The return of manufacturing

Market forces are driving jobs back to America, and Louisiana is poised to attract them.

Published Jun 25, 2012 at 9:00 pm (Updated Jun 25, 2012)

There's a common misconception that we don't make very much in America anymore, and that most of the jobs where people actually build stuff have been shipped off to China. But don't tell that to the business managers, marketing pros, engineers, machinists and welders of Baton Rouge's Orion Instruments.

Orion, founded in 2001 with five people, now employs 115. About half of them work on the company's cool, clean and quiet 35,000 square foot manufacturing floor, custom building magnetic liquid level indicators made of stainless steel and exotic alloys.

They're not churning out widgets here; they're creating a highly specialized niche product. Even the shipping crates are built to order. Hanging from the ceiling like championship banners are flags commemorating the company's wins as the best in their product category on the planet, according to industry publication surveys.

In some ways, Orion is the ideal Capital Region company. It pays well, employs highly skilled workers, including college grads, and sells its products all over the world, creating wealth without competing against other local businesses. On June 12, the company received a Lantern Award from LED for excellence in manufacturing and community service.

Baton Rouge hopes to attract and nurture several more companies like Orion in the near future, and now might be the moment to seize that opportunity. Some experts say market forces are driving manufacturing back to the United States, and state officials say Louisiana has a chance to get in on the anticipated trend.?Orion's parent company, Magnetrol International, builds some products in China and other countries for the markets in those regions. But the rapid sales growth of the Baton Rouge facility supports the decision to establish Orion here.

Patents are easier to protect in the United States than in China, and “made in America” still carries a lot of weight in the world marketplace. Access to skilled workers and raw materials, and a business-friendly environment, attracted Orion here, General Manager/Director Don Sanders says.?“The cost of manufacturing in Louisiana is extremely favorable,” he says. “And that's compared to any part of the world today.”

Last year, the Boston Consulting Group made waves with a white paper called “Made in America, Again.” They say reports of the death of American manufacturing have been greatly exaggerated many times over the past four decades. But the rise of China might be the greatest threat ever to American manufacturing.

“Since opening its doors to foreign investment and trade,” the consultants' report says, “China has offered a virtually unbeatable combination of seemingly limitless cheap labor (less than $1 per hour), a growing pool of engineers, a fixed currency, and local governments willing to offer inexpensive land, free infrastructure, and generous financial incentives.”

However, wages, shipping costs, and land prices in China are rising. In the United States, manufacturing wages are stagnant or only rising slightly, and the dollar is weakening, making it cheaper for multinational corporations to do business here.

Within the next few years, the consulting group predicts, the total cost of production for many items in parts of the United States will be only about 10% to 15% greater than in Chinese coastal cities, where most of the skilled workers and infrastructure are found.

Factor in shipping, inventory costs, and other considerations, and the gap almost disappears, at least for goods destined for North America. Industries in which labor accounts for a relatively small portion of total costs, such as auto parts, construction equipment, and appliances, are expected to feel the biggest impact.

LANDING MANUFACTURING

Five keys to cultivating new manufacturing projects in Louisiana, according to LED Secretary Stephen Moret:

1. Creation of LED's FastStart. The program, launched about four years ago, helps new, relocating and expanding companies quickly train and hire workers. FastStart focuses on specific projects, not the general workforce.

2. FastStart is working with the Louisiana Community and Technical College System to create "Certified for Manufacturing," or C4M, that would bolster the overall workforce pipeline. Eventually, plans are to create dual-enrollment opportunities for high school students.

3. Identifying, securing and developing open sites that are appropriate for large manufacturing projects.

4. Tax competitiveness. Thanks to industrial tax exemptions, the Quality Jobs program and other measures, Louisiana now has the lowest state and local tax burden in the country for manufacturing, Moret says, citing a Tax Foundation study.

5. In the recently completed 2012 session, the Louisiana Legislature approved the "payroll incentive for competitive projects," which provides a rebate on new payroll of up to 15% per year for up to 15 years. Moret says durable goods manufacturers are most likely to benefit, based on the eligibility requirements.

The consultants say southern states such as South Carolina, Alabama and Tennessee are poised to host some of the least expensive production sites in the industrialized world. LED Secretary Stephen Moret says Louisiana can be on that list.

“We see this as a major, and relatively new, opportunity for Louisiana,” he says. “It's going to be a special focus for us, probably for the governor's whole second term.” ?Moret says aerospace and automobile production are among the leading manufacturing target sectors for LED. Historically, Louisiana has lagged behind other southern states in manufacturing durable goods. One major hurdle in this region is that the petrochemical and energy sectors pay high wages that durable goods builders are hard-pressed to match.

Liz Sanders, Orion's human resources director, says proximity to chemical plants and refineries is a mixed blessing. She has to compete with them for workers, but their presence helps support a local talent pool of engineers and skilled craftspeople. Not everyone wants to work inside the gates of a massive plant, she adds.?Orion is able to get its machinists and welders through area technical schools.

Liz Sanders has been able to attract international students from local universities—language skills are a big plus for a company with a global reach—to be engineers and marketing people. Foreign-born students often are keen to stay in the United States after graduation and need a domestic company to sponsor their visa.

Recruiting specialized talent across state lines is tougher. Just getting them to visit, so they understand that life in south Louisiana isn't like an extended episode of Swamp People, is half the battle. Liz Sanders says she helps steer new arrivals toward the areas with the highest functioning public school systems.

Huge manufacturing projects, if they come to Louisiana, are most likely to locate in the central or northern parts of the state. But BRAC President Adam Knapp says smaller advanced manufacturers, such as Orion and DMC Carter Chambers, which is building a new headquarters in Baton Rouge, can fit in well here.

Not only is the road, river and rail infrastructure available, the engineering and design talent that comes out of local universities and serves the region's traditional industries can cross over and support new kinds of manufacturers, he says. In fact, the next Orion or DMC might be housed in one of the region's incubators right now.

“If you can imagine seeing 10 Orions 10 years from now,” Knapp says, “that would be an incredible outcome.”