Smaller cities lose out when it comes to business consolidation and headquarters relocation: WInston-Salem, North Carolina

Winston-Salem is a secondary city in North Carolina, second to Charlotte, the largest city in the state, and to Raleigh-Durham, home to universities and large research operations.  

 When US business was not so concentrated in major cities, it was home to a large number of firms including major corporate headquarters.  

These days, not unlike Caterpillar living Peoria for Chicago, and now to Texas, Winston-Salem is experiencing the loss of those corporations, especially as they further consolidate and relocate.  If firms stay in North Carolina, they are moving to Charlotte.

The Winston-Salem Journal has a really great article about this process, "Triad weathers corporate HQ departures with manufacturing revival."  It's super rare for a smaller newspaper to have such a thorough, detailed, well-argued piece.

I've written a few entries on this topic in the past year and over the years: 

-- "Next Level Clustering of Business away from the Midwest," 2022
-- "Boeing to move "headquarters" to Northern Virginia," 2022 
-- "How the closure of a Pfizer research center in Ann Arbor, Michigan led to the development of a biotech sector there," 2021
-- "Why do Rust Belt rivals Cleveland and Pittsburgh have diverging economies?," 2021 
-- "Crystal City Arlington as Amazon one-half of HQ2 | Part 1: General + Housing impact," 2017
-- "Part 2: Leveraging Amazon's entrance for complementary economic development improvements," 2017

Ten smaller businesses versus one big business: which is better?  And a point in the WSJ article dovetails with a point made in the article about Ann Arbor and biotechnology, that Winston-Salem needs to recognize its place in the business ecosystem and focus on smaller businesses, and that for example 10 businesses, with more of their functions handled locally, has more impact than one business with the same number of employees, and fewer locally-based business functions, and is less dependent on any one business.

R&D functions and manufacturing proximity.  It also illustrates another point although the author doesn't mention it per se, about "doing versus coordinating."  Corporate headquarters or at least research and development for manufacturers--with Boeing being a big exception--tend to stay proximate to major manufacturing clusters.

Airports.  A key point mentioned is airports and the number of destinations served.  International companies like Caterpillar can't rely on a local airport for simplified connections.  Same with firms in Winston-Salem.

--  "Do tax incentives pay off? : Illinois; Tennessee; Rosslyn + "The Airport Access Factor"," 2017

Education.  The article mentions the importance of higher education in particular technical education and engineering, something that Greensboro, a peer city, has been particular good at.

-- "Universities as elements of urban/downtown revitalization: the Portland State story and more," 2014

-- "Naturally occurring innovation districts | Technology districts and the tech sector," 2014

-- "Better leveraging higher education institutions in cities and counties: Greensboro; Spokane; Mesa; Phoenix; Montgomery County, Maryland; Washington, DC," 2016

-- "Revisiting past blog entries: College Park as a college town and economic development | PG County and Amazon,," 2018

-- "University President Freeman Hrabowski and an agenda for urban universities," 2021

-- "The other George Miller idea: creating multi-college innovation centers in (cities) Philadelphia | Creating public library-college education centers as revitalization initiatives," 2021

Technological change can redistribute business location.  And while I haven't written about it, how quantum technological change within an industry can change its location patterns.  

For example, now that the auto industry is moving from gasoline engines to electric motors, the new firms and their suppliers are increasingly located outside of the Midwest.  It's not that Michigan and other states aren't landing some of the business, but so are states like Georgia, Oklahoma, Texas, etc., shifting supply chains and where added value is developed.

Interestingly, oil interests are fighting this in Republican-led states ("Georgia judge's incentives ruling threatens Rivian EV plant," Atlanta Journal-Constitution).  It's positioned as fighting corporate welfare, but it's really a different type of corporate welfare attempting to ward off competition.

Next Phase of Clustering of Business away from the Midwest

Around 2015, there were a number of instances of corporate headquarters moving to the South, such as Mercedes USA moving from New Jersey to Atlanta.  

Atlanta and Dallas were particularly successful in gaining large corporate or regional headquarters, and sadly in locations that were minimally served by transit.

Although at the same time, there has been a number of examples of corporate headquarters moving from suburban locations back to the center city, although the impact of covid on people actually coming to work versus working from home has countered that in many instances. 

