Rick: Welcome to “Site Selection Matters,” where each week, we take a close look at the art and science of site selection decision making. I’m your host, Rick Weddle, president of Site Selectors Guild. In each episode this year, we’ve introduced you to leaders in the world of corporate site selection and economic development to provide you with key insight into the best and next practices in our profession. In this year-end bonus episode, we have a special treat as we bring you five high-level predictions for the coming year from five leading experts in the field of site selection and economic development.
In today’s episode, we have as our guest Didi Caldwell, principal with Global Location Strategies, Dennis Donovan, principal with Wadley-Donovan-Gutshaw Consulting, Larry Gigerich, executive managing director with Ginovus, Kenny McDonald, president and CEO of One Columbus and 2020 chair of the International Economic Development Council, and Gregg Wassmansdorf, senior managing director with Newmark. Today, we’ll take a look at what to expect in the year ahead. Join me as we welcome this distinguished group to “Site Selection Matters.”
For our first prediction today, let’s turn to Didi Caldwell, principal with Global Location Strategies. Didi, let’s get started. Just what do you see in the year ahead?
Didi: Hi, Rick. It’s good to be with you. I think that 2020 is gonna be a little bit of a continuation of what we’ve seen in 2019. I do think that the world economy is glowing. And I think that the U.S. may splurge with the recession, but my prediction is that due to many factors, political, social, economic that the U.S. will remain a strong target for capital investment, due mainly to very competitive energy costs, due to a strong and growing market entities to the demographics which are very strong for the U.S.
Rick: So, Didi, strong target for capital investment, that means good project flow.
Didi: Yes, I think so. I think there’s gonna be a shakeup that’s going to result in a realignment of many of the global supply chain. We talk about, you know, 20 or 30 years ago, that the world was round, and I think that the world is increasingly becoming more and more flat. And in so doing, I think companies are gonna focus on building, making where they sell. And so, I expect a lot of the companies that service the U.S. market, which is one of the strongest and most robust markets worldwide, they’re going to reallocate some of their manufacturing, either in the U.S. or close to the U.S., perhaps in Mexico.
Rick: Thank you, Didi. That’s very interesting. Making where they sell, that’s something I made a note of. We’ll come back to that maybe as we get in. Let’s see. Now, prediction number two, let’s turn to Dennis Donovan, principal with Wadley-Donovan-Gutshaw Consulting. Dennis, exactly what do you see in your crystal ball in 2020?
Dennis: Rick, thank you. Very happy to be on this podcast. What I see is the adoption of what we call smart manufacturing or the smart factory. This is something that is really in its nascent stage but is going to be a game-changer for American manufacturing and going to be essential for American or for companies around the globe to successfully compete. And it’s essentially a factory where the physical production processes and operations are combined with digital technology, smart computing, and big data to create a more opportunistic system for companies that focus on manufacturing and supply chain. Smart factory is a cornerstone of Industry 4.0 that focuses heavily on real-time data, embedded sensors, automation, and machine learning. I’d tell you, you know, the key here is that many companies have automated the elements of the supply chain, but each of them pretty much stand-alone, they’re disconnected, requiring frequent human intervention. In the smart factory, all of these process improvements throughout the entire supply chain are interconnected, minimizing the amount of human touch.
This is gonna be a game-changer for American and, in fact, global businesses. In the last 10 years, productivity has risen in the U.S., manufacturing productivity, by 0.7%. The adoption of this new technology, smart factory, is predicted to increase productivity by a whopping 1/3 over the next 10 years. So, this is a game-changer and is absolutely essential for competitiveness. And I think economic development could play an essential role, like an orchestra leader in their communities as part of retention and expansion programs to get companies to adopt the smart manufacturing, smart factory model.
Rick: Hey, Dennis, a third increase in productivity is a game-changer indeed. What does that mean to the consumer? Lower cost?
Dennis: I believe, in consumer, more innovative products, lower cost, higher quality. And when the U.S. manufacturing industry is going to be short, at least 2.4 million jobs over the next decade, this is going to help reduce the labor content in terms of cost of goods sold, while it will eliminate certain repetitive manual jobs, it is gonna create higher-value jobs and positions we have never really even heard in the future, like you know, an additive technician, you know, a big data platform engineer, robotics tech. So, this is gonna be a game-changer in terms of the skills requirement, not only in the jobs, but also of the foundational skills that are going to be needed by employees to be able to effectively navigate and bring into play the factory of the future.
So, it’s really gonna require a holistic approach in terms of getting the companies educated, making sure that we can incentivize companies for these investments, and that we provide the training for upscaling and for positions that are just now coming into play with smart manufacturing. So, I see 2020 as being a paragon of change in American manufacturing. It’ll start…it’s kinda started now, but it’s really gonna be celebrated in 2020 and the years beyond.
