Conexus Indiana

Last week, Inside Indiana Business published a column by Conexus Vice-President David Holt on the challenges facing our aviation infrastructure (and potential solutions).  Read the full text below, or go here to see the piece at Inside Indiana Business and subscribe to the Indiana Connections monthly manufacturing and logistics newsletter:

It’s the time of year when millions of Americans are making summer vacation plans.  Each family makes its own set of logistical calculations: Is it faster or cheaper to drive, fly, take a bus?  What’s the price of gas likely to be, and what value do we put on time and convenience?  What’s the best way to move ourselves and our luggage within our budget to our chosen destination?

Expand the scale and scope of these considerations exponentially and you have a typical company in today’s global market.  To meet the ‘in time’ and ‘on budget’ demands of customers and business partners across the globe, firms have to move freight via the fastest and most cost-effective mode of transportation for each leg of its journey. 

To meet their needs and grow our logistics economy, Indiana must focus simultaneously on every facet of our transportation infrastructure – moving freight over land, by water and through the air.

In nearly every category, Indiana sees significant competitive advantages along with long-term challenges: We enjoy unparalleled interstate highway access, but must be diligent in fighting for our share of future federal highway funding.  We rank among the top ten in rail miles, though additional intermodal capacity remains a strategic need.  Indiana is served by three major maritime ports on the Ohio River and Lake Michigan, but waterborne freight through the Midwest is threatened by the deteriorating condition of several critical locks and dams.

In aviation, Indiana is a global hub for airborne freight through the Indianapolis International Airport (the nation’s 8^th largest air cargo facility, anchored by the world’s second-largest FedEx distribution center) and a strong statewide network of regional airports.  The southern part of the state is also served by a major UPS hub just across the river in Louisville.

This infrastructure will be tasked with handling brisk growth in air freight – projected at 5% a year through 2030 (as measured by Registered Ton Miles).  But like the rest of our transportation system, our airports face significant shortfalls in funding to make needed improvements and expansions – $52-80 billion in critical projects the next five years alone according to varying estimates by the Federal Aviation Administration and the Airports Council International.  

With U.S. aviation infrastructure already ranked a dismal 32^nd worldwide by the World Economic Forum, this gap threatens to make us even less competitive in the global supply chain.

The deficit must be filled by airport-generated revenues, state funds and federal grants (primarily through the Airport Improvement Program, or AIP).  Unfortunately, these sources have been depressed by the economy and subjected to political maneuvering and budget cuts.  The Conexus Indiana Logistics Council recommends a few common-sense steps towards addressing our aviation investment gap:

1. Diversions – We should end diversions from the current state sales tax on aviation related activities.  These funds should be dedicated for airports only, just as gasoline taxes should be solely committed to road construction. 

2. Expanding Federal Revenues - Federal aviation fuel taxes should be indexed to inflation so they can grow as aviation-related expenses grow.  Remove the Passenger Facility Charge (PFC) cap on airports to allow facilities more flexibility to raise their own operating and capital funds.  The airports would continue to justify projects that would be funded from PFC proceeds, preventing them from raising fees with impunity.   As a further safeguard against unnecessary increases, prevent large and medium hub airports from receiving AIP passenger entitlement funds if they raise charges above the existing cap.  (These airports would still be able to compete for discretionary federal funding.)  The federal ticket tax should also be extended to airline charges for baggage and other airline ancillary fees.  The airlines have artificially lowered the airline ticket price by creating separate fees rather than simply increasing the cost of tickets, creating a loophole that deprives the federal aviation trust fund of needed revenues. 

3. Federal/State Lockbox –Just as we should end diversions at the state level, federal funding should be protected from political maneuvering and chiseling.  Any federal funds generated from the domestic passenger ticket tax, the domestic passenger flight segment tax, tax on flights between the Continental U.S. and Alaska and Hawaii, frequent flyer tax, domestic cargo/mail tax, general aviation fuel tax, commercial fuel tax, and other aviation fund user fees should flow directly to the Airport and Airways Trust Fund (AATF) and not into the General Revenue Fund.  This would work similar to the Social Security Administration and funds would be specifically restricted to aviation use only.

In short, by safeguarding aviation funding, making sure revenues grow along with the cost of living, and ending the airline’s practice of spinning off new fees to avoid paying their rightful share, Indiana and the nation can make real strides towards making much-needed investments in our 21^st century air cargo infrastructure.  And as these investments will spark further growth in our trillion-dollar logistics industry, they will pay dividends in new jobs and business opportunities that far outweigh the costs.

David Holt is the Vice-President of Operations and Business Development for Conexus Indiana, the state’s manufacturing and logistics initiative, and manages its Logistics Council.

Over the weekend, the Times of Northwest Indiana published an analysis of that area’s trucking industry (based on the U.S. Department of Transportation’s heavy truck census data) that shows the importance of freight transportation to the regional economy: More than 6,000 companies using heavy truck operate out of five Northwest Indiana counties and selected south suburbs of Chicago, generating an estimated $3.2 billion in annual revenues.

