Investing in the Midwest: new growth opportunities for manufacturing companies and not only

The beating heart of American industry, the states in the old "Rust Belt" now present a potential destination for companies with a high-tech orientation. Therefore, considering the opportunity to invest in the Midwest could be a strategic choice for numerous companies seeking international expansion and new markets.

I. COAL, STEELS AND WATERWAYS: THE GENESIS OF INDUSTRY IN THE MIDWEST

Amidst the vast territory that encompasses the Midwest and some neighboring states of the United States, including the nearby Pennsylvania, West Virginia, and Kentucky, the region stands as one of the pulsating centers of global industrial production and manufacturing.

With coal mines in the vicinity, ferrous minerals in Lake Superior, and extensive water bodies, the Midwest became the ideal environment for the emergence of steel mills and manufacturing industries.

Since 1825, thousands of manufacturing plants have sprung up in Illinois, Indiana, Iowa, Michigan, Minnesota, Missouri, Ohio, and Wisconsin. This development model, akin to Germany's Ruhr and Ukraine's Donbass, emphasized low-cost energy and transportation, skilled labor, and high engineering capabilities. Thanks to the contribution of Midwest steel mills, U.S. steel production surged from 1.25 to 141 million tons between 1880 and 1969.

II. FROM ECONOMIC GROWTH TO THE DECLINE OF THE RUST BELT

The steel mills and manufacturing in the Midwest contributed to the growth of the American economy until the 1970s when market globalization, technological automation, the shift to a service-based economy, and rising energy prices marked its gradual decline.

It was during this period that the term "Rust Belt," literally a "belt of rust," was coined, notably during a speech by Democratic candidate Walter Mondale in the 1984 presidential elections, won by Ronald Reagan. The Midwest found itself burdened with a constellation of unused production facilities.

Despite challenging times, the arrival of globalization in the 1990s and a wave of failures in the 2000s, leading to the loss of thousands of jobs, the Rust Belt states still harbor at least four key factors for economic resurgence:

• Pragmatism and industriousness: Midwest residents are known for their commitment to work and a strong connection to the local community;
  
  
• Low energy and transportation costs: from wages to rents, warehouses to logistics, businesses producing in the Midwest can achieve higher profit margins.
  
  
• Quality infrastructure: the Midwest features an extensive railway system, river ports, navigable canals, several airports, and some of the largest highways in the U.S.
  
  
• Education and skills: the region is home to several top-tier universities like Washington University in St. Louis, Northwestern University in Chicago, the University of Wisconsin-Madison, and Oberlin College in Ohio.
  
  

Manufacturing companies choosing to invest in the Midwest can attract highly qualified employees due to lower costs compared to California, offering competitive salaries and career opportunities.

III. NOT JUST CHEESES AND AUTOMOBILES: KEY SECTORS IN THE MIDWEST

Contemporary Midwest represents an ideal geo-economic area for the growth of a diverse range of sectors, thanks to its historically diversified production structure. In addition to manufacturing industries, it has been distinguished by a strong agri-food tradition. For instance, Wisconsin produces 26% of all cheese sold in the U.S. Michigan hosts 96 of the top 100 North American automobile suppliers, including General Motors, Ford Motor Company, and TRW Automotive Holdings.

These sectors are complemented by the chemical, aerospace, mechanical, and electrical industries. In Illinois, corporations such as Abbott Laboratories, Boeing, Caterpillar, John Deere, Walgreen, and biotechnology energy companies are headquartered. Meanwhile, in Ohio, the steel industry continues to supply 15% of the steel produced in the U.S., with a turnover of $7.2 billion.

IV. THE MIDWEST AS AN INCUBATOR OF NEW DIGITAL BUSINESSES

The wind of rebirth and change is represented by the technology sector, driven by lower competition and costs compared to Silicon Valley. In every major Midwest city, from Cincinnati to Chicago, from Detroit to Des Moines, there are now venture capitalists, incubators, and startup accelerators.

Within this landscape, companies like Sprout Social (social media management), Sezzle (online payments), Stratafolio (real estate data), Appirio (cloud technical consulting), and many others have emerged, growing thanks to the favorable conditions offered by the region.

With the availability of fresh skills from newly graduated engineers, modern infrastructure, and competitive costs, the Midwest can offer companies a competitive advantage in the technological field, challenging areas commonly associated with innovation, such as New York and San Francisco.

Investing in the Midwest can be the necessary first step to penetrate the rich U.S. market. By developing technological partnerships capable of enhancing high-value-added production in leading industries, an industrial or high-tech company can capitalize on the Rust Belt of the American Midwest as a strategic gateway to global markets.

SOURCES:

• Investopedia (2022), https://www.investopedia.com/terms/r/rust-belt.asp#toc-politics-and-the-rust-belt.
• Ross (2022), https://www.thomasnet.com/insights/4-reasons-why-manufacturing-is-resurging-in-the-midwest/.
• Forbes (2018), https://www.forbes.com/sites/forbesmarketplace/2018/02/21/meet-8-tech-companies-proving-theres-more-to-the-midwest/.

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