location decisions – Page 3 – The OM Blog by Heizer, Render, & Munson

OM in the News: GE Decamps Connecticut After 42 Years

I n selecting Boston as its new home base, General Electric will join dozens of corporate giants forsaking the suburbs for urban centers, writes The Wall Street Journal (Jan. 14, 2016). The trend is accelerating, due to employers’ thirst for the kind of educated, technologically-savvy workers who are clustering in cities such as Chicago, San Francisco, and Seattle. Ire over Connecticut’s corporate taxes was a driver of GE’s relocation plans, but the realities of the labor market may have made such a change inevitable, especially given that the conglomerate is trying to pivot from being a maker of industrial products to a greater focus on software innovation. That shift requires access to a workforce with new and rapidly evolving skills who tend to gravitate toward urban areas.

Massachusetts had offered incentives worth up to $145 million to the conglomerate. GE, which since 1974 has been based in Fairfield, Conn., promised to bring about 800 jobs to Boston. The Massachusetts incentives include $25 million in city property tax breaks and $120 million in state spending on infrastructure, such as new roads and parking facilities.

The move comes amid a broader effort by GE to cut corporate costs and streamline operations for what it portrays as a new industrial era that will revolve around software innovation as much as bended metal–one that will make it a priority to attract the talented workers who prefer to live and work in cities. Several states, including Georgia, Rhode Island and Texas, worked to attract GE.

Boston boasts several world class universities, which could deliver GE a ready supply of employees as a firm that can compete in a knowledge economy. Its dense labor market also gives workers confidence that their skills will be in demand if they choose to leave one employer or if they are laid off.

Classroom discussion questions:

Evaluate the incentives offered by Massachusetts.
Are the actual number of jobs significant?

OM in the News: Corruption’s Impact on Operations Decisions

Operations managers face significant challenges when building effective supply chains across cultures. In our chapter on Location Strategies (Ch. 8), we provide an excerpt from Transparency International’s ranking of corruption in countries across the globe.

“Corruption afflicts every corner of the world,” writes The Wall Street Journal (Dec. 3, 2015). The World Bank states that 70% of Brazil’s companies identified graft as a major problem. In China, corruption has greased the wheels of the country’s long construction boom and turned hundreds of Communist Party leaders into multimillionaires. Just this week, $2 billion meant for Nigeria to buy aircraft and ammunition to fight Boko Haram vanished. The scale of corruption is equally mind-boggling in Argentina, India, Pakistan, Russia and Turkey. The World Bank says that more than $1 trillion of bribes are paid world-wide each year. The World Economic Forum estimates that the cost from global graft is more than 5% of world gross domestic product.

“Chinese President Xi Jinping insists that corruption must be stamped out, but does not address the underlying problem: the Communist Party’s monopoly of power, which continues to create economic imbalances, stifle opportunity and enrich party cronies,” says The Journal.

Corruption doesn’t come from nowhere. It is a result of economic and political institutions that empower elites while shutting out the rest of the country. That empowerment lets politicians, bureaucrats and soldiers grab resources and get wealthy from bribes. What allows them to get away with it is the absence of democratic accountability and effective checks and balances, like the rule of law and press freedom. Without fundamental change in these institutions, it is indeed difficult for OM executives to locate and manage global supply chains.

Classroom discussion questions:
1. Why is corruption such a major OM issue?
2. What can U.S. managers do to assure ethical supply chains?

OM in the News: Made in Vietnam

The trans-Pacific Partnership would mostly benefit developing nations like Vietnam and Malaysia — The Trans-Pacific Partnership would mostly benefit developing nations like Vietnam

Massive factories have sprung up in Long An to make goods for Western companies such as Nike, taking advantage of Vietnam’s young workforce and wages that are roughly half those in China. This agricultural province, located near Ho Chi Minh City, now has more than a dozen industrial parks, and is playing host to an increasing amount of manufacturing.