This story caught our attention and triggers three observations:

First, further confirmation that given its strong highway, rail and maritime port infrastructure and adjacency to the Chicago market, Northwest Indiana is certainly a logistics powerhouse.  Thousands of logistics-focused firms employ tens of thousands of Hoosiers, making logistics a cornerstone of the state’s second-most populous region.

Second, there is a need for continued analysis and forward progress on building intermodal capacity for the region, as mentioned in the Times article.  The region’s unique interstate connectivity, dense rail network and Lake Michigan port (Burns Harbor) make it a strong candidate for the specialized logistics hubs where containers can be shifted among trains, trucks and ships to optimize logistics efficiency (and bypass the increasingly-congested Chicago ports).

Third, with thousands of heavy trucks passing over its highways daily, the region embodies the state’s (and indeed, the nation’s) challenge of maintaining appropriate investments in its roadways to accommodate anticipated growth in freight volume via truck.  Look for recommendations on this critical issue from the Conexus Indiana Logistics Council in weeks ahead.

Read the full Times article here.

Manufacturing grew in April at its fastest pace in nearly a year, according to the Institute for Supply Management’s manufacturing index: New orders (including exports) and employment remained strong –U.S. factories have added 120,000 new jobs over the last three months (one of every five new positions) as the sector continues to lead the nation’s growth out of the recession.  Read more here. 

Yesterday marked another expansion of Cummins Inc.’s Indiana footprint, as the Columbus engine manufacturer announced plans to grow its high-horsepower operation in Seymour and add 290 new jobs in the process.  The $219M expansion will include the construction of new warehouse space as well as engineering and production facilities.

As part of BMO Harris’ annual Economic Outlook Breakfast today, the bank’s Chief Investment Officer Jack Amblin says he expects to see a continuing resurgence of the manufacturing sector through the rest of 2012 – and the Cummins announcement certainly seems to confirm his optimism.  But Cummins’ impressive growth and continued investments in Southern Indiana have come despite broader economic trends, a testament to the company’s durability, strategy and management.

Companies like Cummins drive Indiana’s manufacturing sector, anchoring the most production-intensive economy in the nation while supporting a broader supply chain of smaller firms.  This is Cummins’ fourth announced expansion in southern Indiana in the past two years, as its statewide headcount approaches 8,000.  It brings to mind a column penned by Ivy Tech Community College President Tom Snyder last year, on the occasion of Cummins’ appearance on the Fortune 500:

From 2009 to 2010, Cummins climbed from #218 to #186 on the list of the nation’s 500 biggest companies, boasting more than 22% growth in revenues.  And that’s just the beginning.

Over the last decade, Cummins boasts the best growth in profits of any U.S. company.  An automotive manufacturer, outpacing dot com juggernauts like eBay and Apple, insurance and healthcare giants, biotech pioneers.  It’s not even close – Cummins beats its nearest competitor by more than 10% in annual earnings-per-share growth.

So it’s no surprise that Cummins also represents the second-best investment for shareholders over the last five years (again beating Apple, among other well-known names like Amazon.com, Oracle and McDonald’s).  It was the third-best investment last year, and ranks in the top ten (8^th) over the ten-year timeframe.

Clearly, Cummins’ growth is due to successive generations of visionary management willing to make aggressive moves.  Cummins was a pioneer in exploring overseas markets in the 1960s, and today thrives in places like China, India and Brazil.  The company is also on the cutting-edge of green technologies: A Cummins engine powered the first diesel-electric hybrid truck in 2005; the company is a leader in putting hybrid busses on our streets, and a partner in the Energy Systems Network initiative to bring new energy innovations to market here in Indiana.

Through it all, Cummins has been unwavering in its commitment to southeastern Indiana... In 1919, forty years after Colonel Eli Lilly decided to launch his own medical wholesale company 45 miles north in Indianapolis, a businessman named W.G. Irwin decided to help a self-taught mechanic named Clessie Cummins start his own diesel engine business.  Out of such historical footnotes, economies are built – and Cummins continues to support the vitality of Indiana’s economy today.

Read more about Cummins latest announcement here.

This story from Lafayette illustrates a key point about advanced manufacturing today – it is engineering and technology-intensive, knowledge-driven, and creates high-skill jobs, not just on the factory floor but in a broader supply chain.  The collaboration between Purdue, the State of Indiana and local economic development agencies to bring this kind of high-value operation to Tippecanoe County is the sort of success that should be acknowledged and hopefully replicated exponentially.

Automotive Robotics to build plant in Purdue Research Park

Commentary by Ball State economist Michael Hicks (who also leads the development of the annual Conexus Manufacturing and Logistics Report Card, set for release in June) on the continued growth of advanced manufacturing:

 “In fact, 2011 was a record year for the making of things in America, as will be 2012 and 2013 (all in inflation-adjusted terms).

"Absent an occasional recession, each successive year from here into the foreseeable future will be a new record year for manufacturing. Indeed, the data are clear: American manufacturing has never been more healthy and vibrant…”

Read the full piece here:

Conexus Indiana Vice-President David Holt appeared on Inside INdiana Business with Gerry Dick last weekend to discuss key logistics policy issues on the state and federal level.  Holt lamented the apparent demise of a tax credit designed to spur distribution facility investment in the Indiana General Assembly, but pledged a renewed fight for the bill during the next legislative session.  He also detailed how Indiana would fare under new federal transportation bills currently being debated in Congress.

