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Featured | Industrial/Manufacturing

What’s Driving the Manufacturing Boom in the Carolinas: Part 1

by Brian Gallagher, Graycor on

Business is booming for manufacturing in North Carolina and South Carolina. Historically, the Carolinas have been effective in attracting manufacturing projects. During the last few years, this investment has been driven by a number of factors, including reshoring, foreign direct investment (FDI), emerging technologies, government incentives, the energy transition, consumer demand, and more. The first article in this series will examine how reshoring is driving capital investment.

Reshoring, the practice of bringing manufacturing back to the United States, has played a pivotal role in the country’s manufacturing renaissance. This resurgence has bolstered domestic production and triggered a substantial increase in capital investment in constructing new manufacturing facilities in North Carolina and South Carolina. There are several factors converging that are driving the manufacturing boom in the United States, including supply chain challenges, geopolitical tensions, the costs of energy, access to consumers, federal legislation and funding bills, and highlight emerging markets driving this trend.

According to The Reshoring Initiative’s quarterly report for 4Q 2022, there has been a significant increase in manufacturing jobs due to reshored production facilities in North America. That trend is bolstered by new facilities supported by government investment. The Chips Act, the Infrastructure Reinvestment Act and other federal government incentives are just a few examples spurring this investment.

The impact of COVID-19 on the global supply chain played a pivotal role in accelerating the reshoring trend. The pandemic exposed vulnerabilities in international supply chains, leading many companies to reevaluate their reliance on distant suppliers. Disruptions in the production and transportation of critical goods highlighted the advantages of having manufacturing operations closer to home. This realization and the need for resilient and flexible supply chains fueled the urgency to restore production to the United States.

Emerging Markets Driving Reshoring: Several emerging markets are contributing to the reshoring trend.

  • Semiconductors: The demand for semiconductors is surging, and the U.S. is striving to reduce reliance on foreign suppliers by boosting domestic semiconductor manufacturing. The CHIPS Act is supporting investment by foreign and domestic firms for new chip facilities and the supply chain.
  • Electric Vehicles: With the global shift towards electric vehicles, the U.S. is positioning itself as a major hub for EV production, leading to increased construction of EV manufacturing plants, battery recycling facilities and production facilities for suppliers serving this industry.
  • Advanced Manufacturing: The term advanced manufacturing refers to the utilization of innovative technologies and methodologies to improve products, processes, and production operations. By integrating information technology, automation, computation, software, sensing, and networking, advanced manufacturing paves the way for smarter, safer, and more environmentally sustainable production processes.
  • Data Centers: The digital age relies heavily on data centers, and the U.S. is witnessing a boom in data center construction to support the growing demand for cloud computing, artificial intelligence, and data storage. While not technically manufacturing, data centers provide the backbone of data and communications.
  • Life Sciences: The pandemic underscored the importance of domestic pharmaceutical and medical supply production. Additionally, advances in research and development have led to new RNA and other medications.
  • Energy: The transition from fossil fuels to more sustainable sources of power generation has led to capital investments in manufacturing facilities to produce equipment for renewable energy generation such as solar panels, batteries, hydrogen fuel cells and other technologies.

The Attractive Benefits of Manufacturing in the U.S.: Manufacturing in the United States offers companies several benefits, including:

  • Political Stability: The United States, relative to some other regional boasts a stable political environment, which provides a secure foundation for businesses to thrive. The Russia-Ukraine war and tensions between China and Tawain are two examples of instability. In the U.S., the relative stability fosters investor confidence and reduces risks associated with manufacturing operations.
  • Access to Reliable Power: The U.S. offers a robust and reliable power infrastructure, ensuring uninterrupted production processes. This reliability is critical for manufacturing operations dependent on consistent energy supply.
  • Workforce: The U.S. has a highly skilled and adaptable workforce. Access to a skilled labor pool enables manufacturers to innovate and remain competitive in the global market.
  • Proximity to Clients: Manufacturing in the U.S. often means being closer to the consumer base. Reduced shipping costs and transit times make it advantageous for companies to manufacture products locally.
  • Impact of Federal Legislation and Funding Bills: The U.S. government has recognized the importance of reshoring and has taken measures to incentivize companies to invest in domestic manufacturing. Federal legislation and funding bills provide grants, tax incentives, and other financial support to companies willing to bring production back to the United States. These initiatives have played a significant role in encouraging capital investment in new manufacturing facilities.
  • Automation: The U.S. is investing in automated production at a rapid pace. While they require significant upfront capital investment, robots can now build things cheaper than workers. The cost for automation is relatively the same everywhere in the world. Automated manufacturing int he U.S. eliminates the strategic advantage of cheap labor held by international competitors. Industries that have been dependent on cheap labor as a strategic advantage will see their businesses disrupted by robotic automation, paving the way for a resurgence in U.S. manufacturing. 
  • Buy America: Several of the federal funding programs also include Buy America clauses which mandate that a certain portion of materials are sourced from the U.S. or final assembly must be completed in the U.S. This is also driving reshoring and investment in the states.

Reshoring has ignited a manufacturing boom in the U.S., driving significant capital investment in construction. The nation’s political stability, reliable power supply, skilled workforce, and proximity to clients make it an attractive location for manufacturers. Federal legislation and funding have further incentivized this trend. These broader trends provide a backdrop for the surge in activity in North Carolina and South Carolina.

Factors Driving Investment in the Carolinas: North Carolina and South Carolina have emerged as prime beneficiaries of the significant investment in new manufacturing construction. In 2022 and 2023, both North Carolina and South Carolina ranking in the top 5 of Area Development’s Top States for Doing Business Report. The states offer several economic advantages for manufacturers:

  • Business-Friendly Environment: Both North Carolina and South Carolina have cultivated business-friendly environments with favorable tax policies and regulatory frameworks, making it easier and more cost-effective for companies to operate.
  • Skilled Workforce and Training Programs: These states boast a skilled and adaptable workforce, with robust training programs and educational institutions catering to manufacturing industries’ needs. The North Carolina Job Development Investment Grant and the South Carolina Job Development Credit programs provide attractive incentives for employers.
  • Infrastructure: North Carolina and South Carolina have invested heavily in infrastructure development, ensuring excellent connectivity through highways, railways, and ports, facilitating the movement of goods.
  • Access to Major Markets: Situated in the southeastern United States, the Carolinas offer proximity to major consumer markets on the East Coast, reducing transportation costs and transit times.
  • Incentives: Both states provide various financial incentives, including tax credits and grants, to attract manufacturing companies and support their growth. Program’s include North Carolina’s One North Carolina Fund, and South Carolina’s Economic Development Set-Aside Fund and Fee In Lieu of tax (FILOT) programs.

The Reshoring Trend will continue to be a key driver for capital investment in the Carolinas. With proactive economic development organizations, effective workforce development programs, a healthy infrastructure, access to reliable energy, and access to consumer markets, the two states are well positioned to take advantage of FDI, and the combination of these factors has made North Carolina and South Carolina highly attractive destinations for manufacturers looking to establish or expand their operations, contributing to their economic growth and resilience in the face of global economic challenges.