September/October 1999

They Speak English
in Mississippi

Companies seeking low labor
rates might not have to go to
Mexico after all

By Jennifer Read

Companies making the decision to move manufacturing operations to Mexico or overseas should consider what Kenneth Forte is trying to do in Holmes County, Mississippi. Taking advantage of the federal government HUD Empowerment Zone program, Forte is trying to resurrect a wiring harness company out of the ashes of a former General Motors supplier in the Delta region of Mississippi. GM announced in January of this year that it would pull its business out of Holmes County and move to Mexico; by February, Forte had incorporated and was recruiting managers for a new company, MSARK, Corporation.

The Empowerment Zone program gives urban and rural areas performance grants for job creation and job-related activities. Under the initial round of grants, Atlanta, Baltimore, Chicago, Detroit, New York and Philadelphia/Camden each received $100 million; Kentucky Highlands, Mississippi Delta, and the Rio Grande Valley each received $40 million. Employers in the urban and rural Empowerment Zones are eligible for wage tax credits worth $3,000 for every employee hired who lives in the Empowerment Zone boundaries. EZ businesses also are eligible for increased tax expensing for equipment purchases; for example, they may write off as an expense the cost of the depreciable, tangible personal property they purchase, up to $37,500 – $20,000 more than the first-year write-off allowance for businesses not in the EZ. All the communities are eligible to receive tax-exempt bond financing that offers lower rates than conventional financing for business property, land, renovations, or expansions.

According to HUD, this initiative is different from previous urban revitalization efforts because the communities drive the decision-making. Residents decide what happens in their neighborhoods, not federal officials in Washington. Each EZ community has written "benchmarks" or quantifiable goals that determine how the money will be spent and what the results of the activity will be.

In Holmes County, unemployment was 9.8 percent even before GM pulled out. Now, the rate stands at 19.8 percent, quadruple the national average. The company had an agreement with Delphi Packard, where Delphi provided the equipment used to make wire harnesses for GM vehicles. When a bidding war erupted over wire harnesses for future GM projects due to competitive pressures from outside suppliers, GM made the decision to move to Mexico where the labor rates are lower. That left 500 trained workers and a two made-to-order for MSARK to begin operations.

This isn't the first time Holmes County has been left high and dry. Walter Scott is director of the Minority Business Enterprise Division for Mississippi's Department of Economic and Community Development. His office oversees the distribution of Empowerment Zone funding, and has been working with Mr. Forte to help jumpstart MSARK Corporation. "NAFTA has had a devastating effect on Mississippi. Holmes County was already hit hard by the garment industry jobs that went overseas. Now with these jobs going to Mexico, the workers are in real trouble. They have the choice of relocating to the Gulf Coast, where they are hungry for workers, or staying here and waiting for unemployment to run out in hopes that MSARK will be successful. It's a risky choice because there is a severe housing shortage in the Gulf coast, and it's expensive to move; however, if there are no jobs in Holmes County, what else can they do?" Scott explained.

Scott is helping open doors for MSARK by providing technical assistance and introducing him to suppliers and other key contacts. "His quest is our quest," he declared. Where others saw disaster, Forte saw opportunity. He made plans to reopen a contract wire harness and cable business using the same facilities and the same trained workers. The town is behind his efforts, and he has all the financing and tax incentives he needs. What he needs now is a few signed contracts and he is off and running.

"I want to start small, with just few customers. I know that quality and reliability is going to be very important, and I want to make sure we do things right," Forte explained. "We will have our QS-9000 certification, and will be ready to roll almost immediately. But I am in this for the long haul. I also want to make sure we have a diverse customer base and are not so dependent on one customer, the way the former company was."

Forte's background includes 10 years in human resources and administration, the last four as Vice President of Human Resources with the former company that closed down. He and his family want to stay in the region and bring some jobs to the workers that live there. "This impacts a lot of people down here. Holmes County is the poorest county in Mississippi and is one of the poorest in the nation. This company will be non-union, and will have a base wage rate of about $6.48/hour. While that is higher than Mexico and overseas, we should still be in the ballgame."

Companies have to factor in the disadvantages of manufacturing in other countries–the language barriers, foreign property laws and regulations, as well as the inevitable problems dealing with a different culture. When they add it all up, Forte thinks his idea will attract customers. "I am looking for a mentor in one of the upper tier contract manufacturer companies to help me avoid mistakes. This is a very competitive industry, and it is easy to get off-track." Forte has finalized his implementation team and is working to sign a few contracts. Then he will hire the work force and start operations. "The other company closed its doors in July, so time is of the essence," Director Scott cautioned. "Ken's window of opportunity is closing as these workers will have to make some plans pretty soon." And Forte remarked that he can't wait too long either. "The headhunters are calling; I want to get this going, though. I believe in Holmes County and I want to stay here and make this work."

For more information on MSARK Corporation, contact Mr. Forte at (601) 924-5060 or visit Internet: http://www.msarkcor.com.