Watch the interview here.

Six Indiana high schools will give students a head-start on high-tech AML jobs; schools in Indianapolis, Hammond, Terre Haute, Evansville and Batesville will debut new program

 Conexus Indiana, the state’s advanced manufacturing and logistics (AML) initiative, today announced six Hoosier high schools and career centers that will pilot its new high school-level AML curriculum this fall.  The curriculum, designed to give Indiana students a head-start on careers in the state’s largest economic sector, will debut at George Rogers Clark High School & Area Career Center (Hammond, Indiana); the Area 31 Career Center at Ben Davis High School (Indianapolis); The Excel Center (Indianapolis); Terre Haute North High School; North High School and Southern Indiana Career/Technical Center (Evansville); and Batesville High School. 

Conexus began exploring a high school AML curriculum over a year ago, responding to calls from industry for a higher-skilled, better-prepared workforce.  Today’s manufacturing and logistics jobs demand increasingly advanced technical skills; the majority of workers in this sector have now completed a college degree or industry training credential.  With a rapidly aging workforce, employers have struggled to identify and hire younger employees with appropriate education.  

“It became clear that we need a new model to train the next generation of manufacturing and logistics workers,” said Conexus President & CEO, Steve Dwyer.  “Our goal is hand-in-hand collaboration between industry and academia to create the right programs that are teaching the skills that employers really need, a pathway to employment that begins in high school.” 

With feedback from a broad array of employers and educators and the support of the Indiana Department of Education, Conexus is creating a program that is a mixture of online, hands-on and project-based units that will expose students to key concepts in these industries.  The curriculum also offers dual-credit opportunities that will position students to successfully pursue relevant certifications, associate degrees or four-year programs after graduation.   Ivy Tech Community College was a significant partner in shaping the curriculum to provide a seamless transition to post-secondary studies. 

The six pilot schools will test the curriculum before it is made available to districts statewide in 2013.  More than 150 students at the pilot schools have already signed up for the program, with enrollment ongoing. 

“We’re very pleased that there has been so much interest from students in the pilot schools, and we think that will be replicated across the state next year,” said Dwyer.  “We already have fifty superintendents and career center directors committed to offering the curriculum in their districts.” 

Dwyer added that enthusiasm about the curriculum shows that manufacturing and logistics remain the state’s economic foundation and primary source of quality job opportunities. 

“Economists at Ball State tell us that manufacturing employment has grown 5% since the end of the recession, while most industries have struggled to add jobs,” he said.  “The State of Indiana attracted more manufacturing and logistics jobs than any other industries last year.  And with Baby Boomers retiring in greater numbers every day, career opportunities will be plentiful. 

“The challenge is finding qualified applicants to take these jobs – this curriculum is a first step for a new generation of workers.”

Indiana Superintendent of Public Instruction Tony Bennett agreed that more options for teaching an advanced manufacturing and logistics curriculum are a welcome addition.

“We’re working every day to make sure students leave high school with the skills they need to be successful in work and life,” Bennett said.  “When schools and private companies can work together to develop and implement a quality curriculum, they create more pathways to connect students to high-paying careers in their future.”

The development of the AML curriculum was funded by Conexus Indiana, with the support of its industry and philanthropic partners, and will be provided to the State of Indiana and school corporations statewide at no taxpayer expense.

Logistics tax credit a super-size boost to Indiana’s economy

David Holt

Last week, more than 150,000 visitors descended on Central Indiana for Super Bowl XLVI, one of the biggest sporting events in the world. Thousands upon thousands of people packed the streets of Indianapolis, transforming the state capitol into the capitol of football fandom.

Indy drew rave reviews for how it handled the influx with hospitality and aplomb. But this shouldn’t be surprising – after all, organizing and managing the flood of fans is really an exercise in logistics. And Hoosiers know logistics.

Think of it this way: Take every single Super Bowl visitor in Indianapolis last week, and replace each of them with over 12 million pounds of freight, piled higher than the city’s skyline. That gives you a sense of the volume of manufactured goods, agricultural products, steel and other materials that are shipped to, from and through Indiana every year – nearly a billion tons.

It adds up to big business. Indiana’s logistics sector is a $10 billion industry that employs 300,000 Hoosiers. By moving products efficiently across the country and around the world, logistics also makes our manufacturing sector work. ‘Crossroads of America’ is more than a marketing slogan for Indiana – it’s an economic fact.

State lawmakers recognized the importance and growth potential of our logistics industry last week, when the Indiana Senate passed SB321, the Transportation and Logistics Income Tax Credit (introduced by Senator Tom Wyss of Fort Wayne) by an overwhelming 49 to 1 vote.

SB 321 provides a 25% income tax credit for qualified expenditures made before January 1, 2019, by a taxpayer to make improvements to real property that is related to constructing a new or modernizing an existing transportation and logistics distribution facility and/or the transportation of goods on Indiana highways, rail, water and air. The legislation limits the credit to $10 million per fiscal year. 

