It was an interesting day in Glen Burnie’s Baymeadow Industrial Park. In this case, intriguing, even.
It’s a great occasion when a business leases 125,000 square feet in a big industrial park, but the deal signed by Chesapeake Bay Candle represented more than an economic development victory for Anne Arundel County and Maryland; it marked the opening of a manufacturing facility that could have gone elsewhere in the world, but chose Maryland.
That led to not only the hiring of 30 workers in the area (with the hope of adding 70 more within the year), but talk of an uptick in a manufacturing sector that often has been discussed in the past tense in recent years as it lost jobs in droves and often companies, due to the often lower costs of doing business abroad in locales like China, India and Mexico.
While that still happens, its appears that the tables may be turning somewhat; and that some companies are finding out that doing business in the U.S. is the most efficient way for them to go, due to such factors as exchange rates that are evening, high fuel costs and dependable domestic distribution networks.
Comparing Costs
While the husband-wife team of David Wong and Mei Xu, owners of Chesapeake Bay Candle, have lived in Maryland since 1992 (when Xu was attending the University of Maryland College Park), they decided to start their own business and use their China connections to do so.
As they started importing various goods, candles were a best seller. Thus, they opened their first candle factory in 1995, in China, then opened two more in Vietnam in 2002 and 2007, respectively.
In recent years, developments with the business inspired them to relocate part of the manufacturing operation domestically. While they also visited sites in California, they settled in Glen Burnie. “About 25% of our total product line and includes filled candles [or basically any candles that are contained within glass, ceramics or any kind of ‘filled vessels’] is produced here,” said Mareike Finck, spokesperson for Chesapeake.
There were different reasons for opening the local plant, said Finck. “The even value of the dollar is one. Second is the increase in oil prices that caused shipping costs to go through the roof and third is cost for labor in Asia going up dramatically. Also, our largest clients are based in the U.S: Kohls; Target; Hallmark; and Bed, Bath & Beyond.”
The Glen Burnie plant “cuts lead time from eight weeks to two weeks, from raw material to product,” she said. “So the overall financial gap, even though production is more expensive in the states than it is in Asia, made it cost-effective to set up the manufacturing facility here.
“Plus, there’s the local angle,” Finck said. “After all, we’re Chesapeake Bay Candle. That might have even been the deciding factor to locate in Baymeadow.”
R&D and Beyond
While Chesapeake Candle represents one case study, Mike Galiazzo, executive director of the Regional Manufacturing Institute in Hunt Valley, said that, “Locally we’re seeing a similar force of recognition and a focus on Next Generation Manufacturing.
Chesapeake Bay Candle - Factory Research and Development
“I think the public policymakers are starting to see that we can’t get to the future without [a strong manufacturing base],” Galiazzo said. “We need those jobs to maintain the middle class system that America knows. Manufacturing creates good jobs with benefits, and that’s middle class America.”
There are many communities across Maryland and the rest of the U.S. that have been hurt by a lack of manufacturing jobs during the last 30 years “in areas where there are not many white collar jobs, like the state’s more rural areas.
Galiazzo also raised the point that an effective manufacturing base is crucial in capitalizing on the vast amount of money that’s spent on research & development every year.
“We, as a nation and as a state in particular, know R&D is crucial to our prosperity,” he said, “yet we have to remind ourselves that R&D equals new product development, which equals manufacturing growth in the pharmaceutical, medical, printing and whatever other industries.
“Our public policymakers have failed to maintain manufacturing opportunities in areas where they have invested R&D money,” Galiazzo said. “[President Barack] Obama said that has to stop, and manufacturing has to grow in these areas. And as we create more technology, it makes us more competitive in the global marketplace.”
Other Detriments
Calling the manufacturing climate in Maryland “good,” Gene Burner, president of the Manufacturers Alliance of Maryland, listed its obvious advantages, like location, the Port of Baltimore, the rail lines, I-95 and other major highways. “You can move a product out of here pretty easily. That’s a great advantage, but the best one might be the workforce and its relation to the higher education system here.
“The big picture in Maryland,” Burner said, “is that [manufacturers] want to hire workers, get product out and avoid an increase in regulations, such as environmental and permitting issues [many of which are mandated by the federal government] and control income taxes [one of the highest in the country at about 9% for state and local].”
A high tax rate can make it hard on employees when they approach six-figure incomes, with the cost of home prices and the cost of living, he said, adding that congestion is another issue.
Burner said that the manufacturers that he represents “are not in Annapolis asking for tax breaks. They’re saying ‘Do no harm.’ They are not asking for giveaways,” he said. “They mainly don’t want it to get worse.”
The story of manufacturing in Maryland is “still largely a story of challenge,” said Anirban Basu, CEO of Sage Policy Group in Baltimore. “[Chesapeake Bay Candle] is not an isolated case per se; there is still a place for specialty products, and I think, long-term, [the state’s manufacturing scene] will improve.
“It is still the case that, even during the period of economic recovery, Maryland has lost 1,900 manufacturing jobs during the last few months,” Basu said, “and 14,600 overall.”
He said when oil rose to $147 a barrel in early 2008 and $114 per barrel more recently, more manufacturers realized that producing abroad creates many risks because transportation became much more expensive.
“People then began to think that some industrial production must be maintained in North America, due to rising shipping costs,” Basu said.
But that’s not all. “Businesses are getting wary of regulatory issues and idiosyncratic stories related to political influence and legal systems in other parts of the world (India, China, Russia) and might be tough to deal with,” he said.
Also India, China and Brazil are growing so rapidly that costs “have risen with time,” said Basu. “These things can be detriments.”
A New Plan?
While it’s still “very important” to understand that manufacturing can grow in Maryland and the infrastructure is here, “the state business climate has not been conducive to promoting manufacturing,” said Basu.
Emily Stover DeRocco, president of the The Manufacturing Institute for the National Association of Manufacturers in Washington, also believes that it can grow. She noted that the institute recently conducted reports with Accenture, the consulting firm, and another by the Boston Consulting Group.
“In both instances, these international consultants found a definitive movement to assess the totality of costs in doing business overseas that has resulted in decisions of some companies to move facilities and manufacturing/operations back to the U.S.,” she said. “This does bode well for the return of jobs and manufacturing here.”
That’s about various factors, but “as is illustrated in the Accenture report, the low cost of labor is not the sole factor in deciding where to locate a plant,” Stover DeRocco said.
“So I believe it is happening,” she said. “I think the manufacturers continue to drive through their R&D efforts … that create new products and opportunities that, in turn, create new jobs.”
Given the evolving climate, Galiazzo also feels like the time for the U.S. to move is now. And he has a plan.
“This has been said before, but we need a Marshall Plan, like we had during World War II, which was responsible for the U.S. rebuilding Europe,” he said.
“We invested in our enemies when they had nothing. Even today, Germany is very productive in the manufacturing sector. So we need a Marshall Plan here,” Galiazzo said, “that’s led by someone who will lead the effort to infuse great imagination and resources to help American manufacturing to maintain its globally competitive advantage.”