-- "Could bringing premier regionally headquartered business enterprises to the Pennsylvania Avenue Corridor be key to its renewal and revitalization?," 2014
-- "A lesson that seeing is believing: Panasonic's new building in Newark, NJ as an example, positive and negative, in businesses coming back to the city center," 2015
-- "Businesses moving back to the center: not a universal trend," 2015
-- "DC, Transformational Projects Action Planning, and the Baltimore-Washington Maglev project," 2021

Relatedly is all the discussion about firms moving from California/Silicon Valley to Texas ("Companies are rapidly leaving California, study finds. Here’s where they are going " KXAN-TV), and how industries going through technological change shift their locations as well (e.g., electric vehicle battery and car/truck production to Arizona, Texas, Georgia, and potentially Oklahoma, etc.).

Although given the reality of Western drought and how manufacturing tends to require great amounts of water, I would think the Midwest has a long term competitive advantage in terms of access to water supplies. 

In May I wrote about Boeing relocating its headquarters to Northern Virginia, from Chicago, when it had already been moved from Seattle, where the company was founded and still has its largest manufacturing operations ("Boeing to move "headquarters" to Northern Virginia ").

Then a bit more than a week ago, Raytheon, another large defense manufacturer, announced it was also moving its HQ to Northern Virginia ("Raytheon will move headquarters to Arlington ," Washington Post), bringing all of the largest companies to the DC area, all but Lockheed Martin (in Montgomery County, Maryland) in Virginia.

San Antonio as a developing automotive cluster.  Around that time I came across an interesting article about the development of Greater San Antonio becoming a corporate R&D cluster, building out of industrial plants for Toyota, Navistar, and others ("Driving force: San Antonio picks up speed in auto industry," San Antonio Express-News, access with printfriendly).  

Manufacturing has moved South and West because most of the states have labor laws that make unionization of the workforce difficult, so they can offer lower wages compared to plants in the Midwest.  Over time, corporate functions are following.

The article is long and detailed, and illustrates how corporations can shift their "centers" as they develop new centers of business concentration. 

Caterpillar moving to Texas.  Yesterday's announcement that Caterpillar, the heavy equipment manufacturer once based in Peoria, Illinois, having shifted to Suburban Chicago in 2017 ("Do tax incentives pay off? : Illinois; Tennessee; Rosslyn + "The Airport Access Factor"," ) is now moving to Irving, Texas ("Caterpillar to move headquarters to Texas, marking second major corporate departure from Illinois in 6 weeks," Chicago Tribune).  

Although they do have various manufacturing operations in the state, Illinois remains much more significant. And the number of employees, 230, isn't huge.

Conclusion.  I'd say it's early to draw overarching conclusions but the trends do not look good for center cities (especially with the post-covid shift to working from home) generally and in the Midwest specifically.  Although Midwestern states with ample water supplies ought to be putting that front and center in the economic development and business recruitment positioning.

Quantum change in technologies can change industrial agglomeration economies, business and sector organization, location etc. | Electric vehicles

One of the things that has struck me about the introduction of the electric car is how it is transforming the automobile manufacturing industry which has been clustered in Michigan and the Midwest after the initial period of experimentation and development in the early 1900s, although some manufacturing was always distributed around the country such as in New Jersey, Maryland, Missouri, New York, California, etc.

But in the 1980s, increasingly companies, especially non-US based manufacturers, began opening plants in the South, because it is more difficult for successful labor organization of the workers at those plants, therefore generating lower labor costs.  In the 1990s, seeking even lower labor costs, firms moved more production to Mexico as well. 

Increasingly, engineering and design functions are developing in Southern locations, especially when the companies are outside of the traditional Big 3 firms ("Driving force: San Antonio picks up speed in auto industry," San Antonio Express-News).  From the article:

The shift to automotive research and development could make San Antonio a hub for high-wage jobs in zero-carbon transportation in the years ahead, city officials say. DeLorean said its San Antonio employees will earn, on average, about $140,000 annually. 

“The long-term play is to get more of the value-added work. So when you see Navistar coming here, they didn’t just bring a truck factory, they brought their engineering plant,” Marquez said. “That’s what our county strategy has been from the beginning.”

