The economy is slowly but surely recovering, but the Ohio manufacturing industry may have further to go. We recently hosted the Impact Manufacturing Forum to discuss the challenges that still remain and how Ohio’s manufacturer’s can face them today.
Sept. 10, 2010
Global Recession Recovery:
In November 2008, essentially all orders stopped for U.S. manufacturers.
“It is going to be a very slow recovery period because the drop was so strong. We may have another year, or year and a half to go. I am not a believer in the double dip.”
Europe’s economy mirrors what’s happening in the U.S., but Asia is a bright spot. China’s stimulus program is a larger percentage of GDP than the U.S. program; and the stimulus is based on increasing consumption — especially in north and west parts of the country. This expansion is kind of like the U.S. expansion into the Western Territory.
“They are essentially building a city the size of Houston every month.”
Also in China, the retraction in manufacturing capacity usage did not pull as much commerce out of the market as in the U.S. because most Chinese plants do final assembly, as opposed to OEMs. “They are a small part of the product chain.”
China Today:
- Massive government investment in higher education, healthcare and social security.
- On the way to becoming the largest car market in the world.
- Growing at 6% in population; adding 8 million people a year. (“As U.S. companies, we have to have strategies to tap into that growth.”)
- Growth is not helping U.S. recovery because U.S. investment in China is tiny compared with other countries — only 5%. Most investment coming from other Asian countries. (“We really don’t sell there, and [in general] U.S. companies don’t have aggressive plans to sell.”)
Long-Range Economic Outlook for China
- Labor costs will go up.
- More commerce in the northern and western parts of the country.
- In five to ten years, will no longer be considered a low-cost country.
- Today’s government investments in education and social programs will spawn a big increase in consumption because consumers will feel more confident.
- Within 30 years will surpass the U.S. as the world’s largest economy.
What U.S. Needs To Do To Strengthen Economy:
“We are caught in a vicious cycle. We want higher employment, which will cause higher consumption, but companies are not investing in assets yet because jobs are still scarce.”
The solution is to increase exports, which are one-fifth of GDP; companies need to continue to invest in education; and governments need to offer export assistance and keep the R&D tax credit.
China as Export Opportunity:
Two of his clients have doubled their revenues within two years by starting to sell in China: one Indiana company from $200 million to $400 million a year within two years; and another from $3 million to $6 million in 1.5 years.
But selling in China is very difficult, and for companies to be successful, there needs to be long-term commitment from the CEO. Also, U.S. companies don’t understand the Chinese market as well as they could and therefore often have the wrong products for the market.
“We think the world is different from us, but really, we are different from the world. Our measurement systems and electrical systems are different from the rest of the world, for instance.”
Summary:
“If you are only selling in the U.S., you are only selling to 10% of the world. If you are going to sell to anyplace else in the world, China is the place.”
Pat Grischow, Pat Grischow Consulting: Government Regulation
“It is imperative for employers to be aware of what’s happening in Washington and Columbus. If you don’t, these things are going to hit you upside the head and affect your business.”
On The Healthcare Reform Bill:
“This is the worse I have ever seen. It is going to be a nightmare.”
She recommended audience go to website of The Henry J. Kaiser Family Foundation (www.kff.org) for a timeline of how the reform will be implemented through 2018. The open markets for health insurance are supposed to open in 2014.
On the Obama Administration:
The Federal Dept. of Labor (DOL) is changing from a culture of cooperation with employers to a culture of punishment. DOL is hiring hundreds of new inspectors and is seeking additional funds to implement a “worker-misclassification” initiative (full time vs. contract labor).
FMLA: Proposal would extend benefits to workers who need to take care of children who are not biologically theirs.
401k Plans: Under increased scrutiny.
Unions: Proposal (Employee Free Choice Act) would make it easier for unions to be voted into a location. Currently, they are voted in by secret ballot conducted by NLRB with unions taking hold with a majority vote. The proposal would change that to a union being voted in if a majority (50% plus 1) of employees sign authorization cards (no secret ballot).
“You can go home Friday night and come back Monday morning and have a union without 49% of your employees voting.”
In Ohio:
Unemployment Compensation: Changes coming: The state fund has an $8 billion shortfall of its $50 billion budget. The state has borrowed $6 billion from the federal government and will need to pay it back. Will look to businesses for that money.
Workplace Death: For the first time she is aware of, criminal charges (including manslaughter) have been filed against company officials in a workplace death. (June 21, 2008, 45-year-old Thomas Rogers of Colerian Twp died of hydrogen sulfide poisoning while working for United Oil Recovery Services Inc., Middletown.)
Summary:
Encouraged audience members to write and call their lawmakers and get involved with associations and lobbyists who are looking out for their interests. She directed them to pick up the pamphlet “Business in Politics,” which has was offering.
M. Judith Crocker ED.d. MAGNET, Dir. Of Education & Training: Skilled Labor
Ohio as Manufacturing State:
- Third-largest as percentage of GSP.
- A $38 billion annual payroll.
- Average hourly wage is $18.83.
“We know we have an aging workforce. We need to be filling that pipeline with skilled workers.”
Workforce Pipeline Challenges:
Education: High school dropout rate is 30%; and in 2005, 60% of manufacturers said HS grads were not prepared for entry-level jobs.
Other: massive worker retirements, increasing global competition, and the evolution of a smaller, more mobile world, waning interest in STEM (science, technology, engineering and math)
Future National Workforce:
Next three bullet points credited to Edward E. Gordon, 2009.
- By 2020 high-pay/high-skill jobs will rise to 74% of U.S. labor market, 123 million people needed, 43 million likely to be qualified.
- Low-pay/low- skills jobs will shrink to 26%; 44 million needed, over 142 million available.
- Large companies will poach talent from smaller companies.
Next five bullet points credited to 2009 Deloitte study “People and Profitability: A Time For Change” based on interviews with employers.
- 38% foresee increased shortages.
- 38% of most-profitable companies vs. 25% of least-profitable companies.
- 51% report shortage in skilled production (machinist, operators, craft workers, technicians).
- 36% moderate-to-serious shortage of engineers & scientists.
- Not a worker shortage, a talent shortage.
Solutions:
- Value & invest in technical education (T.E.)
- T.E. must reflect the knowledge economy requirements: critical thinking & problem solving
- Develop real-world curricula with relevant industries to match content with employer needs
- T.E. must be rigorous & continuously improved so students can translate learning to workplace quickly
- Attract students early, feed their interest in manufacturing and benefit their professional careers
- Take a broad view of manufacturing workforce development
- Encourage close cooperation between industry and academia to keep focused on results
- Inform educators about career options & requirements in today’s changing economy
- Employers must articulate their current and future employment needs
- Educators must encourage students to explore emerging careers & take the STEM subjects necessary to succeed
What’s Happening Now at MAGNET:
- Implementing the NAM Dream It! Do It! program to improve the image of manufacturing and grow the pipeline of advanced manufacturing workers
- Partnering with Lorain County Community College to implement the NAM-endorsed Skills Certification System
- Developing pathways with educational partners from non-credit to credit to certificate and degree programs to meet employer needs
- Ambassador program, which connects manufacturers (demand side) with the educational community (supply side).
- Activities include:
- Plant tours
- Internships
- Externships
- Classroom speaking engagement
Read more by Jason Tuma in his latest article on IndustryWeek.com:
Economic Recovery Underway, But Ohio Manufacturers Face Challenges