Indiana is fortunate that our central location puts two-thirds of the nation’s population and businesses within a day’s truck drive of our borders. But we also need world-class transportation infrastructure to maximize our geographic advantages. Through Governor Daniels’ Major Moves plan, Indiana has been able to continue to make aggressive investments in our public infrastructure even during the recent lean budget years. But it’s also important that we incentivize companies to invest in their privately-held infrastructure, encouraging expansion and growing our overall capacity to move freight. 

This is the goal of the Transportation and Logistics Tax Credit, which now moves to the Indiana House of Representatives for consideration. The Conexus Indiana Logistics Council, representing the state’s major employers in transportation, distribution and supply chain operations, would like to express our gratitude to the Senate for acting to reinforce our logistics sector – and we respectfully call on the House of Representatives to do the same.

Nationally, the economy continues to lag behind expectations. Here in Indiana, we’ve been more fortunate than many in terms of output and job creation, because our economy is concentrated in what we might call ‘the basics’ – making and moving products. Even so, too many Hoosiers are still out of work, and too many of our employers are hesitant to grow. Encouraging our logistics industry to keep investing and contributing to a world-class transportation infrastructure is a wise investment in our economic recovery.

David Holt is Vice-President of Operations and Business Development for Conexus Indiana, the state’s manufacturing and logistics initiative; Holt manages the Conexus Indiana Logistics Council, an industry-led forum representing the interests of this sector.

Advanced manufacturing and logistics continued to lead the way in putting Hoosiers back to work in 2011, according to job creation statistics released by the Indiana Economic Development Corporation (IEDC).

The IEDC reports 5,223 new job commitments from the non-automotive manufacturing sector last year, followed closely by automotive manufacturing with 4,650 jobs created. The logistics sector was the third-most productive source of new positions, with nearly 2,000 job commitments. Collectively, this means that the ‘AML’ industries accounted for more than half of all jobs attracted to Indiana through economic development deals in 2011.

Manufacturing has long been the bedrock of Indiana’s economy, and has more recently been the catalyst for its growth as well. In the 2011 Manufacturing and Logistics Report Card developed by Ball State University on behalf of Conexus, economist Michael Hicks noted that the state’s manufacturing employment has grown neatly 5% since the official end of the national recession, while the rest of the country has been plagued by a nearly jobless recovery. The Indiana Business Research Center predicts that manufacturing and trade will continue to drive Indiana’s GDP gains in 2012, projected to again top the national growth rate.

Millions of Americans are looking for work, and thousands of U.S. manufacturers are looking for workers.

The numbers are startling. While unemployment and underemployment remain stuck near 20 percent, more than 600,000 good manufacturing jobs have gone unfilled, according to the National Association of Manufacturers. While personal income has stagnated, these jobs pay wages much higher than the national average.

Where's the disconnect?

There's a simple answer to a complex problem: The majority of manufacturing jobs now require education beyond high school, and our workforce doesn't make the grade.

As manufacturers have raced to be more productive and innovative over the last several decades, they've demanded more out of their workers -- the skills to operate advanced computerized equipment and robotic systems, teamwork and troubleshooting capabilities.

The manufacturing workforce got smarter, but it also got older. Back in 1980, 70 percent of the nation's manufacturing workers were younger than 45. Today, half the workers are older than 45, and the percentage age 25 to 34 has dropped by more than a third.

As the baby boomer generation retires, jobs open up. But young workers are ill-prepared to step into the shoes of their parents and grandparents. According to the Organization of Economic Cooperation and Development, the U.S. is the only industrialized country where educational attainment among those just entering the labor market (25 to 34 year olds) is less than those about to leave the labor market (55 to 64 year olds).

Even in Indiana, the most manufacturing-intensive state in the nation, we haven't changed our academic approach since the rise of the assembly line. Post-high school training will be mandatory for 60 percent of all new jobs in manufacturing and logistics over the next decade, but we remain stuck in a bygone era when a basic high school diploma was sufficient to earn long-term employment at the local factory.

Conexus Indiana represents companies in the automotive industry, aerospace and defense firms, logistics businesses -- a wide spectrum of high-tech manufacturing and supply chain fields. We convene groups of them regularly to discuss critical business issues. The consistent message is that they all need skilled workers, but that despite high unemployment, the right kind of labor is scarce.

That's why we act as a bridge between private industry and higher education partners such as Ivy Tech, Vincennes University and Harrison College to ensure that quality post-secondary programs are available to prepare young Hoosiers for these challenging (and high-paying) careers. But we must do more, catching the next generation of manufacturing and logistics workers even earlier -- in high school.

It's clear that students begin seriously thinking about their career choices while still in school. Research by the ACT confirms that high schoolers who were fairly certain about their occupational choices by their junior/senior years are more likely to succeed in college and ultimately earn positions in their chosen field.

Conexus is now working with Indiana employers and the state Department of Education to develop an advanced manufacturing and logistics (AML) high school-level curriculum, a mixture of online and hands-on courses that will expose students to these industries and give them a solid foundation of knowledge to carry on after they earn their diplomas.

The AML curriculum was created in alignment with state standards and with broad-based feedback from industry, ensuring that it carries real value for students. It has been endorsed and is eagerly anticipated by school superintendents and technical education directors across the state who see the need to prepare their students to participate in a sector that today employs one of every four Hoosiers.

