Just before the recession hit in 2007, Electrolux (ELUXA:SS), the Swedish home-appliance maker, was trying to decide what to do about an aging plant outside Montreal. The building was more than 100 years old and the line of high-end stoves and ovens produced there needed a refresh. The factory’s 1,300 union workers earned around $20 an hour.
Rather than sink more money into the old plant, Electrolux decided to move where it could operate more cheaply. In Europe, it was shifting work from Sweden, England, and Denmark, to Hungary, Poland, and Thailand, where workers are paid less. In North America, Electrolux settled on another low-cost region: the American South.
Alabama, North Carolina, and Tennessee—along with Mexico—all competed for the plant, offering generous incentive packages. The winner was Tennessee, which together with the city of Memphis and Shelby County, assembled an offer that, according to Electrolux, was worth $182 million, including public infrastructure funds, tax breaks, and, crucially, worker training. The company committed $100 million to build the plant. In December 2010, Electrolux announced that a site just eight miles from Graceland would be home to its most advanced factory. “We don’t just grab at every project that comes through here,” says Memphis Mayor A C Wharton Jr. “But this one was particularly appealing.”
Manufacturing is slowly returning to the U.S.—and much of the action has been below the Mason-Dixon line. With its low tax rates and rules that discourage unionization, the South has for decades been seen as business-friendly, which helped the region attract service companies that rely on low-skilled workers, such as call centers and warehouses. Now industries such as autos and aerospace are moving in. According to Southern Business & Development (SB&D) magazine, which tracks commercial projects valued at more than $30 million, manufacturing made up 68 percent of investments announced last year. The number of projects totaled 410, the most in 20 years.
Changing conditions in the oil market and China have a lot to do with manufacturing’s resurgence in the South. In 2001, when China joined the World Trade Organization, the price of oil was $20 a barrel and the hourly manufacturing wage in China’s Yangtze River Delta was 82¢ an hour. Oil is now more than $100 a barrel and workers in the Yangtze make $4.93 an hour. The once enormous manufacturing advantage of the People’s Republic has in some cases vanished.
An April 2014 study by Boston Consulting Group found that the U.S. now ranks second only to China in manufacturing competitiveness among the top 10 exporting countries. Three years ago, BCG Managing Director Harold Sirkin, co-author of the report, forecast that states such as South Carolina, Alabama, and Tennessee would become “among the least expensive production sites in the industrialized world.” That’s especially true for companies making things for sale in the U.S. The South “has become the cheapest place to make things inside the largest economy in the world,” says Michael Randle, publisher of SB&D.
via U.S. South Draws Global Manufacturers With Low Taxes, Cheap Labor – Businessweek.
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