Rick: A game-changer indeed, lower cost, higher quality, newer jobs, different types of jobs, what a game-changer. Let’s talk to Larry Gigerich, executive managing director with Ginovus. Larry, take a minute if you can, to share what you see just around the corner next year.
Larry: Great. Always good to be with you, Rick, and with some of my colleagues on this podcast as well. I’ll preface this by saying, I hope I am wrong, but I do believe that the U.S. economy will fall into recession by the end of 2020. And the reason why I feel that way is, you know, you’re already seeing economic growth in the U.S. softening, I think, in particular, in the manufacturing area. There has been some softness now for a number of months. Not a huge certainly decline or softening, but there’s been a shift there for sure.
Secondly, as you look at the global economic growth forecast, those have been lowered to their slowest level of growth since the great recession started. So, I think that’s an indicator or a sign that we may fall into recession in the United States by the end of next year. And we’ve had this crazy trade war dialogue that’s been going on for some time, and not just the U.S. and China, but also with a lot of our traditional allies in Europe, you know, now, within the last week to 10 days, a couple of countries in South America, where there’s really an unsettled, unstable times as it relates to trade discussions and trade war so to speak, and there’s not a lot of progress there that’s been sustainable.
And then just quickly, a couple of other things. You know, certainly, with the presidential campaign in the U.S. this upcoming year, you typically see a little tapping of the brakes midyear as things start to sort themselves out. I think, in particular, depending on who is nominated to be the Democrat candidate for president, with a couple of the leading candidates being very progressive in talking about the prospect for higher taxes, strict regulations, that could play into a slowing economy.
And then finally, you know, one of the most historic, reliable predictors of recession is the inversion of the yield curve, which we saw happen here in 2019. So even though economists, generally speaking, think the risk of recession is somewhere between 25% and 45% as you look at what economists are talking about globally, I think we will have a recession in the U.S. by the end of next year.
Rick: So, your prediction would be higher than 50% probability, I guess.
Larry: My personal is, yes, higher than 50%.
Rick: Okay. So, I knew we wouldn’t get too far into this podcast without having somewhat of a negative spin on it. So, who knows what that’ll mean? Let’s turn now to Kenny McDonald, president and CEO of One Columbus and the 2020 chairman of the International Economic Development Council. Kenny, pull back the curtain and tell us what you see from the economic development practitioner’s point of view.
Kenny: Well, again, thank you, Rick, and to all the colleagues on the phone. It’s great to have this kinda conversation about the coming year. Maybe three interrelated issues that I wanted to highlight. One is I think 2020 could be the year that we begin to see the practical implications of the year of disruption and automation take place. So, with some of our core industries, like finance and insurance, the major health care services, back-office operation, things like that, that they have had various automation and RPA initiatives for a period of time, I think you’ll begin to see waves of demand on acting to policies. And perhaps that will lead to some downsizing in some of the core employers across the country. It may also cause a shift in maybe the beginning of the future of work. So, we’ll start to see the real implications of the algorithms that people have been developing for decades.
Two is probably the permanent realignment of the U.S.-China relationship and all the supply chain dynamics, site selection dynamics that come with that. In our view, this could be a huge opportunity for North America to compete and gain investment, foreign direct investment. It’ll certainly be messy and disruptive in the global marketplace and in our communities.
And then finally, just a continuation of the sensitivity, but maybe more so a recognition of the opportunity of the reality that we actually have inequities in our communities. And we have communities, both rural and urban, that have not gained through this last decade of growth and prosperity as much as others. I think this could be a huge opportunity for those communities, and quite frankly, for those businesses that take advantage of it and build capacity.
Rick: So, Kenny, that’s a big issue, that inequities. Let’s unpack that just a little bit. What that means is we’ve been creating a lot of jobs, but maybe they’re not evenly distributed or they’re not all good jobs. You’re seeing a bit of an opportunity to change that in this coming year?
Kenny: Well, I would even characterize it differently, that we have people of great capacity, communities of great capacity that are untapped, and they offer a solution for some businesses seeking that capacity. And working with communities and using new tools, opportunity zones, things like that, I think that you’re gonna see communities and businesses form distinct partnerships that could allow us to use that capacity and perhaps unlock growth.
Rick: That could be one of the most opportunistic and optimistic things that we’ve heard today if we can actually begin to deal with that inequity going forward. Now, let’s move to our fifth prediction. Gregg Wassmansdorf is with us today, senior managing director with Newmark Knight Frank Consulting. Well, Gregg, we’re at number five. What bold prediction can you now share with our listeners?