Conexus is completing private fundraising to finalize the curriculum and provide it to school districts at no additional cost. The private sector has embraced the opportunity to invest in this effort, a concrete demonstration of the demand that exists for a revitalized workforce pipeline. For too long, employers have been disengaged from the educational system; now, companies are realizing that they must push for relevant programs, work with local schools and put money into training efforts to develop the human capital they need.

Without qualified employees, advanced manufacturing and logistics companies can't grow; without good job opportunities, young people can't become productive taxpayers. The process of closing our skills gap will begin in classrooms and technical education centers across Indiana -- and it has to start now. It's up to us to make sure local high schools have the tools to engage and educate our future workforce.

Dwyer is president and CEO of Conexus Indiana, the state's industry-led manufacturing and logistics initiative; he formerly served as chief operating officer of Rolls-Royce North America.

Reaching young Hoosiers as high school students has been a key strategy in Conexus' push to revitalize our manufacturing and logistics workforce pipeline - getting students interested in these careers before they graduate allows an easier transition to post-secondary training and more time to make the right choices to compete in the job market. 

Conexus has worked to recruit teachers and counselors as 'champions' for manufacturing and logistics career readiness across Indiana to spread the word; today, we take this effort to the next level by announcing plans to implement a high school curriculum focused on foundational skills that employers require to enter these industries. 

Read the press release below for more:

(INDIANAPOLIS, November 22, 2011) Conexus Indiana today announced its intention to launch a high school-level curriculum focused on advanced manufacturing and logistics, two industries that collectively employ one of every four Hoosier workers. This innovative program will give Indiana students a head-start on careers in these increasingly high-tech fields.

Conexus, the state’s manufacturing and logistics initiative, identified the need for this effort in response to calls from industry for a higher-skilled, better-prepared workforce. Working closely with the private sector and educators, with input from the Indiana Department of Education, Conexus has developed a curriculum appropriate for high school students that teaches the fundamentals that manufacturing and logistics firms demand from new employees.

“Manufacturing and logistics jobs have changed rapidly over the last several decades,” said Conexus President & CEO Steve Dwyer. “The majority of U.S. manufacturing positions now require effective education beyond high school – you need critical thinking, information management and communication skills, as well as the technical know-how to manage computerized equipment, advanced robotics and supply chain management systems.

“But even though Indiana is the most manufacturing-intensive state in the country, we don’t have enough students pursuing the right education for these careers. It’s time to make a real connection between our students and the jobs that need to be filled in manufacturing and logistics – starting in high school.”

Indiana Superintendent of Public Instruction Tony Bennett agreed that more options for teaching an advanced manufacturing and logistics curriculum are a welcome addition.

“With the changing landscape in this arena, schools and teachers can benefit from innovative ways to teach pathways to good jobs,” Bennett said. “We owe our students career-focused programs that will make their diplomas relevant to these industries.” 

The curriculum will be a mixture of online, hands-on and project-based units that will expose students to key concepts in these industries, with dual-credit opportunities that will position them to successfully pursue relevant certifications, associate degrees or four-year programs after graduation.

The curriculum will be launched as a pilot program at no more than 10 high schools next fall, including the Excel Center (Indianapolis) and the Area 31 Career Center at Ben Davis High School, before it is made available for broader adoption by school districts around the state. The rollout can’t come soon enough, according to State Board of Education member David Shane, who also serves as the CEO of Indianapolis distribution and logistics holding company LDI, Ltd. LLC.

“More than half of the nation’s manufacturing workers are older than 45,” Shane noted. “Thousands of Baby Boomer workers reach retirement age every day, but there’s no concerted effort to prepare the next generation of employees to take their place. If Indiana can create an industry-driven program that meets their needs and captures young people’s attention in high school, it will be a clear competitive advantage for companies desperate for human capital.”

APICS – The Association for Operations Management – the leading professional organization for supply chain and operations management professionals, is also lending its support. APICS is offering a new certificate to students who complete the APICS Principles of Operations Management course, which is part of the manufacturing and logistics curriculum. 

“Hundreds of thousands of well-paying jobs are going unfilled nationally because of a growing skills and talent gap, despite high unemployment,” said Bob Collins, Director of Professional Development at APICS.  “Training the next generation of professional is of the utmost importance.  APICS is pleased to join the Conexus and the State of Indiana in leading this national effort to bridge the gap between what young people are being taught and what employers need.”

The curriculum has been endorsed and is eagerly anticipated by school superintendents and technical education directors across the state, who see the need to prepare their students to take advantage of these opportunities – especially considering that Indiana manufacturing employment has grown by 5% since the end of the recession, while a jobless recovery has been the norm nationally. 

Conexus is currently finalizing fundraising efforts to complete the curriculum and provide it to school districts at no additional cost. The private sector’s response has been eager and generous, according to Dwyer. 

“Employers have been quick to offer input on the curriculum and to help finance it,” he said. “Their willingness to contribute shows that the demand is real, and that bodes well for the future prospects of the students who will get involved.”

