AKRON, OHIO—Canada is gaining a reputation as a low-cost location for plastics processors, according to a new study by Boyd Co. Inc.
A favorable exchange rate, higher unemployment, lower costs of employee benefits and some other intangible qualities make Canada very attractive, said John H. Boyd, president of the Princeton, N.J., firm.
``We've seen a subtle but noticeable shift of plastics jobs to Canada,'' Boyd said in an interview at Plastics News' office in Akron. He cited Uponor North America Inc. as an example; the firm's Wirsbro Co. subsidiary is building a plant in St. John, New Brunswick, to make cross-linked polyethylene tubing. Wirsbro has a plant in Apple Valley, Minn., near Minneapolis.
Boyd Co. helps companies select locations for new plants. Its new study compares the cost of operating a hypothetical 100,000-square-foot light-manufacturing plant employing 300 hourly workers and shipping to selected major markets in the United States and Canada.
The study considers costs that include wages and benefits, electric power, taxes, amortization, heating, air conditioning and shipping. Much of the data is publicly available, but Boyd said his firm interpreted the numbers to estimate what a plastics processor would need to pay for key costs, such as labor.
``It's an interpretive exercise — knowing what the competition is paying, interpreting the data and positioning the client where they need to be in the labor market,'' he said.
Los Angeles turned out to be the most expensive location for plastics processors, primarily due to Southern California's high land and construction costs. Most major cities also suffered because of the higher rate of unionization, even in urban areas with relatively high unemployment.
``The UPS settlement a few years ago seemed to set the tone that business-labor relations would be more contentious. You see that in the General Motors strike today,'' he said.
Some locations in the southeastern United States showed up as low-cost locations, but Boyd said costs in the area are rising.
``The Carolinas are becoming victims of their own success,'' he said. ``Looking ahead, one of the issues in the Southeast is inflationary wage pressure.''
Boyd recommends that his clients look primarily at long-term costs to operate a plant, and give less weight to special relocation incentives.
``In my opinion, the value of incentives is very overrated,'' he said. ``We counsel our clients to put things in perspective, stress the fundamentals. Because the fundamentals will persist.
``After the incentives run out, you'd better be in the right location for the long term.''
Although some states in the Southeast pioneered the use of relocation incentives, Boyd contends processors can get nearly identical deals wherever they look.
``I call it the homogenization of incentives,'' he said. ``You can negotiate the same package anywhere. In my view, once a processor settles on the proper location, then they should use incentives to make the project less costly. It's part of the negotiation process.''
Mexico is a popular location with some processors, but Boyd cautioned companies to look beyond the country's attractive low wages.
``Not every company has the wherewithal to work in Mexico. I've seen companies make that mistake,'' he said. Boyd recommended that companies need an experienced, highly skilled human resources department to be successful in Mexico.
Boyd Co., which was founded in 1975, provides independent location advice to U.S. and overseas firms. Boyd said most of his work is for Fortune 500 companies, but added that he gets significant business from smaller plastics processors. He attributed that to the growth and magnitude of the plastics processing industry.
``Small firms need help the most. They're generally less sophisticated in the nuances of site selection,'' he said. ``And often they have to work with a lot of internal conflict — because site selection can mean relocation for workers. That causes a lot of stress on a personal level.''
His firm typically recommends three specific locations — often a vacant parcel or available building — and lets the client company make the final decision.
Boyd charges clients $25,000 and up, depending on the scope of the sites being considered.