“This growth could accelerate if the U.S. and 11 other Pacific Rim nations ratify the Trans-Pacific Partnership agreement, a landmark trade deal concluded earlier this month,” reports The Wall Street Journal (Oct. 19, 2015). The deal would eliminate certain tariffs between members, mostly benefiting developing nations whose growth depends heavily on exports. Skyrocketing wages and a growing labor shortage in China are heightening Vietnam’s appeal. If the trade deal goes through, Vietnam’s economy would be the single largest beneficiary, because it would gain much greater access to large consumer markets. Money pouring into the Southeast Asian economy could make Vietnam one of the world’s two fastest-growing large economies between now and 2050.

The trade agreement would benefit firms like Avery Dennison Corp., one of the world’s biggest makers of clothing labels and tags. The California company just opened a 300,000 square foot facility in Long An. Inside, sewing machines print tags for Japanese clothing brand Uniqlo, while workers pour red ink into giant machines that print the labels sewn into North Face outdoor-sports clothes. “The skills of Vietnamese workers are increasing exponentially every year,” says Avery Dennison’s VP, “and the country is able to accommodate ever more complex production. What took 30 years in China is taking 10 years in Vietnam to happen. That is why more and more companies are making bets on Vietnam.”

Classroom discussion questions:

Why is the trade deal useful to Vietnam? To the U.S.?
How does this impact American garment makers?

OM in the News: Airbus Lands in Alabama

The 1st A321 being inspected in the new plant in Mobile

Mardi Gras came early this year to Mobile, Ala., writes The New York Times (Sept. 20, 2015). Following a jazz band, a float bearing waving dignitaries and sequined musicians, was a column of flatbed trucks, laden with sections of fuselage, wings and tail components of an A321 jet that had just made the 3-week Atlantic crossing from an Airbus factory in Germany. They were on their way to a new Airbus assembly plant — its first civilian factory in the U.S. “I think Santa Claus has been here, and he’s left us an airplane,” said Mobile’s mayor.

The $600 million plant, on 116 acres, is the culmination of a courtship ritual, one of many playing out across the country as communities vie for attention and investment from foreign companies. Like many states and cities, Alabama and Mobile sweetened the deal for Airbus with generous tax breaks and other financial incentives. For Mobile, a city of 200,000, the prospect of 4,000 jobs with Airbus and its suppliers proved especially attractive. Unemployment there hovers at 8%, well above the national average.

Airbus’s foray into the U.S. forms part of a longer-term strategy. The company still lags far behind its rival, Boeing, in the U.S. market. As Japanese automakers did a generation ago, Airbus hopes that by producing aircraft that are “made in America,” it will be able to weaken Boeing’s advantage.

Airbus had eyed Mobile for years. The city’s deepwater port could accommodate ships carrying large structural parts from Europe. Freight trains run nearby, and the site, which is equipped with two long runways, is already home to small aviation maintenance companies and parts suppliers. Locating in Mobile would create a natural hedge against exchange-rate swings between the euro and the dollar and reduce some of the cost of transporting the $16.5 billion in components that Airbus buys from American aerospace suppliers each year. Labor costs were also substantially lower compared with Europe, and Alabama has a right-to-work law, which prevents unions from requiring workers to pay union dues.

Classroom discussion questions:

Why Mobile?
What are the disadvantages of opening a plant outside of Europe?

OM in the News: GE’s Once Every 40 Year Location Decision

GE plans to make a decision shortly on whether to move its headquarters of more than 40 years from Connecticut, a choice prompted by what the company considers an inhospitable climate for business in the state. The company has been weighing overtures from other states including NY and Georgia that are eager to lure the $150 billion firm, reports The Wall Street Journal (Sept. 11, 2105).

GE’s considerations expand beyond local issues and tax rates. It is looking at the voting records of each state’s lawmakers on national policy issues, such as the fight to reauthorize the Export-Import Bank. The company considers the bank vital to its exports of heavy machinery. GE never even considered a bid by Cincinnati—where GE is currently shifting hundreds of back-office jobs, and which is also the hometown of CEO Jeff Immelt—because of opposition from some Ohio politicians to reauthorizing the Ex-Im Bank. The same holds true for Dallas.