"When Allison was approached about supporting a manufacturing and logistics program for high schools, we looked at this program as an opportunity to be a part of the solution," said David L. Parish, Vice President of Operations for Indianapolis-based Allison Transmission. "Our employees are our largest source of productivity and innovation - the investments we make in getting young people interested in manufacturing and logistics will pay big dividends down the road."

For Dr. Bennett, the success of the new curriculum will be measured in career opportunities for students.

“Studies by ACT and others show conclusively that the earlier young people choose a career path, the more likely they are to succeed in higher education and, ultimately, in finding work,” he said. “With our College and Career Pathways, an Indiana high school student can declare his or her interest in an industry and pursue a dedicated curriculum that can carry them through post-secondary studies straight into the job market. This curriculum resource will help them do that. We hope it’s a model for future efforts.”

Preparing for the ‘Onshoring’ Wave from China

Last month in this space, I wrote about how free trade has boosted Indiana manufacturing – with exports and foreign investment at record levels, Hoosiers are winners in the fiercely-contested global marketplace. 

I recently read a report by the Boston Consulting Group (BCG) that gives me even more confidence in these assertions. Titled “Made in America, Again: Why Manufacturing Will Return to the U.S.,” it takes aim at a common perception among politicians and pundits here at home – that the flight of manufacturing to China has decimated our domestic industries. 

We’ve been down this road before. Back in the 1980s, Americans watched with concern as Japanese manufacturers captured a growing share of our markets – in cars, consumer electronics and steel. Publicity-seeking congressmen went so far as to smash Japanese-made TVs and radios on the Capitol lawn. But fast forward twenty years, and Japanese investment is universally recognized as a fundamental strength of Indiana’s economy. Foreign firms employ nearly 100,000 Hoosier manufacturing workers, with companies like Toyota, Honda and Subaru leading the way. 

Similarly, according to the BCG report, China is a formidable competitor – but trends are already emerging that are leveling the playing field with U.S. manufacturing.

First, Chinese operations face the prospect of 15-20% annual wage increases at the average factory for the near future. The Chinese population is rapidly aging, creating labor shortages that drive up costs; the younger generation is also more worldly and accustomed to relative prosperity than their parents and grandparents. They are refusing to accept low earnings and grueling hours, and are winning concessions from companies desperate for workers.

Electricity prices have also skyrocketed in China (up 15% since 2010), and industrial land is actually more expensive than many parts of the United States. (The national average is around $10.22 per square foot, compared with just over $5 in many parts of the U.S.) Add rising transportation costs to the mix, and the Chinese cost advantage will no longer look so daunting within five years or so.

Another key issue is China’s exploding domestic demand, as robust economic growth adds millions of households to its ‘middle class’ every year. This means that more and more of its industrial capacity will be devoted to meeting the needs of Chinese consumers, rather than producing goods for foreign markets.

All of these factors are coalescing to erode China’s position as the ‘default option’ for global outsourcing. Countries like India, Thailand, Vietnam and Mexico will compete for the share of manufacturing exports that China loses, but lack the infrastructure (human, physical and technological) to absorb it all.

This leaves the United States with an opportunity. U.S. manufacturers would naturally prefer to have production facilities closer to home, eliminating the managerial, operational and cultural barriers that come with overseas plants. As the U.S.-China cost discrepancy narrows (hastened by the weak dollar), an ‘onshoring’ trend is gathering momentum – companies like GE, Boeing, Caterpillar, Ford, Master Lock and Coleman have moved operations back to domestic factories over the last two years, and more and more firms could join the trend.

We will even begin to see more Chinese companies opening plants in the U.S., as manufacturing operations here become a more cost-effective way for them to serve our market. Today, Chinese companies invest only $1 in the U.S. for every $10 that U.S. firms invest in China. But with China poised to invest a projected $2 trillion overseas in the next decade, it’s clear that Chinese foreign direct investment will become an economic force in the United States, just as we’ve seen with Japan.

Much depends on how competitive the U.S. manufacturing sector continues to be. China’s costs are rising, our costs are dropping – but it is the productivity of our workforce that provides the true advantage. Our manufacturing output is two-and-a-half times greater than it was in 1972, and even in the midst of the recent outsourcing wave (1997 to 2008), the value of U.S. manufacturing increased by a third, to $1.65 trillion.

This is due to immense investments by manufacturers in information technology and robotic systems, as well as the adoption of new practices like total quality management, lean manufacturing and six sigma. But the best equipment and most novel business strategies are useless without workers who can adapt and succeed in a complex, fast-paced environment. Human capital makes the difference.

Today, half of our manufacturing workers are older than 45, and 8,000 Baby Boomers turn 60 every day across the U.S. Workforce development is job one, training younger workers to step into open positions without compromising productivity growth.

In short, the macroeconomics tell us that a wave of manufacturing reinvestment from China is headed towards our shores – but we need a new generation of tech-savvy workers to greet it. 

A month ago, Conexus Indiana and the Indiana Economic Development Corporation launched the Indiana Aerospace and Defense Council, a new industry-led initiative focused on making the state a more attractive destination for aerospace/defense investment, as well as helping existing companies in these sectors (and would-be contractors seeking to enter the market) be more competitive.

