American Apparel factory in Los Angeles (Photo credit: alossix via Flickr).
There’s been no shortage of stories of companies leaving behind the U.S. for China and California for other states. A Comcast VP recently blamed California’s business climate for the closure of a Sacramento call center (after which Comcast abruptly took back the VP’s statement).
Into this climate steps Innovate North State, a Northern California group that wants to not just attact manufacturing back to the U.S. but California, too, fighting what seems to be an uphill battle.
Jon Gregory, managing director of the economic development group covering the mostly rural region north of Sacramento, said North State is trying to work differently than traditional development organizations.
“We can’t grow the economy without extending reach significantly to outside resouces in California or beyond,” said Gregory. “We have to extend beyond the individual municipailities to succeed
and we have to reframe that discussion.”
The group received some good news last month when U.S. Bank said it was kicking in $75,000 to become the title sponsor of Innovate North State’s “Manufacturing RePatriation Summit,” taking place on February 28 next year at Sierra Nevada Brewery.
The effort is banking not just a manufacturing revival, happening in areas like the Silicon Valley, but actually starting a discussion about luring manufacturers back to the U.S., also known as “reshoring.”
Gregory referenced a small example in the U.S., when Starbucks ordered ceramic mugs from a tiny pottery plant in Ohio.
The reshoring discussion is happening because of decreased costs for companies onshore, particularly labor costs, and increased costs offshore. According to a consulting group, hourly wages in China are projected to hit 17 percent of U.S. wages in 2015, up from 3 percent in 2000.
Gregory said increased labor costs are something of an inevitability as workers demand better labor conditions and citizens seek stronger environmental regulations in places like China, which just pile on with other increasing costs.
“On a global basis, the fuel cost changes dynamics around transportation cost, “added Gregory. “And that, maybe on its own is not deal-breaking, but when you add them up on top of others costs, you might say, ‘Hmm, maybe it’s not such a great deal,’ and look at California or the U.S.”
But, growing the rural region’s economy is not just about attracting older companies back. It’s also helping new companies sprout and innovate in rural regions, a task Gregory said is more diffucult compared to other regions in California.
“It’s not like Silicon where you have waves of money come in when a company is acquired,” said Gregory. “Much of the wealth in the northern part of the state is more long term in nature, coming out of real estate or agriculture and the transfer of wealth across generations.”
This lack of access to capital is not the only problem for economic growth in rural regions.
“There’s an outdated mindset among civic leaders and policymakers on how you grow an economy,” said Gregory. “If you don’t have proactive policy, that’s significant roadblock.”
He noted that a small population of businesses in a large region creates an isolation and lack of connectivity, which can lead to the same businesses selling into same market and a slicing up of the local economy.
That’s why North State is looking to reframe the discussion and an important part of that is the manufacturing summit, when they also hope to bring current California companies together with policymakers, larger companies and business leaders to find deal-making opportunities and ways to grow their markets.
“We need to move from being what I would say has been high on the complacency scale and move back to a high state of urgency much like our global competitiors have been,” said Gregory. “Then we can flip that pendulum, advance economy and get out of doldrums that we’re in now.”