The company was considering various factors in deciding whether and where to move its head office from Fairfield, where it has been since 1974. GE isn’t approaching the decision lightly. Relocating is “the kind of thing you only think about every 40 years, so you want to make sure you get it right,” said Immelt. Most of GE’s facilities to manufacture heavy equipment like power turbines, jet engines and locomotives are in other states such as South Carolina, Ohio and Texas. GE currently employs 4,900 people in Connecticut, of which 800 work at the corporate headquarters in Fairfield. One of the changes in the Connecticut budget that GE took issue with was a cap on the amount of prior-year tax losses companies could use to offset their taxes. Connecticut officials say the state will make efforts to keep GE at the “right price.”

Classroom discussion questions:

Why is this such a critical decision?
Why did Boeing move its corporate HQ a few years ago from Washington State to Chicago?

OM in the News: Chinese Manufacturers Head for South Carolina

Ni Meijuan (center) at Keer's S.C. factory — Ni Meijuan (center) at Keer’s S.C. factory

Twenty-five years ago, Ni Meijuan earned $19 a month working the spinning machines at a vast textile factory in China. Now at the Keer Group’s cotton mill in South Carolina, Ni is training American workers to do the job she used to do. “They’re quick learners,” she said. “But they have to learn to be quicker.”

Once the epitome of cheap mass manufacturing, textile producers from formerly low-cost nations are starting to set up shop in America, reports The New York Times (Aug. 3, 2015). It is part of a blurring between high- and low-cost manufacturing nations that few would have predicted a decade ago. Textile production in China is becoming increasingly unprofitable after years of rising wages, higher energy bills, and mounting logistical costs.

At the same time, manufacturing costs in the United States are becoming more competitive. In S.C., Keer has found residents desperate for work, as well as access to cheap and abundant land and energy and heavily subsidized cotton. Politicians have raced to ply Keer with grants and tax breaks to bring back manufacturing jobs once thought to be lost forever. “The reasons for Keer coming here? Incentives, land, the environment, the workers,” said Keer’s chairman. “Everybody believed that China would always be cheaper,” said a partner at Boston Consulting. “But things are changing even faster than anyone imagined.” In the U.S., manufacturing wages have risen less than 30% since 2004, to $22.32 an hour. Yarn production costs in China are now 30% higher than in the U.S.

From 2000 to 2014, Chinese companies invested $46 billion on new projects in the U.S., with the Carolinas home to at least 20 Chinese manufacturers. Shrinking manufacturing jobs have spurred a willingness in places like S.C. to work for lower pay, making them increasingly attractive production bases. Global manufacturers have also been drawn to right-to-work states, where there is little unionization.

Classroom discussion questions:

1. Why are Chinese textile manufacturers attracted to the U.S.?

2. Why S.C.?

OM in the News: And the Winner of Volvo’s New $500 Million Plant is— S. Carolina

A Volvo plant in China. The automaker is hoping to increase its American sales volume, which fell 8% last year.

Volvo just announced that it will build a $500 million factory near Charleston, South Carolina, making it the first time a Chinese-owned automaker will have an auto assembly plant in the U.S. The company said that the plant — its first in the U.S. since entering the market 60 years ago — would eventually employ 4,000 and will open in 2018. The factory will initially be capable of making 100,000 vehicles a year.

Volvo already operates two plants in Europe and two in China. It is hoping to increase its American sales volume. Globally, the company is growing, up 9% last year to nearly 470,000 vehicles — helped by surging demand in China.

Volvo will receive about $200 million in combined incentives, reports The New York Times (May 12, 2015). That includes $120 million in economic development bonds, $30 million in state grants and an additional $50 million of incentives from a state-owned utility company. The firm said it chose the S. Carolina site for its proximity to seaports and the quality of autoworkers and facilities in the region. “One of the main criteria for us was infrastructure,” said the CEO. “South Carolina has people who know the industry, can work in the factory, and who understand our business.” He added that the company was looking long-term at its first production on American soil. “A commitment like this you don’t make for 10 or 15 years,” he said. “It’s designed for decades.”

