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OM in the News: South Carolina and the Auto Cluster

April 24, 2012

Here’s a pop quiz: Where did French tire-maker Michelin, just announce it will build a new global factory—China, Mexico or South Carolina? Answer: South Carolina.

What state is about to become the biggest manufacturer of tires in the U. S.? Answer: That would be South Carolina, too, with Michelin’s new plant  (cost $950 million and employing  800  people). Other tire makers in the state are also expanding, reports The Wall Street Journal (April 20, 2012). The port of Charleston  is adding capacity to handle cargo going in and out of the area.

“Ten years ago, everyone thought Mexico would be the place for expansion,” says the head of Michelin– North America. “But we can’t tolerate the level of instability there.” As for China, labor costs are rising quickly and there’s still concern about protecting intellectual property.”

A new survey of 106 big U.S. manufacturers picked up a similar sentiment. Thirty-seven percent of the companies said they plan to bring production back to the U.S. from China, or are actively considering it. Seventy percent said sourcing in China is more costly than it looks on paper.

In Chapter 8, we  write about the unique vitality of manufacturing hubs or “clusters”—the co-location and interconnection of related industries and schools. Silicon Valley is a prime example. So too the tech corridor in upstate New York, aircraft design in Seattle, chemicals in West Virginia, and advanced engineering in Prince George County, Va., where Rolls-Royce and a group of universities recently tied up.

Michael Porter of Harvard, in a 1998 paper “Clusters and the New Economics of Competition,” wrote: “Paradoxically, the enduring competitive advantages in a global economy lie increasingly in local things—knowledge, relationships, and motivation that distant rivals cannot match.”

Discussion questions:

1. Name some cluster zones of business expertise outside the US.

2. Why did Michelin select S. Carolina for its original plant and for the new one reported here?

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