Viewing blog posts written by Gino DiCaro


Why Not California #5

Posted by Gino DiCaro, VP, Communications on Oct. 17, 2008

Recently a little known outdoor products manufacturer, Exxel Outdoors, announced it was shifting some production from China to Alabama, where overall costs are running 3 percent lower than China.  China's rising wages, transportation expenses and other cost factors are starting to catch up with the rest of the world, and the need to cut costs in an ever increasing global and competitive market is forcing manufacturers to revisit outsourcing policies.

In this case, it was cheaper to produce and closer to deliver their products in Alabama, enabling Exxel to provide it's biggest client, Wal-Mart, with another one of it's everything-must-go priced products - sleeping bags.

One additional note underscoring the adjustment within the international competitive environment status quo:  Long-time crystal china producer, Waterford Crystal, announced just yesterday that it was looking to manufacture outside of it's forever-homeland, Ireland, in an effort to stay profitable.

With Exxel Outdoors , we see one of our first convergences of what hopefully will be a trend that California uses to it's advantage -- Cheaper freight rates to a closer market in the US and a narrowing international competitive environment as a result of rising industrial wages.

Historically California has not put a high priority on reducing business costs to become a financially attractive place to compete.  Even our most recently signed State budget will force California businesses to pay $5.9 billion more in taxes in 2009 than they did in 2008, working against the state's manufacturing wealth creators that are barely staying alive.

Certain states in this country, like Alabama and Nevada, will understand that the window is small and that tax, wage and energy burdens must be reduced if they are to stand out and recruit long-term manufacturing and innovation juggernauts that fuel our economy and our working families' bank accounts.  According to CMTA's cost index, Alabama is 14 percent less than the rest of the U.S. in terms of costs.   If Alabama was 23 percent more expensive, like California, would they have seen the same result?   Joe Sleeping Bag manufacturer says "no".



3 comments | Post your comment

Comments: 3

BigKel

Oct. 17, 2008 12:06 pm

I like the trend of companies NOT going offshore with production. But California has a LONG way to go to compete with Alabama and other southern states. The cost of doing business across the board will be cheaper in 'Bama when compared to California. The commercial land, costs to build,lease expenses, availability of railroad/transportation hubs, and then the easy accessibility of an inexpensive labor pool makes those southern states so inexpensive. Throw in the cheap housing and lower regulations and California falls flat on its face.

Shirley

Oct. 17, 2008 12:36 pm

I don't trust anything made in China, and I can't even find a quilt that wasn't made in China; Or anything!! I won't buy Chinese products anymore.

Tax director

Oct. 17, 2008 3:27 pm

We produce one of our products in California (9% tax rate), Oregon and Alabama (5% tax rate). In 2007 we expanded our Alabama plant after applying for and receiving Sales (from about 4% to 1% for M&R) and Property Tax Abatements. We are expanding this line again in 2009 and guess what? Yes, we are expanding in Alabama again.

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