Volvo’s announcement is the latest in a series of production expansions by foreign automakers in the U.S. In July, VW announced it would spend $600 million to expand its plant in Chattanooga.

Classroom discussion questions:

1. How do these incentives compare to prior offers to automakers?

2. Why is Volvo opening the U.S. plant in S. Carolina?

Guest Post: My North Carolina View of Incentives

Our Guest Post today comes from Coleman Rich, at Elon University, in North Carolina. Coleman is Chair of the Department of Marketing and Entrepreneurship and Senior Lecturer in Operations and Supply Chain Management

Being a Textile Management grad from North Carolina State U., I have seen that incentives played an important role in NC to secure the textile trades from the North. Many towns would pool their money to help secure a mill which would move individuals closer to town and give workers a steady wage. The mills provided housing and staples for their employees.

Fast forward to 2 decades ago. North Carolina was in the running for the Mercedes plant. The Governor met with the Mercedes representatives at Alamance Community College near I-40/85 to discuss incentives for the plant. There was a 1,000 acre site with rail, and Duke Energy would run the power to the plant. The Governor offered over $100 million. But the Germans went to Alabama. We can only imagine how different this area would be if Mercedes had chosen this site.

That one plant created an entire industry cluster in the Alabama and Mississippi area. Since Mercedes announced the Alabama plant in 1993, Honda, Toyota, Hyundai

Dell's 2012 closing of this manufacturing plant put more than 900 people out of work. — Dell’s 2012 closing of this manufacturing plant put more than 900 people out of work.

and Kia also opened factories in that region. I believe incentives rarely work, but you have to “pay to play.” As a state, I would be willing to offer incentives to a large manufacturing company because I believe there is more economic value in supply chain companies locating in close proximity to the manufacturer. Alabama’s network of auto suppliers now tops 130 companies.

Here is a mistake the State made with Dell in Kernersville, NC. Virginia and NC were both bidding for the Dell plant. Virginia offered incentives in the $30-37 million range. Local and state incentives from NC were about $242 million. But the Dell plant closed after 5 years. Why did NC offer more than Virginia in incentives for the Dell plant? After all, as technology was changing and consumers moving toward laptops, this plant was making desktops. Also Dell began to change its business model to compete with HP. Maybe the economic models that the state of NC uses also need to consider product life cycle of the product that will be made in the plant.

But if it wasn’t for incentives, NC would not have been shaped by the tobacco, energy (Duke Power), furniture and textile industries. Those industries could have moved further south to SC and Georgia. As I teach Chapter 8 in the Heizer/Render text, I share all of these points with my class.

OM in the News: Are Location Incentives Worth the Cost?

Jay and I were just discussing the OM in Action box in Chapter 8 (Location Strategies) called “How Alabama Won the Auto Industry.” We are working on the 12th edition (due out Jan.1, 2016) and debating the value of the $253 million in incentives that brought Mercedes to Alabama. The recent article in The Wall Street Journal (March 13, 2015), called “Corporate Giveaways Are Not a Good Deal for North Carolina” helped enlighten our debate. For years, N.C., like many states, has had a system under which the governor can dangle tax breaks and grants to companies considering relocating to the state. As the pot of money available for these corporate incentives is about to run dry, the governor is urging state legislators to sign a bill for more funding.

The bill would increase the amount available to award this year by $15 million. If that sum sounds relatively modest, consider 2 points. First, each new grant can last up to 12 years, meaning the extra $15 million could increase the program’s payout by $180 million. Second, N.C. has already issued more than 200 grants since 2002 that will deprive state coffers of an estimated $157 million in the next 2 budget years alone. Outstanding liabilities for corporate incentives–$1 billion!