Gregg: Rick, I think my bold prediction is around tariffs and trade and foreign direct investment. It’s going to continue to be a complicated mess. I think, with respect to tariff, 2020 will not be the year that the U.S. and China tariff war is resolved. I think it will actually become more politicized over the next 10 months. I think, actually, that President Trump sees more political upside from fighting with the Chinese than from reaching a truce. So, I’m not expecting a grand negotiated bargain in 2020. I think there’s still a good chance, it’s a narrow chance legislatively but still a good chance politically, that USMCA will pass in 2020. So, I’m feeling positive about that.
I think overall, you know, the U.S. being a major driver of trade and tariff and FDI issues globally, this administration wants to permanently alter the balance of global trade. And so that issue is going to continue and likely strengthen as an issue. They’ll continue to use tariffs as a blunt tool to hammer its opponents, and we’ve seen the United States sort of take its turn, you know, with Canada and Mexico, China, the European Union. Larry, as you were saying, other countries are sort of falling into that sort of behavioral norm as well. So I think it’s gonna be very disruptive and stay disruptive as that.
I guess that I think USMCA is likely to pass, and the agreements that have passed, we can’t lose sight of those too. CETA, which is the Canada-European Union Comprehensive Trade Agreement, was passed. The trans-Pacific partnership, CPTPP, that was passed. The ASEAN nations in Southeast Asia are working on their regional comprehensive economic partnership. There’s lots still happening that’s very positive around the issue of trade and trade agreement, but I think, overall, we’ll continue to see this sort of tug of war between FDI and trade. Foreign direct investment and trade can be replacement alternatives for one another. I’ll either put an investment someplace or I won’t, I’ll just choose to trade into that country instead. But we also see, I think, more and more that companies are taking a global strategy that includes putting foreign direct investment into certain select locations in order to subsequently trade across another region. And so those geographic dynamics, I think, are gonna get more and more interesting.
Rick: So, you’re saying there, Gregg, that actually some investment flows are gonna be pulled to certain areas to respond to these trade challenges.
Gregg: Absolutely. Yeah, that’s a great way to summarize it. And I think the United States, for example, will continue to get its fair share or more than its fair share in some cases, but not always. At least on a continental basis, the U.S. will lose projects to Mexico because of cost of lose projects to Canada because of Canada’s unique and strong labor market and immigration policies, for example, or because of some unique and important strengths around technologies like artificial intelligence, you know. But companies have to be, I think, more attentive than ever to not only why do they go to a certain place, but why do they go to that place in order to then subsequently access other geographies as a follow-on strategy.
Rick: Very interesting. Well, I’m glad you brought that to kind of a positive in, because you started out with it being a complicated mess, and that had me a bit nervous there for the year as we go forward, even more nervous than Larry’s recession at midyear. Hey, in the time we have left though, let’s open up the discussion in somewhat of a lightning round to see what our panel members, what each of you think about each other’s predictions and forecasts. We’ll just run through the list. Didi, what do you think?
Didi: Well, I think that these have all been really good points that have been made. And the other thing that occurs to me is that about every 50 years or so since the founding of the country, we’ve gone through major change, political, social, and economic changes. And if you think back to 50 years ago, during the late ’60s, here we are, and we’re seeing a lot of that same type of turmoil, not just in the U.S. but throughout the world. So, I think that we’re on the cusp of something that’s gonna be pretty momentous, but I think that we need to hold on to our hat and pocketbook, as my grandmother used to say, because it’s gonna be a pretty wild ride.
Rick: Very interesting. Dennis, tell me what you think.
Dennis: Well, Rick, I think all of these predictions are gonna be pretty spot on. I would have to say that two dynamics come to mind for me. One is that, picking up on Kenny’s point, I really do think that we’re going to be seeing, for a small-town rural America, I believe there’s gonna be an increased level of investments, both in manufacturing, possibly distribution, depending on where they’re located, and certainly back-office operations. Companies are gonna need to get into areas where, you know, you’re seeing a lot of downscaling in terms of headcount per facility. And so I believe that small-town rural areas that have made the investments in infrastructure, made the investment in education and training, and have got, you know, really good sites, I believe, are gonna see the fruits of their investment now, because companies need to get into, you know, into labor markets where they have decent supply, less competitive demand, at a good price point, and have a quality of place that allows them to compete globally. And I think we’re gonna see it. You already see that, you know, in the information technology sector. I mean, I was out in Fort Wayne the other day, and Fort Wayne’s attracted this rural shoring operation IT to get it up to about 200 people, and that’s their model, to be able to put these operations to smaller communities throughout the U.S. So that’s one trend.
