The North v. the South

Can a Northern manufacturer cut production costs by moving to the South? Many a manufacturer has answered yes and made the move in the belief that lower wages and taxes would enable him to produce more cheaply. Last week, in the current issue of the Harvard Business Review, Management Consultant John O. Tomb held up a warning finger. Says he: "As a section, the South no longer offers a guarantee of lower costs than the North."

The change is due chiefly to the rapid expansion which has already taken place in the South's economy. Between 1939 and 1951, sales of goods manufactured in the twelve southeastern states rose 115%. v. 86% for the nation as a whole; construction in the South rose 268%, v. 183% nationwide; half the scheduled expansion of the chemical industry and four-fifths of the expansion in the pulp and paper industry are planned for the South. As the industrialization of the South continues, cost gaps will continue to close. Says Tomb: "The South's once plentiful supply of labor is diminishing. Increasing competition in the labor market ... is being reflected in higher pay rates, lower productivity, and added fringe benefits. Moreover, even where labor costs are low now . . . the advantage may be lost by the time a new plant is built or an old one bought and remodeled."

Early Birds. While "manufacturers who capitalized in years past upon the economic immaturity of the South profited handsomely," others are now finding the opportunities dwindling. Example: a textile machinery manufacturer who needed to rebuild his plants found that a 10% wage differential favored relocation in the South, but decided that in five years there would be no "substantial differential in wages." Average hourly production wage rates are actually higher in such Southern cities as Birmingham ($1.51) and Memphis ($1.44) than in Manchester, N.H. ($1.41) and Lancaster, Pa. ($1.43). As for state and local taxes, a University of North Carolina study of a hosiery and a furniture company showed that their tax bills would be lower in Ohio, Michigan or New York than in Mississippi, Georgia or Arkansas.

New Approach. Manufacturers should study future tax needs of any community, before moving there, Tomb warns. "Southern states have a larger proportion of school-age children and correspondingly larger needs for educational funds . . . As southern cities and towns grow with the expansion of industrial activity, everyone will want and need more housing, hospitals, roads, and soon. These will have to be provided at today's higher cost."

Tomb concedes that a careful study may find many places in the South where the economic climate is still inviting, but he warns that a change in scene is not always the solution to a company's troubles. Says he: "Some Northern companies have run into difficulty not because they are located in the North, but, in the final analysis, because they have failed to keep up with competition in the concepts ... of modern management . . . [A] new management approach . . . can work wonders equally well in the North."

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