Over the past few weeks, this effort has moved forward quickly, organizing a statewide coalition of industry partners and soliciting input on critical issues like workforce needs and innovation.

Amid this activity, a new report from Ball State’s Center for Business and Economic Research shows why aerospace/defense was identified as such an important and promising segment of our manufacturing economy. According to economist Mike Hicks, Hoosier companies executed more than 9,000 Department of Defense and related federal contracts worth more than $4 billion last year, supporting more than 20,000 jobs.

The IEDC has further estimated that economic output from Indiana’s defense contractors more than doubled over the past decade, creating 1,800 new jobs since 2009.

Learn more about the Ball State report here, at Inside Indiana Business.

Indiana is more Main Street than Wall Street.  We aren't sitting on vast reservoirs of oil like Texas or North Dakota, and even though we're doing a better job attracting venture capital and producing high-tech innovation, we still aren't mistaken for Silicon Valley.

But our economy does have an advantage, a competitive edge that we're riding out of the trough of the last recession: Hoosiers continue to lead the way in engineering and producing durable goods, a fact that's reflected in recent state and regional Gross Domestic Product (GDP) data.

The Bureau of Labor Statistics released a regional look at GDP growth in 2010 last week, measuring economic activity by metropolitan area. For several Indiana cities, manufacturing continues to lead the recovery - durable goods manufacturing contributed 11.4 percentage points to the Elkhart-Goshen area, and more than 6 percentage points in Columbus and Kokomo. 

Nor was manufacturing’s effect confined to a few metropolitan areas. An earlier BLS study showed that Indiana’s GDP growth ranked third in the nation, behind only North Dakota (driven by a booming oil industry and no housing bubble to recover from) and New York (where Wall Street led the comeback). For Indiana, manufacturing was the catalyst – durable goods production contributed more to our GDP growth than any other state (2.3% of the 4.6% total increase).

Check out the state and regional GDP reports here and here, with coverage by Inside Indiana Business here.

Economic output from Indiana’s defense contractors more than doubled over the past decade; in the last two years alone, the Indiana Economic Development Corporation (IEDC) estimates that Hoosier defense and aerospace companies have created 1,800 new jobs.

A new industry-led forum organized by the IEDC and the Conexus Indiana manufacturing and logistics initiative aims to continue these positive trends, and make the state an even more attractive destination for aerospace and defense investment and employment. 

The Indiana Aerospace and Defense Council (IADC) held its first meeting Monday at the Governor’s Residence in Indianapolis, bringing together a group of industry leaders to begin creating a proactive strategic plan for growing this sector.

“We can be proud that Indiana-based companies are working together to bolster national security and support the military in our overseas commitments,” said Mitch Roob, Secretary of Commerce and chief executive officer of the Indiana Economic Development Corporation.  “As these firms help make our country safer, they’re also making our economy stronger.”

Four major defense contractors have operations in Indiana that, collectively, accounted for more than $2.6 billion in Department of Defense contracts in 2010 – AM General, Rolls-Royce, Raytheon, and ITT. 

“Indiana is a great place to do business, and we believe that the new Aerospace and Defense Council can help make it even better,” said Mark Rhodes, Rolls-Royce Vice-President of Engineering and Technology.  “We see opportunities to collaborate on common workforce needs, advocate for pro-growth public policy, and to encourage more supplier relationships in the state.”

Beyond the continued success of Indiana’s major aerospace and defense companies, the IADC will focus on broadening the state’s contractor base, helping smaller companies enter the market and compete for more contracts.

“For smaller contractors and suppliers to prime contractors, networking and knowledge are critical,” said Pete Bitar, President  of Xtreme Alternative Defense Systems, an Anderson-based firm that has pioneered ‘directed energy’ laser technologies with several military applications.  “We need venues to build relationships with potential partners and customers, and help navigating the procurement and contracting processes that exist with federal agencies – the Departments of Defense, Homeland Security, and NASA.

“If the IADC can provide these sorts of resources, it will quickly become a catalyst to diversify and grow Indiana’s defense and aerospace industries.”

The Indiana Aerospace and Defense Council is modeled after the successful Logistics Council created by Conexus Indiana in 2008.  The Logistics Council brought together industry leaders and solicited their input on a comprehensive strategic plan to strengthen the sector, and the IADC envisions a similar result with aerospace and  defense companies. 

“If you want a plan to help Indiana’s defense and aerospace companies be more competitive, you harness the expertise of industry first,” said Steve Dwyer, President & CEO of Conexus Indiana and former Chief Operating Officer of Rolls-Royce North America.  “These efforts work best not with academic studies, but with private sector leaders contributing ideas and working together to implement them.” 

The first meeting of the IADC included participants from AM General, Rolls Royce, Raytheon, ITT Communications, BAE Systems, Allison Transmission, Northrup Grumman, SAIC Inc., Tri Star Engineering, Ultra Electronics – USSI, Aero Engine Controls, Stimulus Engineering, Sherry Laboratories, Xtreme Alternative Defense Systems, Riverside Manufacturing, Praxair Surface Technologies, and Purdue University, along with representatives from the IEDC.