The other trend, picking up on Gregg’s point, is that, you know, for a while now, we have seen companies adjust their global supply chains for a number of reasons. I believe that the trade wars and tariffs is really, like, the final element to these readjustments. So, you will definitely see companies, you know, retool the supply chains. And what’s gonna happen there is that Gregg mentioned, you’re gonna be seeing companies putting facilities into markets and to regions where they’re serving the markets. I believe that much of the production capacity, a lot of it anyway, that is now in China that is geared to serve North American markets is going to be brought back to North American markets, not just by U.S. companies and other global companies, but by Chinese companies as well. And that pace is going to continue as the supply chains are readjusted. There’s a lot of companies now that are just at a precipice in doing this. So, we’ll see an increased level, and I think it’s gonna be good. Mexico is gonna benefit, Canada and the U.S. as well.
Rick: And you know what I’m hearing you say, Dennis, also, that rural America and small towns will benefit, and that’s good news that they haven’t had in a long time. That’s very, very interesting. Hey, Larry, how about it?
Larry: Yeah, just quickly, I would point to a couple of comments. I think Kenny’s comments around automation, artificial intelligence, the impact it has on the economy, communities where businesses locate and operate. And you know, we’re just again seeing, to his point, really kind of the early…we’ve seen the early stages of it, but now we’re really ready to see the big transformation and what that large impact will be. I think 2020 will be a year that people will be probably surprised how much impact we have from AI and automation. And I think it’ll be interesting to watch that.
And then, finally, I would just touch on what Gregg said as well. Clearly, this whole trade and tariff situation creates not only uncertainties I had mentioned, but also, it just makes it really difficult from a planning and stability standpoint to know kind of where we’re going and what will happen with certain aspects of the economy in that unpredictability. And as Didi said, we go through these cycles in the U.S. about every 50 years where there’s major change. Just gonna be really interesting to watch that, but I think that is a really significant issue that will impact the U.S. in particular, but also the world as we go forward.
Rick: Very interesting. Kenny, all these predictions get really played out in your home turf, which is local economic, state economic, regional economic development location. What do you think about all this?
Kenny: Well, I’ll start with Gregg. I would say whether or not we have signed trade agreements and “deals” signed, that the relationships in the supply chains are probably permanently changed, and they probably are not just limited to the manufacturing and logistics supply chains but to where data and information is stored and protected around the world. So that could provide huge opportunities for investment, but it may also create tensions with some of our global partners. I agree with Larry that, you know, I think there is a slowing in the U.S. economy. I do think that it will continue to be highly regionalized though and that it’ll be…and you look to cities and metro areas for who’s winning and losing as this all plays out.
I get really excited about what Dennis is saying, opportunities for rural America and perhaps for urban America, to unleash some capacity as we see productivity gains. And then Didi is absolutely right that, you know, we’ve lived through this before and that we have big challenges, but you know, the U.S. and, in particular, North America as a whole, is a powerful economic engine that usually meets the challenge.
Rick: Very interesting, thank you, Kenny. Gregg, let’s recap.
Gregg: So many big themes to touch upon here. I’ll say, one thing, as a critique of my own comments and also all of us, many of our comments were really focused on supply chains of traded good. We probably underemphasize the importance of the trade in services and how companies are changing the way they do business around the world in a services economy, and that will continue to evolve for sure. And that gives not just big cities but tier two, tier three metros the opportunity to compete in a digital economy, and I think that’s a positive thing.
And the other, maybe, expression I’ll just put on the table to kinda round things out a bit, because we’ve heard about equity in the way that big cities, smaller cities, and rural areas are treated and how people will be treated in a changing economy and in an economy that shifts toward more automation and digital transformation. It raises this notion of what kind of capitalism do we want. It’s a big concept, but the chairman of the World Economic Forum just wrote an editorial piece with that title. The U.S. Business Roundtable sort of put it on the table earlier this year to ask, you know, “Are we ready to really advocate for stakeholder capitalism,” right, where not just shareholders, but workers, communities, the environment, all get taken care of as we plan and change the way we do business. And I think that has to be a really important issue that we continue to focus on in 2020 and beyond.
Rick: Stakeholder capitalism, very interesting. What an interesting discussion today, I mean, set of discussions, and a few that give us much to think about as we peer into the coming new year. That’s really all the time we have today. So, let me stop by saying thanks to our panel, Didi Caldwell, Dennis Donovan, Larry Gigerich, Kenny McDonald, and Gregg Wassmansdorf, for taking a big leap off the ledge and sharing their 2020 predictions on this episode of “Site Selection Matters.”
Larry: Thanks, Rick.
Dennis: Appreciate what goes and honored to be part of this.
Gregg: Thank you. What a pleasure.
Didi: Thanks, everybody.