#123 – Inside Our Industry – To Cluster or Not to Cluster…That is the Question!

Clustering in the manufacturing sector used to be quite common (Detroit for automakers, the Silicon Valley for semiconductors, etc.) While clustering may still have value to some industries, in more and more cases, it does not hold the same value.

To Cluster or Not to Cluster…That is the Question!
Richard Thomas, Vice President of Legislative Affairs, Design-Build Institute of America, Q3 2022

One of the unanticipated outcomes of the COVID-19 pandemic is the reconfiguration of global manufacturing and supply chains. While you might expect manufacturers to be attracted to traditional “industry clusters” where talent and suppliers will come together in a certain market or geography — think of the close ties between automakers and Detroit — that isn’t necessarily the case today. In some sectors, traditional industry or logistics clusters are less important than they have been at any point in the past.

Disruption has created opportunity for U.S. manufacturing. Following various supply chain disruptions and lengthy logistics logjams beginning in 2020, many manufacturers have been near-shoring or on-shoring their manufacturing operations and reconfiguring their supply chain networks.

Shifting Manufacturing and Supply Chain Footprints
No wonder JLL Research finds that demand for U.S. manufacturing-related facilities soared 93 percent year-over-year from the first quarter of 2021 to the first quarter of 2022. More than 1,800 companies reshored manufacturing in 2021, and reshoring is expected to create 350,000 new U.S. jobs by the end of 2022, up from 260,000 in 2021, according to The Reshoring Initiative®’s IH 2022 Data Report.

To be clear, the shifts are not limited to the United States. Manufacturers with customers around the world are looking to keep operations close to customers to reduce the risk of future supply chain delays and facilitate product delivery. Moving manufacturing closer to consumers — whether in the Americas, APAC, or EMEA — also helps mitigate risk and the impact of high shipping costs.

Within the United States, however, the industries most affected by current trends are not necessarily locating in or near industry clusters. Multiple factors are pushing manufacturers beyond the traditional cluster markets. The tight market for labor — in particular for skilled manufacturing jobs — has made access to labor more of a challenge than in that past, driving manufacturers to areas with available labor pools. Tax incentives are always a factor, as is access to rail, highways, and other shipping infrastructure. Large developable land sites are also harder to come by, as manufacturers are often competing with logistics companies for major parcels.

Click here to go to the full report that also looks at the EV manufacturing footprint, semiconductor manufacturing resurgence and why some industries benefit from clustering.