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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".

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