Proponents argue that other states are playing the incentives game, and businesses expect to trade tax cuts for jobs. That claim deserves a closer look. A recent report summarized the results of 55 peer-reviewed articles on the impact of targeted tax incentives, and the results are not encouraging. More than 70% of the studies found that incentives either did not substantially contribute to economic performance or produced mixed results. As an example, in 2011, $20 million of state money helped lure Chiquita Brands from Cincinnati to Charlotte. But after a recent buyout, Chiquita plans to close the headquarters, and community leaders are now working to recover as much money as possible.

There are other steps lawmakers can take that are much more likely to boost the economy: Ensure the delivery of high-quality services such as schools and roads while lowering costs, flattening taxes and repealing unnecessary regulations.

Classroom discussion questions:

1. Argue the pros and cons of such incentives.

2. Discuss the OM in Action box on Mercedes on page 331.

OM in the News: Mercedes Heads South

Mercedes is moving down south, writes The Wall Street Journal (Jan. 7, 2015), uprooting its USA’s headquarters from its longtime perch in New Jersey with plans to relocate it to an Atlanta suburb. Wooed by lower costs, proximity to a Mercedes-Benz factory, and government incentives, the car maker turned down a significant incentive package from New Jersey to keep its U.S. headquarters in Montvale, where it had been running operations since 1972. Mercedes is joining several other auto makers to have moved operations and corporate headquarters to the South to take advantage of low union membership in right-to-work states, low corporate taxes, and easy access to well-maintained highways, rail lines, ports and airports.

“We think the infrastructure in the States has changed,” said CEO Dieter Zetsche. “The South is much more relevant than it used to be.” A site selection consultant added that New Jersey has the country’s most appealing incentives policy, but it was outweighed by the cost-savings and convenience of moving to the U.S. South. He said that the move would reduce Mercedes’ costs, including real estate, energy and property taxes, by about 20%.

Mercedes has a plant in Alabama, which builds about half the vehicles it sells in the U.S. and is expected to reach an annual output of 300,000 vehicles next year. Last April, Toyota said it would relocate its U.S. operations to a new campus in Plano, Texas. South Korea’s Kia Motors opened a plant near Columbus, Ga. in 2010. A year later, Volkswagen opened a plant in Chattanooga, Tenn. Other operations include BMW’s plant in South Carolina and Hyundai Motor’s plant in Alabama.

Mercedes’ decision to move as many as 1,000 jobs from the state is another body blow for New Jersey’s labor markets. Recently billboards pleaded “Bergen County (hearts) Mercedes-Benz #Please stay.”

Classroom discussion questions:

1. Why are location decisions such as this so important to the state and to the company?

2. Why did Mercedes decide to relocate?

OM in the News: Iowa–Home of Corn and Facebook

Facebook's servers require only 75 employees in this massive facility — Facebook’s servers require only 75 employees in this massive facility

Among the big draws in Altoona, Iowa, population 15,000, are Adventureland, a Bass Pro Shop, and the Prairie Meadows casino. “And now,” says The Wall Street Journal (Nov. 15-16, 2014), “it has Facebook’s new data center.” The social network just opened the $300 million facility, a move that highlights the intense competition and lavish tax breaks available from small communities looking for technology bragging rights. Nearly 3 times the size of the city’s sole Wal-Mart, Facebook’s warehouselike structure is packed with refrigerator-sized stacks of computer servers and thick coils of cables. The Altoona facility was built on millions of dollars of tax breaks and about 18 months of negotiation.

Facebook isn’t Iowa’s first high-tech catch. Microsoft is spending $2 billion on a data center nearby in Des Moines. Google is expanding a facility in Council Bluffs.

States and cities long have vied against each other to lure factories, sports teams and corporate headquarters. Iowa, the county’s largest producer of corn and soybeans, is among more U.S. states rolling out a green carpet for those farming bits and bytes. Officials say data centers broaden their tax base, create well-paying technical and construction jobs and confer bragging rights that will lure companies with bigger hiring plans. They also contribute to the local economy without stressing infrastructure such as roads and sewage plants.