The IADC will be executed by Conexus with major funding from the IEDC, and staffed by Project Director Ryan Metzing, an Indianapolis attorney.  Courtney Zaugg, formerly Director of International Economic Development with DevelopIndy, will serve as Director of Industry Research for the Council.

Today, the largest Chinese business delegation ever to visit Indiana will take part in the Indiana-China Trade & Investment Symposium in Indianapolis at the J.W. Marriott today. The event is expected to attract more than 500 attendees of 250+ Chinese and Hoosier companies, and will feature remarks by Governor Mitch Daniels and Zhejiang Party Secretary Zhao Hongzhu.

This event represents another step forward in building stronger ties between the Hoosier State and China for the purposes of economic growth.  China is already Indiana’s fastest-growing export market. Last year’s U.S.-China Advanced Technology Vehicle Summit showed the tremendous potential for partnership between Indiana’s growing list of firms in the electric vehicle supply chain and China’s burgeoning EV sector (the country is projected to grow its global share of the electric vehicle market from 3% to 35% over the next decade).

Indiana scored an ‘A’ in this year’s Manufacturing and Logistics Report Card in the ‘Global Reach’ category – the state is attracting foreign investment at a record pace, and exporting more manufactured goods to every continent (except Antarctica). Developing relationships with growing international markets like China is key to continuing this momentum – the scope of the opportunity could be seen three years ago, as in this prescient editorial by CICP CEO Mark Miles, published in mid-2008:

Anticipating the wave of the future – Chinese foreign investment

Mark Miles

According to IBM’s annual Global Location Trends report, released last week, Indiana leads the nation in creating new jobs through foreign investment for the second consecutive year. It makes you think about the history behind some of our most valued international partnerships, and wonder how we can anticipate tomorrow’s opportunities…

Back in the 1980s, Americans watched with growing concern as Japanese manufacturers captured a growing share of our markets – in cars, consumer electronics and steel. There was an outcry against ‘unfair competition;’ publicity-seeking congressmen went so far as to smash Japanese-made TVs and radios on the Capitol lawn. Here in Indiana, Japan even became an issue in the 1988 campaign for Governor, with barbs about “giveaways” to Japanese companies. 

Fast forward twenty years, and the landscape has completely changed: Japanese investment is universally recognized as a fundamental strength of Indiana’s economy. Foreign firms employ more than 90,000 Hoosier manufacturing workers, with companies like Toyota, Honda and Subaru leading the way. The attraction of the Greensburg Honda plant is recognized as the signature economic development victory of Governor Daniels’ first term. 

Japan has turned from economic villain to valued partner. It’s an experience we should learn from as we look towards China, another Asian powerhouse that’s stirring protectionist fears. How can Indiana anticipate and take advantage of future investment from China, as its economy reaches the tipping point that Japan started to reach 20 years ago? I recently read an interesting report from Deloitte Consulting (“The Coming Investment Wave from China”) that starts providing some of the answers.

To be certain, with the country’s massive population and resources, Chinese companies are still focused on domestic growth, serving international customers through exports. But this is changing – in 2007, Chinese firms invested a record $37 billion in foreign countries, a 76% increase over 2006. In Zhejiang Province in eastern China, an epicenter of private development, nearly 900 private companies invested overseas in 2006.

According to the Deloitte report, the list of industries that will experience the first wave of Chinese foreign investment will be topped by the automotive sector, one of Indiana’s strong suits. Other key industries for overseas investment include pharmaceuticals and electrical equipment – other areas where Indiana has a significant base, existing workforce and fast-growing exports to China. 

The driving forces behind Chinese foreign investment are also likely to mirror the Japanese overseas wave, including the desire to get closer to customers and integrate distribution and supply chain functions. Indiana’s central geography and strong transportation infrastructure can serve us well in meeting these needs, just as with Japanese automakers and other international firms.

So what can Indiana do to stay ahead of the curve and maximize our potential for Chinese investment? 

Aggressive economic development efforts are critical, to forge connections that will serve us well in years to come. At the state level, Governor Daniels and the Indiana Economic Development Corporation have a proven track record of focused international outreach. In Indianapolis, Mayor Greg Ballard has taken a strong interest in Chinese culture and expressed an interest in future trade missions. 

We should also leverage Hoosier companies that are already operating in China with great success – like Columbus-based Cummins, which operates 21 sites and sees more than $2 billion in annual sales from China. Cummins’ global presence already adds tremendous value to Indiana’s economy, but could also help attract Chinese investment here in the future through its relationships and strategic alliances.

Building an infrastructure to accommodate future Chinese investment also means retaining a greater share of the Chinese-born or immigrated students currently pursuing their degrees at our universities. IU’s Chinese language program, which has grown 110% over the last six years and recently won a $120,000 federal grant to help high school teachers teach the language, is another key asset.

As with any new economic opportunity, the states and regions that are proactive will reap the greatest rewards as more Chinese companies begin to look outside their own borders to grow and serve global markets. Indiana can take the lead if we keep our collective eye on the ball, recall the lessons of Japan, and don’t let protectionist paranoia discourage us from seeking new investment and jobs.

Miles is President & CEO of the Central Indiana Corporate Partnership (CICP). Read more perspectives on Central Indiana’s economic opportunities at http://blog.cincorp.com/.