Consider the case of Kent Bicycles, which Wal-Mart announced on Thursday would be building a new plant in South Carolina. Kent's story is the story of American manufacturing: It started out making bicycles in New Jersey back in the 1970's, but by the 1990's, the imbalance between labor costs in America and China had grown to great to ignore, and the company completely outsourced production.
"By that time, the whole mystique of 'made in the USA' was disappearing, and nobody would pay a premium of 2 percent for a U.S. product compared to an import," says Arnold Kamler, the company's CEO. "We always hoped that we could start back up again."
That didn't happen, though, until Wal-Mart's beginning of the year meeting last March. The giant retailer had favored Kent with one of its "supplier of the quarter" awards, and reached out about the possibility of moving some production to the U.S. Kent currently imports 2.8 million bikes a year, but its international business is doing well enough that it could sell all those bikes abroad, and bring a new plant online to satisfy U.S. demand. Meanwhile, the fundamentals of the labor market were shifting in a way that it started to make economic sense.
"One of the things we're seeing now in China is not only is the cost of labor going higher, but the workers' attitude is getting more apathetic," Kamler says. "The factories in China are fighting with workers to make sure they don't take cellphones to the assembly line. This texting thing is crazy. You can't be concentrating on your job in a factory if you're sending text messages to your buddies."
So Kamler started looking for a place to site a new plant, starting in the company's home state of New Jersey. Ultimately, though, he became leery of the state's lack of a right-to-work law, which would make it easier for unions to organize the staff. "New Jersey gave us really nice incentives, and were very excited," Kamler said. "But when we had our plant in the U.S. previously, we were non-union, but we battled 24-7 to stay so."
The search widened up and down the Eastern seaboard, and as far west as Texas, looking for a place near a port since parts would still have to be imported as production ramped up. Early on, Wal-Mart introduced Kamler to South Carolina Gov. Nikki Haley, and the two hit it off. Touring the state, he found a lot to like in Clarendon County, which has a 12.2 percent unemployment rate -- which is especially high in manufacturing -- and a few other medium-sized factories.
"There was something just about the people and the workers that I saw, the factories in Clarendon, it felt right," Kamler says. "The workers are very serious about their jobs. There are a lot of women, single mothers, this job is their bread and butter. The whole attitude of people in the South is nicer. People are just nice, because that's how they're brought up."
That wouldn't have been enough, though. Most corporate relocations these days involve playing jurisdictions against each other for incentive packages, which Wal-Mart encourages. "It's turned into a bit of a competition," said Wal-Mart CEO Bill Simon to the winter gathering of the U.S. Conference of Mayors on Thursday, in announcing Kent's relocation. "But just think, the rewards are absolutely incredible. If you bring a factory to your city or town, it will be there for generations."
To get the most out of the deal, Kent Bicycles engaged consultants from Deloitte, who weighed the sets of incentives. Clarendon offered to train all Kent's workers for free, without requiring them to hire anybody in particular, and kicked in a set of tax subsidies in exchange for Kent getting to a promised employment level of 175 people. The company expects to invest $4.5 million in the plant over three years, achieving a peak production level of half a million bikes a year, and to pay people "substantially over minimum wage," which in South Carolina is $7.25 an hour.
Would Kent Bicycles have decided to build a new plant in the U.S. without Wal-Mart's nudge? Kamler pauses to think. The deal didn't come with any purchase orders. Wal-Mart, which accounts for half the bikes sold in the U.S. and is Kent's biggest buyer, could decide at any time to look for cheaper bikes somewhere else. But it helped give him the confidence to make the leap.
"Certainly Wal-Mart's commitment to this project has been the encouragement to go ahead and really do it," Kamler says. "We're not asking for charity. They're going to make sense for Wal-Mart."
That's only possible, of course, because jurisdictions are now competing so hard for these plants. And union organizing -- the one area where Wal-Mart will never back down -- isn't part of the picture.