At the beginning of the 20th century, thanks to tenants such as US Steel, Westinghouse and HJ Heinz, Pittsburgh's Strip District was the centre of the city's business activity. Now, the industrial buildings, largely abandoned by companies that either off-shored or suspended their manufacturing activity, provide the perfect setting for gourmet cafes, loft apartments and pubs serving microbrews. But, while it might seem as if this hipster invasion has effectively swamped these industrial areas, not all manufacturers are in retreat.
“Many warehouses in [the] area are being converted to lofts, as it is a really cool place to live, but it is also a great place for us to be,” says John Thornton, CEO of Astrobotic Technologies, a space robotics company. Established in 2008 as a spin-off from Pittsburgh's Carnegie Mellon University, the company, which is contracted by NASA, operates a research and development office in the Strip District and will soon be adding a spacecraft manufacturing assembly to its facilities.
“Pittsburgh is the right place for us as it has a really good infrastructure to support our hardware needs but, most importantly, it has great intellectual capital, with Carnegie Mellon University being a [leading school] in the field of robotics,” says Mr Thornton.
Inner city pull
Access to talent was also the main reason why Shapeways, a Dutch 3D printing marketplace and manufacturer, moved the bulk of its operations to New York in 2011.
“We are in the business of manufacturing and we moved to one of the most expensive places in the world; some people would say we are nuts,” says Peter Weijmarshausen, Shapeways's CEO. “But we are in the new age of manufacturing in the sense that it is very hi-tech and it is about converting objects directly from digital form to physical, so we need a mix of skills to meet that. From that perspective, choosing New York was a no-brainer."
Shapeways and Astrobotic Technologies both support the claims made by Bruce Katz and Jennifer Bradley in their 2013 book Metropolitan Revolution that: ”Manufacturing and innovation, once thought to be two entirely different aspects of the US economy, turn out to be closely intertwined.” The two authors argue that cities not only have clout but also, increasingly, the will to make manufacturing a priority again and, importantly, they have the labour pool required for increasingly tech-related manufacturing operations.
“While only about 9% of all US jobs are in manufacturing, about 35% of all engineers work in manufacturing,” said Mr Katz said in a speech at the Netherlands Environmental Assessment Agency's spatial planning conference last year. “Over the past two decades, the discussion of innovation in the US narrowed, positioning it as something only conducted in the ivory tower or among exceptional entrepreneurs such as Steve Jobs. We forgot something early generations intuitively understood: the inextricable link and virtuous cycle between innovation and manufacturing."
Manufacturing start-ups are not the only ones being drawn into the city. Allegheny Technology Incorporated (ATI), a specialty metals company, is a behemoth, with an annual revenue of more than $5bn and a staff headcount in excess of 11,000. The company has a global presence but one-third of its workforce are based in the Pittsburgh area. Currently, ATI is working on a hot-rolling and processing facility, estimated to cost $1.2bn, in the borough of Brackenridge, about 32 kilometres north-east of Pittsburgh.
“Manufacturing today is a hi-tech business. What we are looking for is people that have [the right] skill set, the ability to learn and a good level of intelligence to operate very sophisticated machinery that is largely computer-based and controlled,” says Richard Harshman, CEO of ATI. “Even outside of the operations, when you go to the maintenance area, our requirements today are much different than they were 10 or 15 years ago.”
Sree Ramaswamy, a senior fellow at McKinsey Global Institute, the think tank arm of global consultancy McKinsey, says: "Cities tend to have a greater concentration of highly skilled workers, so if you're looking to tap new technologies or solve engineering problems, you need to look at cities as sources of talent."
At the beginning of 2014, Mr Ramaswamy together with two colleagues from McKinsey, Katy George and Lou Rassey, published a paper 'Next-shoring: A CEO's Guide' in which they argued that labour cost-focused site-selection strategies for manufacturing operations are becoming obsolete. “Advances stemming from the expanding internet of things, the next wave of robotics and other disruptive technologies are enabling radical operational innovations, while boosting the importance of new workforce skills,” they argue. “A next-shoring perspective emphasises proximity to demand and proximity to innovation."
Striking a balance
Attendees of the International Economic Development Council (IEDC) Spring Conference, held in June 2014 in Minneapolis, argued that, although city residents and authorities welcome the jobs that are created by new manufacturing projects, they often focus on projects that rezone areas from industrial to residential, which makes finding sites suitable for manufacturing projects challenging.
According to Mr Ramaswamy, proximity to innovation and talent does not necessarily mean that manufacturers need to be in the heart of the city. "In many cases it is easier for manufacturers to locate on the outskirts of big cities, or even in second-tier cities, where operating costs are lower, space is more readily available and where logistics can be easier to handle," he says.
ATI's head office is in central Pittsburgh, but the majority of its operations are outside of the city limits. Similarly, Shapeways, which has an office on the prestigious and expensive Park Avenue in Manhattan, has its main manufacturing facility in an old warehouse in the borough of Queens.
“While moving to New York made perfect sense to us, moving to Manhattan was one bridge too far,” says Mr Weijmarshausen. “Queens is the right fit. It benefits from most of the same infrastructure, but the rent is a little bit better. The warehouse our company moved into had been vacant for 10 years. It would be impossible to find similarly sized and priced property in Manhattan.”