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Another Egg Cracks

According to author Joseph Pearce, our understanding of reality is formed slowly over time based on personal experiences. Then along comes a Eureka moment

According to author Joseph Pearce, our understanding of reality is formed slowly over time based on personal experiences. Then along comes a Eureka moment that cracks our cosmic egg, forcing us to re-evaluate our world view.

In January 2001, I wrote about utilities that outsourced major information technology (IT) functions. We saw the outsourcing of tasks formerly considered core, which caused us to rethink our entire business model. Now so many call centers have been outsourced that I am surprised when I call a credit card help number and reach someone here in the United States.

Of course, the outsourcing trend is not limited to call centers and IT providers. We have seen manufacturing shifted to low-cost countries including Mexico, China and Indonesia, whether through joint ventures, in-country subsidiaries or partnering arrangements. And developed countries are even offering up their core technologies to get business. I'm sure you are aware that China often demands (and pays for) intellectual property rights as a condition of doing business. Two examples are 800-kV DC and high-speed Maglev train technologies.

The Next Cosmic Egg Cracks

Over the past 18 months, I've received announcements from companies headquartered all over the globe that are building manufacturing plants here in the United States. I personally have toured two of these facilities and am looking forward to visiting more. Take a look at what is coming or has arrived in a state near you:

Oct. 29, 2009: Prysmian (Milan, Italy) opened North America's first EHV cable plant in Abbeville, North Carolina. This facility manufactures cable in voltages up to 460 kV and in lengths up to 1 mile (1.6 km). The facility includes a 16-story vertical extruder and cost $46 million (31 million euros) to build.

April 19, 2010: EFACEC Group (Lisbon, Portugal) opened its new transformer manufacturing facility in Effingham County, Georgia, having invested $100 million in the facility, which is the sole North American producer of large high-capacity shell-type transformers. The EFACEC plant produces both core- and shell-type transformers up to 1,500 MVA and up to 525 kV.

July 10, 2010: Hyundai Heavy Industries (Ulsan, South Korea) began construction on a transformer plant in Montgomery, Alabama. Hyundai is investing $86 million into this new plant. Projected to be operational in December 2011, the plant will produce up to 200 medium to large kVA-rated transformers per year at voltages up 500 kV.

Aug. 1, 2010: CG Global (Mumbai, India) opened a state-of-the-art transformer manufacturing facility in Washington, Missouri, with an initial investment of $20 million. From this plant, CG provides utility and industrial customers medium-power transformers up to 60 MVA and up to 138 kV.

Jan. 14, 2011: Alstom (Paris, France) completed its high-voltage breaker plant expansion in Charleroi, Pennsylvania. With an investment of $5 million, the existing plant has been more than doubled in size. And with added state-of-the-art testing facilities, Alstom has extended its product line of high-voltage dead-tank circuit breakers beyond its traditional range of 72 kV to 245 kV, and now can provide breakers up to 550 kV.

Feb. 14, 2011: Mitsubishi Electric Corp. (Tokyo, Japan) announced plans to build a new $200 million, 350,000-sq-ft (32,516-sq-m) large power transformer plant to be located in Memphis, Tennessee, which is the headquarters for the group's heavy electrical equipment production in North America.

March 7, 2011: Jyoti Structures Ltd. (Mumbai, India) selected Conroe, Texas, to establish a fully automated lattice transmission tower facility. The $34 million, 200,000-sq-ft (18,581-sq-m) under-roof facility will produce 36,000 tons (32,659 tonnes) of lattice transmission towers annually for EHV and UHV overhead lines, based on a two-shift operation. The plant will be located on 20 acres (8 hectares) in Conroe's Industrial Park North.

April 4, 2011: ABB (Zurich, Switzerland) celebrated the groundbreaking for its new Huntersville, North Carolina, $90 million facility to manufacture AC and DC high-voltage underground power cables. The main facility, including an extrusion tower of over 350 ft (107 m), is slated for completion in the second half of 2012.

What Is Driving This Investment?

This string of announcements brings with it the reality that another cosmic egg has cracked. But let's look a little deeper and see if we can determine why global companies are investing here and now.

The United States is now building out its bulk power network at a steady pace that typically increases on the order of 9% per year, which makes it possible for manufacturers to generate a good business return over time.

Earlier this year when I was in Mumbai, I had the opportunity to speak for an hour with S.M. Trehan, CEO of CG Ltd. I asked Trehan his thoughts on what the global marketplace might look like as we come out of this global recession. He stated that “large companies will have to be global in reach if they are to prosper.”

