This article originally appeared in the June print edition of IMPO.
For many Americans, South Dakota likely conjures images of vast, open, countryside. With a population of just over 800,000 according to the 2012 United States census, that stereotype isn’t completely unfounded.
But when you arrive in Sioux Falls, you forget you are in one of the country’s least populous states. The metro area holds almost one-third of all South Dakotans, and the population has increased by 22 percent since 2000.
Overall, it’s a charming little city with a surprising amount to offer. But what’s fueling this gem in the middle of the plains? From what many surveys, reports, CEOs and residents alike are saying, it’s the strong business climate and ever-diversifying manufacturing sector.
Last year, CNBC’s Scott Cohn named South Dakota the 2013 Top State for Business. Not only did South Dakota win the honor, but it logged the highest score a state has received since CNBC began the ranking in 2007, winning by a landslide. The ranking compares more than 50 metrics in ten categories of competitiveness. South Dakota took home the win because of its low cost of business, quality of life and state tax incentives.
The most distinguishing characteristic of South Dakota’s tax structure is the absence of corporate or personal state income taxes. This translates to lower wages for the same quality of life, and higher gross incomes for manufacturers. The only real problem for the state? The unemployment rate is too low, at just four percent.
But how did South Dakota get here? Let’s dive in for a closer look at what makes this state, and the Sioux Falls area specifically, a top contender in the manufacturing industry.
A Brief History
In the early stages of industrialization of the northern plains area, much of the opportunities were in agriculture, mining and meat packing. In 1954, the Sioux Falls Development Foundation was created and continued to grow for the coming decades. The organization was able to attract the United States Geological Survey’s Earth Resources Observation and Science (EROS) Center, which brought with it researchers, scientists and a new focus on technology.
“That was a big deal for this community,” explains Slater Barr, President and CEO of the Sioux Falls Development Foundation. “It made this small, northern Midwestern town believe that they could go after big projects and succeed.”
By securing the EROS Center, Sioux Falls started down the path of industrial park development. Today, the community is home to eight industrial parks that employ more than 13,000 people.
According to Barr, there are four things that set the Sioux Falls economy apart from any other city. He argues that the following categories make Sioux Falls not only attractive as a place to work, but also to live.
- Amenities: Sioux Falls is a noticeably “over-amenitized” city, as Barr puts it. Because it’s surrounded by many miles of small communities, it has become a destination for shopping and entertainment in the area. Barr says that the Sioux Falls mall attracts so many out-of-state shoppers that it rivals Mount Rushmore as the number one tourist attraction in the state.
- Banking and Financial Support: Many major banks and financial providers calling Sioux Falls home. including Citi Bank, Wells Fargo, U.S. Bank, First Premier, Premier Bankcard and Capitol One. The total bank assets deposited in South Dakota sit at $2.7 trillion, more than any other state.
- Healthcare and Medical Research: Sioux Falls is home to two hospital systems that are both nationally ranked — Avera Health System and Sanford Health. Because the community doesn’t have major government research institutions or universities, “This is a real game changer,” explains Barr.
- Diverse Manufacturing Base: In Sioux Falls and the surrounding area, there’s no cluster of anything. Agriculture and meat processing are still strong, as evidenced by John Morrell Foods, a centuries-old meat manufacturer that employs 3,300 people that process 18,000 hogs a day. But industry in the area has continued to expand. It’s home to technology companies like Raven Industries, which makes balloons for the U.S. military and Google, as well as Daktronics, the manufacturer of the largest display boards in the world, including the ones at Madison Square Garden and most of the college and professional sports arenas in America. Bell Incorporated, a manufacturer of packaging for some of the most iconic food companies in the world, also calls Sioux Falls home. A more boutique manufacturer, Rosenbauer, makes some of the most advanced and customized fire trucks in the world.
IMPO had the opportunity to visit five facilities in the area recently. What follows is an inside look at what makes two of these companies special, and why they choose to manufacture in Sioux Falls.
Running on Wind: Marmen Energy
In 2013, the French Canadian machining, fabrication and assembly company, Marmen Energy, made the move to the United States. After touring many states for several years, the company decided to set up shop in Brandon, South Dakota, just 20 minutes from Sioux Falls.
Marmen builds equipment for the global energy sector, and its Brandon facility is dedicated to wind tower production. In this facility, it’s building exclusively for General Electric, a longstanding client.
According to Pierre-David Paquette, Executive Director of Marmen Energy, “There’s only one secret if you want to start a wind tower shop — everything has to be right the first time. If it’s not, each step after will suffer.”
And for Marmen, that’s a lot of steps. Massive steel plates arrive and are plasma cut and formed into a steel tube. The large rectangular sheet is cut into a banana shape (to achieve a conical end result) under water to prevent smoke and distortion from heat. Then, the cut sheets are prepared for welding.
