How Trump May Change Site Selection Strategies in Targeted Industries
by King White, on Nov 21, 2016 10:06:20 AM
I think the whole world was in shock on the morning after the election. Putting political views aside, I don’t think many of us were prepared for Trump winning and how we should prepare for the future under a new era of political control and economic policy. One thing is for certain; change is coming and some industries will be impacted more than others.
To help evaluate the situation, I worked with Site Selection Group’s team of location advisory experts to identify some of the key industries that have the highest probability of being impacted. Furthermore, we wanted to understand how the political change may alter their site selection and corporate real estate decisions in the future.
This research reviewed industries ranging from industrial sectors such as logistics and manufacturing to softer skill industries such as healthcare and business process outsourcing. The companies in these sectors employ massive amounts of people and make significant capital investment each year through their call centers, distribution centers, manufacturing plants, software development and infrastructure projects.
There are really several subsets of the healthcare sector, which includes pharmaceutical companies, healthcare service providers and insurance companies. The changes in government regulation will likely positively impact pharmaceutical companies as the Obama and Clinton regimes wanted price limits on drugmakers. Trump’s agenda might spur some growth in domestic R&D operations and pharma manufacturing plants might benefit from increased production capacity. However, the modification or abolishment of the Affordable Care Act will likely negatively impact healthcare service providers such as hospitals and the insurance providers who all made significant investments for Obamacare. For example, it is estimated that over 20,000 call center jobs were created to support Obamacare programs and a potential repeal could impact a good portion of those.
There are nearly $500 billion worth of goods imported from China and $300 billion from Mexico each year. The international logistics industry may see significant negative pressure due to increased trade tariffs on goods being imported into the US. This could cause significant problems for international shipping companies and rail providers traveling up from Mexico. However, the domestic logistics sector could experience an increase in activity if more companies shift production back to the U.S. The likely impact might be more distribution centers, investment in trucking and increased expenditure on infrastructure such as highways and rail systems.
Global supply implications notwithstanding, the domestic oil and gas sector could blossom under the less restrictive government regulatory climate and increased demand for domestic fuel sources. This should spur some massive infrastructure spending on items such as the Keystone Pipeline, which is estimated to create 42,000 jobs and capital investment of $8 billion. However, the alternative energy sector could be negatively impacted. Look for changes in alternative energy such as wind and solar due to potential reduced subsidies as well as impact to the electric car industry such as Tesla.
Spending on government military initiatives will likely increase and create robust manufacturing activity by key government contractors such as Lockheed Martin, Northrop Grumman and General Dynamics. Trump is calling for 90,000 additional active-duty Army soldiers, 42 more Navy ships, 100 more modern fighter aircraft, and increased nuclear and missile defense capabilities. These initiatives will take years to accomplish and create significant jobs. It is estimated to cost about $640 billion per year, which is about $80 billion above what President Obama projected over the next few years.
Business process outsourcing
Millions of call center, shared service, software development and IT services jobs have been shifted nearshore and offshore over the last decade. Despite a resurgence of onshoring over the last few years, there is still massive amounts of white collar jobs in places like the Philippines, India and Costa Rica. However, the application of trade tariffs on soft skill jobs such as these can be a little more complicated than taxing a product entering a port. How the government tries to tax or penalize companies will greatly dictate if the cost-benefit of operating in a lower-cost geography remains viable. One key factor is these jobs can be shifted quickly back onshore with minimal capital investment.
The U.S. imported $11.3 billion in cars and $14.5 billion in trucks from Mexico in 2015 due to low wages and the free trade relationship. This doesn’t even include the U.S. assembled vehicles that include parts made in Mexico. The ramifications of shifting automotive vehicle and parts manufacturing to the U.S. would have massive implications on the creation of jobs and capital investment, especially in many smaller metro areas such as the Southeast U.S. where the manufacturing and assembly plants are located. In addition, there will be significant impact across the border in Mexico which has become dependent on many of the suppliers who currently operate there and that have been expanding rapidly in Mexico.
Consumer goods covers a large amount of the products being shipped into the U.S. Items ranging from electronics and appliances to clothing and beverages are manufactured in places like China and Mexico then shipped into the U.S. every day. The addition of tariffs to these imports will either increase consumer prices or push some manufacturing back to the U.S. The ability to move these operations will depend greatly on the raw materials, ability for automation and logistical challenges associated with the specific consumer good.
The availability of labor will be the biggest challenge faced by companies
It sounds great to create millions of jobs and receive billions of dollars in capital investment into the US economy due to the reshoring of call centers, distribution centers, manufacturing plants and software development operations. However, the biggest hurdle faced by companies will be finding the skilled labor needed to operate these facilities considering the U.S. has reached near full employment at the current 4.9% unemployment rate. Economic development organizations can offer economic incentives to attract companies; however, if the facilities can’t be staffed then we have a much bigger problem. As a result, it is critical that companies develop a site selection strategy to plan for the multiple scenarios resulting from President-Elect Trump’s impending administration.