Trehan says that global companies will naturally shift to where the biggest markets are and to where the biggest cost advantages reside. Global companies will find they must manufacture in the biggest markets because of the power of the consumer. “A consumer would rather buy from a manufacturer 200 miles away than one that is 6,000 miles away,” said Trehan.

As to going after the largest markets, Trehan said, “North America makes up one of the largest T&D markets with 23% of the total. And Europe is not far behind. So if you want to be a global player, nearly half the market is in North America and Europe.”

From ABB's perspective local investment pays dividends. “We are a technology company with global reach and a strong local presence in the countries we operate,” said Peter Leupp, global head of the power systems division, ABB Group. “This is very much driven by market and customer needs.”

In a press release, Luis Filipe Pereira, CEO of EFACEC, shared his company's perspective on investment in the United States: “The construction of new industrial premises to manufacture large power transformers in the USA must be considered a very important strategic step for EFACEC's expansion and globalization, and a fundamental benchmark for its international growth, namely in the USA market, which is considered a priority market for EFACEC operations.”

Talking of the new transformer plant, Katsuya Takamiya, president and CEO of Mitsubishi Electric US Group Companies, said, “The opening of this facility in the United States is vital to our company from a global perspective. Our factory in Ako, Japan, is presently the primary source of the power transformers we produce. The Memphis plant will expand our capacity to supply our customers around the world.”

The story at Jyoti is similar. I caught up with Claus Sutor, executive vice president of engineering and marketing, who told me, “We at Jyoti realized that there were no longer any modern ‘full-service tower shops’ on U.S. soil. Major tower supplies come from Canada, Mexico, Turkey and India.

“Potential customers are ecstatic that they can have their lattice towers fabricated here in the United States, witness prototype assemblies and physically check on progress being made with their orders, rather than traveling to far-off locations,” Sutor added.

It's All About Jobs

Addressing job creation is becoming a critical component of the overall strategy of companies who want to do business in the United States. Sutor shared how Jyoti worked at the state level to bring manufacturing to Conroe, Texas: “The Texas Enterprise Fund, invoked through Gov. Perry's office, along with support from county and city leaders, were all important factors in selecting to build the facilities in Conroe. Jyoti even has a tie in to the Conroe Technical College, which will greatly assist in training of CNC [computer numerical control] machine operators along with other skilled and semi-skilled personnel.”

The high-tech jobs at these facilities are adding up — just look at the numbers:

  • North Carolina: 32 (Prysmian); 100 jobs (ABB)
  • Missouri: 150 jobs (CG Global)
  • Pennsylvania: 50 jobs (Alstom)
  • Georgia: 300 jobs (EFACEC)
  • Alabama: 480 jobs (Hyundai)
  • Texas: 200 jobs (Jyoti)
  • Tennessee: 275 jobs (Mitsubishi).

Politicians Give Kudos

Behind the scenes, states compete to land high-paying jobs. Once landed, governors are quick to tout their successes. Here are just a few of the statements released to the press on the manufacturing jobs mentioned above:

North Carolina's Gov. Bev Perdue: “We welcome companies like ABB that are willing to invest in our state and position North Carolina as a leader in the power industry. The workers in these new jobs will be building the smart grid. These are the sort of 21st century jobs that are not only putting North Carolinians back to work but are helping our state steadily climb out of the recession.”

Georgia's Gov. Sonny Perdue: “EFACEC is Portugal's leader in electronics and electromechanics, and we're proud that they have chosen Effingham County and the state of Georgia as the site of their first U.S. plant. These jobs are high-skilled, high-pay positions, and I know that EFACEC will be thrilled with the talented workforce they will employ.”

Alabama's Gov. Bob Riley: “This truly is a team effort, and our Alabama team is proud to welcome Hyundai Heavy Industries. When you combine Alabama's outstanding workforce with the great economic development team we have at the state and local levels, you're able to recruit world-class companies like Hyundai Heavy Industries.”

Tennessee's Gov. Bill Haslam: “I'm thankful that Mitsubishi Electric Power Products has chosen to make its investment in Tennessee as we work to make Tennessee the No. 1 location in the Southeast for high-quality jobs,” acknowledging Tennessee's more than half-century of innovation in the field of energy technology and his state's long-standing economic and cultural ties to Japan.

In one form or another, countries are putting pressure on vendors to build local. That definitely can be seen in the recent Obama stimulus bill that requires a high percentage of products to be purchased from “Made in America” companies. And individual states are eager to bring in high-paying manufacturing jobs by wooing foreign manufacturers with incentives to set up in their states. And why not? Coming out of a recession, jobs creation is crucial in every politician's mind. Expect to see more multinationals “crack another egg” as they build manufacturing facilities in the large markets of North America and Europe.

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