The onset of the electric car has created a similar kind of exogenous shock, with Tesla having plants in California and Texas, Rivan opening a plant in Georgia, states like Oklahoma are vying for plants ("What to know about Oklahoma's embrace of the electric vehicle industry," Daily Oklahoman), and distributing development, design, and engineering functions away from the Midwest, etc.

The Detroit News has an interesting article about GM and how its president, Mark Reuss (son of a former GM president also) remains committed to keeping Michigan and the Midwest as central locations for the production of electric vehicles, rather than moving elsewhere.  

-- "Mark Reuss kept GM investing in Michigan, Detroit to build EV future here"

Transportation costs.  An article in the New Yorker about logistics said that with the rise of the container, shipping costs dropped from almost $6 per ton to 16 cents ("When Shipping Containers Sink in the Drink").  That's why firms became free to move manufacturing overseas.

If the rise in the cost of energy and the difficulty of having enough truck drivers persists, along with other supply chain and logistics problems, it could well be that moving automobile manufacturing outside of its traditional areas could be costly in terms of sourcing parts, etc.

Political costs: legacy versus new industries | Fossil fuels versus green energy industries. Another thing is that by moving plants into Republican states, they can be subject to more criticism and opposition, which may be fomented by businesses committed to a fossil fuel based economy ("The pollution paradox," Guardian).   And what I call the intra-national "Petro State" effect, where states like Texas and Oklahoma promote pro-fossil fuel policies.

For example, Governor Kemp of Georgia has been criticized for providing tax incentives to Rivian ("Rivian electric car plant blasted by foes at Georgia meeting," AP).  (The Economist argues that such lobbying helps countries like China, who are more focused on developing new technologies and industries rather than saving old ones. See "China’s plans for the electrified, autonomous and shared future of the car.")

But what will happen to states like Texas and Oklahoma as electric vehicle related firms rise in importance?  Will the states have to be more "fair" about representing multiple sets of interests?  Probably not, fossil fuels in the short run are far more important economically to the economies of those states.

Global value chain for bicycle manufacturing

Paul Krugman's e-letter today discusses global value chains and a more modern "industrial policy" in the context of the once forecasted superiority of Japan in the late 1980s, their later economic stagnation--although he points out that weighted for demographics, Japan's manufacturing production is comparable to that of the US--Trump policies, Biden policies, etc.

He mentions a report by the World Bank, World Development Report 2020: Trading for Development in the Age of Global Value Chains, and how it uses bicycle manufacturing as a way to illustrate global production chains.

When I was involved in bidding for bike sharing programs c. 2010-2012, this was an issue.  Many of the programs used federal money, and the American Recovery and Reconstruction Act required "Buy American" when it came to steel products.  Given that bicycles aren't manufactured in volume in the US any more, this was an impossible provision to meet.

Sacramento light-rail factory is hiring

See the article from the Sacramento Bee. Also this article, "United Streetcar contracts trickle down in Portland" from the Portland Daily Journal of Commerce, about United Streetcar, the division of Oregon Iron Works that is building new streetcars, based on the Skoda/Inekon design already used in Portland, Tacoma, and Seattle.

Rebuilding the manufacturing expertise for streetcars in the United States

When DC first proposed a big streetcar initiative, I suggested that like the joint venture in New Orleans which produced the cars for the Canal Street streetcar line in New Orleans, DC could work to do the same thing, perhaps in the vicinity of the Ivy City railyard that is used by Amtrak and WMATA. (The BET television building on the north side of the tracks would be a good building to convert. Likely most of its operations have decamped to NYC, since the BET cable television network is no longer based in DC.)

I wrote about it in this blog entry, "DC as a center of streetcar manufacturing excellence?," which was mentioned in a column in the Washington Examiner at the time, but first in this entry, "Use it or lose it or you have to recreate it (U.S. streetcar technology and expertise)."

Meanwhile, the Oregon Iron Works, with the support of Rep. Earl Blumenaur, has received federal dollars to set up streetcar manufacturing capabilities, their having already acquired a license from Inekon to reproduce their streetcar model, the one already used in Portland, Oregon.

The Overhead Wire calls our attention to the Portland Transport blogmention and photos of the first streetcar under construction by Oregon Iron Works. See "Streetcars Start Rolling Off Assembly Line at Oregon Iron Works."