But it remains an open question whether the cost of these facilities in tax breaks and services works out in their favor. Altoona provided Facebook a 20-year exemption on paying property taxes, and Iowa agreed to $18 million in sales-tax refunds or investment-tax credits through 2023. Facebook pledged to spend at least $300 million on the project and create jobs paying $23.12 an hour. “For the tax breaks they often receive, the centers produce few jobs or spinoff benefits,” said an Iowa State U. prof. Tech companies aren’t looking for incentives alone. Availability and pricing of electricity, which can exceed 2/3 of the cost to run a data center, are among the most important factors.

Classroom discussion questions:

1. Are these unusual incentives?

2. What are the risks to each side–Altoona and Facebook?

OM in the News: India vs. China As the Next Manufacturing Power

With its chronic blackouts, crumbling roads, and other infrastructure woes, India should have no appeal for Abbott Laboratories’ VP John Ginascol, who is responsible for ensuring that the company’s food-products factories run smoothly worldwide. He can’t afford surprises when it comes to electricity, water, and other essentials. “People like me,” he says, “dream of having existing, good, reliable infrastructure.” Yet Abbott has just opened its first plant in India (producing Similac baby formula), and Ginascol has no complaints. The officials “were able to deliver very good, very reliable power, water, natural gas, and roads,” he says. “Fundamentally, the infrastructure was in place.” In an attempt to build its industrial base nationwide, India is pushing the Make in India campaign, easing restrictions on foreign investment in property projects and overhauling the railroad system., reports BusinessWeek (Nov. 6, 2014).

China became an export powerhouse because of its vast pool of low-wage workers, but it’s no longer so cheap to manufacture there. Pinched by double-digit increases in China’s minimum wages, many companies are looking for low-cost alternatives. Southeast Asian countries such as Vietnam and Indonesia are attractive, but they lack the deep supply of workers available in India. The hourly labor cost in India for manufacturing averages 92¢, compared with $3.52 in China. But, says U. of Maryland Prof. Anil Gupta, India hasn’t come close to matching China’s investments in the roads, ports, and power networks that companies want. “Lousy infrastructure essentially eats up any advantage the country may have on the labor front.”

Micromax, for example, is the top local smartphone brand in India. The company takes advantage of its Indian roots to win customers, but when it comes to putting its phones together, it looks to factories in China. To produce locally, a company such as Micromax would need to have lots of its suppliers nearby; that exists in China, not in India. “You need to have cameras, screens, touch panels, chip sets. You need all that to be around you,” says its Chairman. “If you are able to build that ecosystem, then the Make in India story comes true.”

Classroom discussion questions:

1. What factors have kept India behind China in manufacturing thus far?

2. What are the advantages and disadvantages of locating in India vs. Vietnam or Indonesia?

OM in the News: Tesla and the Mother of All Factory Chases

After pitting five potential host states against one another in a quest for hundreds of millions of dollars in incentives, Tesla Motors reports in The New York Times (Sept. 5, 2014) that it has struck a deal with Nevada for construction of a sprawling factory to build batteries for electric cars and the power grid. To secure the deal, Nevada paid dearly. The package of tax breaks totals about $1.25 billion over 20 years. Gov. Brian Sandoval acknowledged that there were concerns over the deal’s cost, but said that the agreement would “change Nevada forever” and that he expected the enormous tax breaks to pay dividends down the road.

Whether it will work that way is not clear. But the prospect of having such a large plant nevertheless set off “the mother of all factory chases,” according to an industry expert. The deal goes beyond tax breaks. It means Tesla would pay no sales tax for 20 years, no property tax and payroll tax for 10 years, and it would receive other tax credits tied to job creation and development. Nevada will also grant Tesla discount electricity rates for 8 years and make millions of dollars in road improvements around the factory site.

An important element for Tesla is the anticipated cost reduction is moving the fabrication of various components to a single spot, making the factory more of a campus than a single operation. Today, bringing the main components of the battery together is expensive. CEO Elon Musk describes the current system as “being put in a box, and then on a truck and then on a boat, and going through customs and stuff like that.” Still, analysts question whether the plant’s vast size will result in the huge price cut, an essential element of making the factory useful. At the heart of the strategy is to build a kind of battery that resembles the ones used for years in laptops and hand-held electronics.

