eurek, founder and chairman of Xpanxion, said, “This expansion would not be possible without the considerable help of the College of Business and Technology at the University of Nebraska Kearney. The university turns out excellent business graduates with emphasis in information technology and we depend upon them as a source of labor for Xpanxion.”

Baier acknowledges that while ‘brain drain’ has been a challenge previously, Governor Heineman has worked very closely with the state’s colleges and universities to reverse that trend.

“It’s a real priority for us. We talk with employers and if they tell us, ‘I’ve got a shortage in this area,’ or ‘This is where we could use some help,’ we respond to them.”

Baier reports that more manufacturers are offering internships for young people and consequently, fewer are leaving the state once they graduate.

On the international trade front, Canada and Mexico remain two of the leading export destinations for Nebraska, but Japan and China are also important, as are Europe and South America, particularly Germany and Brazil.

In the meantime, Baier is gearing up to help host the reverse trade mission scheduled for September 10-13. Over one hundred international guests will be invited to see firsthand the benefits of doing business in Nebraska, he says. The idea came about during a trip to China last year, when conversations with business executives and investors revealed a lack of awareness about Nebraska and the business opportunities it offered. “They kept on referring to New York City and Los Angeles, and we’re neither or those,” he chuckles.

 

Finding affordability and accessibility off the beaten path

As for both of those well-known trade gateways, changes are underway on the nation’s coasts as well. In recent years, the influx of Asian trade has helped drive industrial and commercial real estate expansion in the Inland Empire, a region about two hours’ drive east of the Los Angeles-Long Beach port complex. Now, other areas are beginning to capture this business along with other opportunities associated with growing second-tier consumer and distribution markets such as Las Vegas and Phoenix.

For example, Global Access in Victorville, California (www.globalaccessvictorville), located less than 100 miles from the ports of Los Angeles-Long Beach, is finding its niche serving both international and domestic shippers.

Dougall Agan, principal of Stirling Enterprises, which created a public/private partnership with the City of Victorville to redevelop the former George Air Force Base into a master planned 8,500-acre multimodal transportation hub, cites Newell Rubbermaid as an example of a company that was quick to recognize the advantages that Global Access could offer.

The company, with a portfolio of well-known consumer brands such as Rubbermaid® and Sharpie®, opened a 408,000 square-foot West Coast distribution center at Global Access last year. Other companies with a presence at the hub include Goodyear Tire, Wal-Mart, FedEx, and UPS.

According to Dan Smith, principal, The Tioga Group, developments such as Global Access that were developed from a former military airport have a distinct advantage in the aircraft industry. With two runways capable of handling the world’s largest aircraft, Global Access and its Southern California Logistics Airport (SCLA), can also offer an array of services to the industry, including full-service maintenance, painting, flight testing, and overhaul capabilities for military and commercial aircraft. The SCLA also provides 24/7 control tower operations and U.S. Customs clearances, bonded cargo and refrigerated storage facilities, and a Foreign Trade Zone.

Smith says that intermodal rail is another “key ingredient” to the success of transportation hubs similar to Global Access, and plans are underway to make that a reality, responds Agan.

In January 2007, officials from the city of Victorville officials executed a Memorandum of Understanding (MOU) with the BNSF Railway Company (BNSF) to explore the development of a major intermodal logistics facility at Global Access.

Meanwhile, work is also taking place on the proposed High Desert Corridor, explains Agan, which has been identified as a Los Angeles-Las Vegas High Priority Corridor of the National Highway System under SAFETEA-LU. The project is designed to provide new transportation options, particularly for trucks, between northern Los Angeles and San Bernardino counties. Agan and others are hopeful that funds can also be secured to construct a four-mile long highway linking the Southern California Logistics Airport to the I-15 freeway, which is a vital part of the corridor.

Despite the dip in import volumes this year, the ports of Los Angeles and Long Beach are projecting volumes to triple over the next 25 years, and the High Desert is the only area in Southern California that can accommodate the estimated 1.5 billion square-feet of new warehouse and manufacturing space that would be needed. As that occurs, the once ‘remote’ paths to hubs such as Global Access will certainly become more familiar. wt