An economic development class studying the recent trend of reshoring has a word for Virginia officials hoping to lure international corporations back from abroad.
As companies face rising wages in Asia and higher shipping costs, the plastic-and-rubber manufacturing industry is a key sector near the point where shifting operations back to the United States could create greater profits, according to a 2013 report by the Economic Development Studio @ Virginia Tech.
“Ultimately, reshoring means jobs,” said Trevor Flannery of Danbury, N.C., a doctoral student in the Planning, Governance, and Globalization Program in the School of Public and International Affairs and one of authors.
He and his classmates suggest ways state leaders can leverage assets to make the commonwealth an even more attractive place for reshoring. These assets, which include a strong transportation network and partnerships among major institutions, could give Virginia a competitive advantage over Europe in attracting companies, they say.
Some background: Between 1996 and 2008, the U.S. lost more than 5 million manufacturing jobs to foreign competition, said John Provo, director of Virginia Tech’s Office of Economic Development and one of the instructors of the studio class along with Margaret Cowell, assistant professor of urban affairs and planning. Since then, manufacturers have been bringing some work back to America, reshoring jobs rather than offshoring them.
“When you look at the full cost of doing business abroad, companies are finding that U.S. factories really can compete on price, delivery, and quality,” said Cowell, whose program is housed in the College of Architecture and Urban Studies.
The students worked for a real-life client, the Virginia Economic Development Partnership.
“It’s important to have practical experience, and it’s exciting to be able to really assist the commonwealth,” Flannery said. “Such a project helps bring a lot of the levels of planning, practice, and application together.”
The partnership's vice president for research, Rob McClintock, said the professionalism of the students and the quality of their research impressed him. “Their findings were very market-based and based on experience of practitioners, both in industry and in the economic development community. They reinforced much of our own separate research.”
Renee LoSapio, who graduated with a master's degree in urban planning in 2013 and works for Norfolk Southern Railway in Norfolk, said she appreciated being able to work so closely with a client. “It was interesting to see how the project evolved as we did our research and got feedback from the clients and our professors,” she said. “There was definitely an element of satisfaction of being able to deliver at that level.”
The students interacted with the partnership's staff and presented their findings in Richmond, Va., before submitting the report.
The studio class identified plastics manufacturing as a prime target because 134 plastics companies have relocated or expanded in Virginia over the past 15 years, investing $1.2 billion and creating more than 6,100 new jobs. As of 2013, the plastic-and-rubber manufacturing industry employed about 15,000 people, according to the students' research. Virginia’s strategic mid-Atlantic location, superior transportation network, and competitive operating costs make it an ideal location for plastics and advanced-materials companies.
The report spotlighted Colombia-based Phoenix Packaging, which brought more than 300 new jobs to the region and expanded its plastic packaging manufacturing facility in Pulaski County. Other core industries that could be primed to move operations to Virginia include
These companies, and others like them, could benefit from Virginia’s strong transportation network, business-friendly environment, workforce preparedness, and partnerships between the public and private sectors, the report says.
The report highlights areas where the commonwealth could do more to attract foreign investment and jobs. Among the recommendations are the following:
Why make the effort? Flannery explained: “Workers in Virginia could make better wages in these high-value manufacturing industries, and it would also increase the supplier chains so that smaller companies that service these larger manufacturers could expand. So it has a ripple effect, both improving individual lives and the success of communities.”
The term "reshoring" describes the return of manufacturing processes to the United States from overseas.
While much is anecdotal about this trend, research in 2013 shows potential for the pattern to continue or escalate. Producing goods abroad to be sold in the U.S. will be just as economical as manufacturing domestically by 2015, according to Boston Consulting Group.
According to John Provo, director of Virginia Tech’s Office of Economic Development, the reasons are many: Salaries at factories in places such as China and India are rapidly increasing along with costs such as shipping, inventory, and even the risk of natural disaster.
The Economic Development Studio class is a collaborative effort of the university’s Urban Affairs and Planning Program and the Office of Economic Development. It’s led jointly by John Provo, director of Virginia Tech’s Office of Economic Development, and Margaret Cowell, assistant professor in Urban Affairs and Planning, and it involves graduate students from the university’s Blacksburg and National Capital Region campuses.
For the report on the potential impact of reshoring in Virginia, students worked on behalf of a real-life client, the Virginia Economic Development Partnership. They researched the economic impact and potential of reshoring within several communities across the commonwealth and developed strategies for these communities to maximize the economic benefits of the phenomenon.
“For a lot of students, this is a chance to synthesize everything they’ve learned over the course of their degree and to prepare a professional document before they go out in the real world,” Cowell said. “They have something really nice in hand when they go out to interview for jobs or go for a promotion or switch careers.”
The Economic Development Studio @ Virginia Tech’s full report on the potential impact of reshoring in Virginia can be downloaded as a PDF.