Classroom discussion questions:

1. Referring to the incentive issue in Chapter 8, discuss Nevada’s decision.

2. Who is taking the most risk in this location decision?

OM in the News: Factory Rebound’s Winner–Mobile, Alabama

Austral has increased the workforce at its Mobile shipyard to 4,100 from 900 in 2009

The U.S. has added about 650,000 factory jobs since their numbers rebounded after the recession, putting manufacturing workers at 12.1 million and reversing a long decline in such jobs, reports The Wall Street Journal (May 30, 2014). But uneven growth has created regional disparities in the nation’s overall economic recovery.

Mobile, Alabama is among the winners. Shipbuilder Austral Ltd.’s facility here is busy seven days a week as workers piece together enormous aluminum sheets in a space the size of 13 football fields. Airbus and BAE Systems, too, are adding factory jobs here. Mobile created more manufacturing jobs than all but 15 U.S. counties in the past 4 years. U.S. factory-job gains—driven by a range of factors from cheaper domestic energy to the auto-industry recovery—have concentrated in pockets since the recession, particularly in the Southeast and Midwest.

Mobile’s success illustrates some common patterns: Often, companies have added jobs in states with “right-to-work” laws—which allow workers in unionized workplaces to opt out of paying union dues—and where taxes are relatively low, in counties where governments provide large incentives and strong vocational education, and in places with access to ports or other transport hubs.

Austal chose Mobile because of location, waterfront property, cooperative local and state governments, low taxes and low union membership. Alabama’s government sponsored training for Austal workers and built it a $12 million training center.

Airbus Americas, hiring about 1,000 new employees for its first U.S. commercial assembly plant, didn’t consider any Northern states as finalists, as it was looking for a port to which it could ship airplane parts for assembly. Alabama’s right-to-work rules were a key attraction. Alabama gave Airbus tax credits and cash grants valued at $158 million to build in Mobile—including a $6 million training center. “Alabama had it all,” says the Airbus chairman. “I’m not sure the rust-belt states have the same attitude.”

Classroom discussion questions:

1. Evaluate the incentives offered Austral and Airbus based on the material in Chapter 8.

2. What are “right-to-work” states and what advantages do they offer?

OM in the News: Why the VW Vote to Reject a Union is Big News

As we note in Chapter 8, Location Strategies, the presence of labor unions can have a major impact on a company’s decision where to locate a manufacturing plant. So when workers at the Tennessee VW auto factory voted 712 to 626 last week against joining the United Automobile Workers, it was national news. VW did not oppose unionization, reports The New York Times (Feb. 17, 2014), and seemed to give tacit approval for unionization as a step toward establishing a “works council” at the plant. A works council is a committee, common at German factories, in which white-collar and blue-collar workers elect representatives who establish policies on issues like work hours, vacations and standards for firing workers. But it would be illegal under U.S. law for a company to establish a works council unless workers first voted to have a union represent them. Had a works council been set up at the VW plant, it would have been the first in the U.S.

U.A.W. officials were stunned by the defeat; they had expected to win because VW was not fighting the effort and, just months before, a majority of the plant’s employees had signed cards saying they favored union representation. One industry expert called the loss “a very serious setback for the union, a setback that will resonate throughout the South.” The U.A.W. campaign was clearly hurt by the anti-union sentiment common in the South, as well as an intense campaign by anti-union workers inside the plant who argued that they did not need a union or union dues because VW already treated and paid them well. Wages at the plant average $19.50 an hour.

Union officials accused Tennessee Senator Bob Corker of poisoning the atmosphere and preventing a fair election before the vote. Corker had told the media that VW had assured him they would add another production line at the plant (instead of going to Mexico) to make a new SUV if the factory’s workers rejected the union. This story can make for a lively class discussion of incentives, unions, worker rights, and more.

Classroom discussion questions:

1. Why did state officials take a position against the union vote?

2. Why did VW encourage creation of a works council?