Monday, February 13, 2012

"Why not here?"

In this week's Chemical and Engineering News, Bill Carroll of the ACS has an editorial about siting research and/or production facilities around the world:
That’s because the other driver is cost. Most people think of cost only from the perspective of labor cost: Hire the cheapest people you can find who can do the job. That strategy works for some things—we’re now seeing apparel manufacture moving out of China to Cambodia because China’s too expensive. But it doesn’t work for others, and I argue that the chemical industry and particularly technology development are good examples of where it doesn’t work because of the size, value, and permanence of investment. In this case the consideration has to be “total cost of ownership.” 
Think of things other than wages that translate to costs. Infrastructure: roads, electricity, finance, education, talent, Internet, global shipping, and energy. Policy: stable governance, intellectual property protection, visitation and immigration, taxes, and government investment. Get even some of those elements wrong and your cheap labor advantage evaporates. The state of these variables is largely derived from government policy. And this is the part we—as Americans and as the American Chemical Society—can do something about. 
I’ve written previously in this space about the ACS Business Climate position statement (C&EN, Sept. 6, 2010, page 71). My summary question is this: The next time a company wants to build a laboratory and it could be anywhere, why not here? This is where we—as the U.S.—have to sharpen our game and make this the best place on Earth to locate a laboratory or a factory or a business on a total cost basis. This is not an unknown strategy.
I know that when companies decide that they might build a facility in a specific region of the US, there's traditionally some kind of visit from the local economic development commission that will lay out what that city/county/state will do for the company. There's typically (perhaps unwisely) some kind of promise of lowered, deferred (or altogether removed) taxes, some sort of comment about the relatively low wages of the area and the high level of education of the workforce.

It's my impression that the US doesn't have an office at the federal level that coordinates that kind of information; then again, maybe there is. It would be interesting to know what sort of competition that would engender among the different developing/developed nations of the world.

Mr. Carroll also makes some interesting comments regarding shale gas:
Five years ago, your colleagues would have laughed you out of the lunchroom if you suggested that a new ethylene cracker would be built in the U.S. And if you suggested it would be anywhere but Houston, they’d throw a net over you. Now, because of the new paradigm of abundant shale gas, crackers are planned for—wait for it—Pennsylvania. Natural-gas-based chemistry today has a huge competitive cost advantage over oil-based chemistry on the world market. For that reason, gas-based ethylene derivatives have had boom years recently because of exports. There is the chance that, if we get the regulatory aspects right (both for environmental protection and cost), we could take the hot hand in chemicals back from the Middle East. The game can, and has, changed.
Good news for Pennsylvania -- I hope it pans out.

(P.S. It's cute that Carroll makes a (figurative, I assume) comment about the lunchroom. Doesn't he know that most folks eat at their desks nowadays?) 

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