Marmen uses a cold form process that utilizes only pneumatic power — not heat. It takes about 30 minutes to shape one segment that is then submerged arc welded together for the strongest closure. Each tower section will vary from 80-100 feet. The final product combines three segments and will stand 250 feet tall.
Once the fabrication is done, it’s on to finishing. They grit blast the segments using tiny shards of steel grit instead of the more health-hazardous process of sandblasting. Next is zinc metallization — essentially a form of galvanization. Zinc wire is melted and thrown at the section to make sure the flanges are well protected against rust. And finally, it’s painted and ready for internal assembly (ladders, cables and the like).
“This is all manually done. We don’t have any robots. There’s nothing like using humans to do such a good job,” says Paquette. The only automation in the facility is used to cut the door in the tower, but everything else is done manually or by a machine operator. “The human implication in the product is constant throughout the different workstations.”
Currently, a third of the workers at Marmen are welders. The rest are machine operators, blast operators, mechanical assembly workers and internal assembly workers. Finding enough workers to staff this operation has been the biggest challenge for the company. Right now, there are still workers that have temporarily transferred from their Canadian operations. “Our intention is to have an entire staff of U.S. workers by the end of the year,” says Paquette.
Most of the towers that are made at this facility will stay in the Midwest, and all of them will stay in the United States. Marmen’s goal is to build 400 wind towers next year, but that is dependent on hiring enough workers that they can be properly trained in time. In an area with only four percent unemployment, this could be a daunting task.
“In 2008, we visited seven states and have seen many cities looking for locations, and honestly none were as good as Brandon and Sioux Falls,” says Paquette. For him, the amenities, atmosphere, nearby airport and eager workforce make this area a perfect fit.
“We’re here for the long haul, not for one project,” he adds. Marmen will find a new product if its wind tower project ends, and Paquette isn’t concerned about business prospects. “You get the quality that you pay for, and our quality is what sets us apart.”
Displaying Excellence: Daktronics
Founded by two university professors and their wives, Daktronics has been making dynamic communication systems since 1968. It is a global industry leader in designing and manufacturing electronic scoreboards, programmable display systems and large screen video displays. The company has made scoreboards and display systems for some of the biggest teams in professional and collegiate sports.
The company has a 1 million square-foot manufacturing facility in Brookings, South Dakota, a small town just outside of Sioux Falls, with another smaller facility located in Sioux Falls itself. It has also started to create a global footprint, with sales and service offices around the world. Daktronics employees 2,300 people worldwide, with 1,800 of them in Brookings. Of those workers, 1,000 of them work directly in manufacturing.
On the plant floor, Daktronics has been moving towards more integrated automation systems since the early 1990s. Prior to that, the company was much smaller and much less automated. To improve scalability, the company has also been working on improving its Lean techniques for about eight years. Previously, they operated on a typical batch and queue production style, which was effective, but couldn’t keep up with company growth. Today, about 90 percent of production is made to order.
Daktronics doesn’t just build the display boards — it also designs the entire system that runs them. About half of the product development budget for the company is spent in software design. Daktronics team members work with clients through ordering, design, installation and any ongoing service the display may need.
And when it comes to the displays, they keep getting bigger. “Some of the sports competition really does come through in the boards that teams are purchasing,” says Sheila Anderson, CFO and Treasurer of Daktronics. “Everyone wants the biggest and the best.”
One of the driving factors keeping such a huge company in South Dakota? The pipeline of engineers they recruit and train from South Dakota State University (SDSU), which is located just down the street.
“I think SDSU is a really good source of talent,” says Anderson. “We have internship programs that help utilize the talents from SDSU as well as the other universities in the area.” Many of the engineers on staff are graduates of SDSU, which is a great competitive advantage for the company, especially in a state with almost problematically-low unemployment.
“If there’s a gap in terms of the talent pipeline, it’s into some of our more professional positions,” adds Matt Kurtenbach, Vice President of Manufacturing at Daktronics. “If we have a midlevel position open, for whatever reason, a new grad isn’t necessarily the best candidate for that, so that can be a challenge.” Kurtenbach says. He adds that with aging populations and retirements, it’s getting harder and harder to find quality replacements simply because the unemployment rate in the area is so low.
“We certainly train unskilled folks on manufacturing methods, but when you get into some of the more skilled positions, manufacturers in the area are having a hard time finding welders and machinists. We find ourselves doing a lot more training than we’d like to,” Kurtenbach says.
In spite of the low unemployment rate, Anderson explains that there are a lot of economic benefits to doing business in the Sioux Falls area. Aside from being so close to several universities, South Dakota also has low corporate tax rates that make doing business more affordable. “Coupled with a great quality of life, it is cost beneficial for us to be here compared to other locations,” she says.
To read more by Tia, follow her on Twitter at @TalesFromTia.