Caterpillar’s planned relocation of its global headquarters to Texas from Illinois comes as the equipment maker and other companies expand their manufacturing bases south. Manufacturing employment has been on the rise in many Southern and Southwestern U.S. states in recent years, as companies target the regions for new factories, plant expansions and corporate bases, seeking what some executives have said is a growing available workforce and cheaper real estate.
Florida, Texas and Arizona increased their manufacturing employment the most in the five years through 2021, while New York, Washington and Illinois lost the most manufacturing workers over that same period.
Ford Motor said it would spend $11.4 billion along with a South Korean partner to build four factories in Tennessee and Kentucky that would support electric batteries and vehicles. Toyota said that it would invest $1.24 billion in a North Carolina battery and car plant. Leprino Foods is investing $870 million in a new mozzarella plant in Texas, and Novelis intends to build an aluminum rolling plant near Mobile, Ala.
“Companies investing in southern parts of the country have cited benefits including growing workforces, more affordable housing, availability of physical infrastructure and quality educational systems,” writes The Wall Street Journal (June 16, 2022). Southern and Southwestern state lawmakers have worked to make their states friendly to new or established manufacturers, letting companies deduct energy spending from sales-tax bills, for example, or providing exemptions from local property taxes and tax credits that can be resold to other businesses. States in the South and Southwest have typically lower unionization rates than states in historic union strongholds such as Illinois and New York. In 2021, 15% of Illinois workers were represented by a union, compared with 4.7% in Texas.
Such factors, as we discuss in Chapter 8, Location Strategies, can be meaningful in the manufacturing industry, where profit margins often are thin. “A big reason you see this migration is it has a lower cost of business to operate in this area,” said the head of the Texas Business Association.
Classroom discussion questions:
- List all the factors that manufacturers consider in making location decisions.
- What is meant by a “right-to-work” state?