"The Return of the Miners" - Constantin Meunier (1831-1905) - oil on canvas, Meunier Museum, Brussels
In my day job, I have to scour the planet for the cheapest/best/safest companies to manufacture our company’s products.
For the novice, the easy answer to “cheapest” is to find the lowest low-cost country (LCC, in procurement-speak) of choice, and a willing orphanage ready to put those lazy kids to work.
Nazzo fast, Guido.
Factories that manufacture equipment for the oil and gas industry (or aerospace, or automotive, or power gen) in turn require a host of outsourced and specialized services. Testing, batch processing, finishing, contract labor, maintenance, etc.
Each industry center of excellence creates is own ecological environment where sub-suppliers are born, fluorish, are swallowed by bigger fish (merged and acquired) and eventually die. The auto industry has (or had) as its center of excellence the Midwest states of Michigan, Ohio, and Indian, with its countless machine shops, auxiliary component manufacturers, finishing plants, and battery makers.
Tulsa, Oklahoma, is known worldwide as a manufacturing center for industrial heat exchangers and air coolers. The South still has its pulp and paper mills, and all sub-suppliers that cater to it.
Scott's Run, West Virginia. Miners returning from work at New Hill. (NARA - 1937)
It does little good to establish a car battery manufacturer next to said orphanage in Bangladesh because labor’s cheap. Cheap labor is the least of it. Growth-oriented governments understand this, and facilitate the business environment to foster and support ancillary industries. Free trade zones, business incubators, special manufacturing areas. Many countries have them, with various degrees of success.
On a related tangent, the ecology of business and logistics is just one of the reasons that I prefer investing in Canadian natural resource stocks.
Open up the Northern Miner weekly, and one can easily see that the penultimate two pages of classified directory are mostly taken up by Canadian support companies.
Need a geophysical survey company? Check. Call up Goldak Airborne Surveys, or Crone Geophysics, Aeroquest, Fugro, Tundra Airborne or any of the two dozen companies advertising. All have offices in Ontario, Saskatoon or Quebec.
Unemployed Miner, Scotts Run, West Virginia (NARA, 1937)
Need mine surveys, feasibility studies and NI 43-101′s? Check.
How about mine development and engineering? They’re there too. All officed in Canada and South Africa and Brazil and Peru. Very few of them, by the way, are in the US. And why should they be? The business of mining has been hounded half to death by US state and federal governments. Labor regulations are stringent and the threat of lawsuits is always pending.
(Aside: I remember back in a previous employment life I was talking to a mid-size manufacturer in Houston. I was based overseas, and looking to garner some manufacturing work from this company. We would manufacture their products in our own factory in the Middle East under license and to their specifications. They would gain tremendous geographical leverage by having their bulky, hard-to-ship products made much closer to their customer base. This company employed about 180-200 people, mostly tradesmen.
As we toured the factory, the owner remarked that any small US factory owner needed to have his head examined, himself included. He didn’t have 180 employees, he had 180 labor hassles and/or lawsuits waiting to happen. Now, setting aside the variables in this guy’s case where (whether he was an abusive boss, or there was a bad factory working environment), the comment was nevertheless valid. Labor cost is not so much the issue, as is a heavy regulatory environment. Many companies are voting with their feet, and sending production overseas.)
Unemployed Miner, Scotts Run, West Virginia (NARA - 1937)
Not that the mining business is all that saintly up in Canada. Wherever people are people, and money freely flows, permits can be bought, regulations skirted and the environment despoiled.
The point is simply that by having all these resources close to home, Canadian resource companies have a significant edge. It’s easier and cheaper to arrange for a drilling crew or an airborne survey for a property in Ontario by getting a half a dozen competitive bids. A miner in with a property in West Africa or Outer Mongolia won’t have that luxury. They’ll either have a choice with one or two large (and expensive) sub-suppliers willing to take the overseas exposure, or take the capex risk and purchase the equipment and hire specialized personnel themselves — something only the bigger operators can afford to do.
By living in an environment where outsourced services are readily available, smaller exploration companies can afford to stay nimble by buying services by the drink, as it were. This will allow properties to stay viable year after year, through lows and highs.
( note: the black-and-white photos are public domain records from NARA, the National Archives and Records Administration, downloaded from Wikimedia Commons. There is a whole gallery of photographs, taken on some kind of research project by the Great Depression-era Federal Works Agency (Work Projects Administration) in 1937. Many photos of working men and women are captioned “Unemployed Miners”. I presume that the photos represent the Federal Works Agency documenting its make-work programs. There is even a photo of workers literally digging ditches. And how about that awesomely awesome handle bar moustache?)
I love old b&w photos! Absolutely fascinating!
I do wonder how come Canada isn’t faced with some the problems mining related companies face here in the US? How are they immune to lawsuits and regulations?
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Hi MC – Mining in Canada is subject to strict regulations as well. The process through to permitting and construction though seems to be more straightforward. The U.S. process seems to be more subject to politics. It hasn’t helped that in the past, US miners have had the reputation of causing severe pollution.
The centers of excellence are are fantastic way to grow. In fact, that’s one of the primary reasons that I joined the Yakezie group, because in a lot of ways, it is like a center of excellence with many people who are knowledgeable and ready to help (and most even for free). Hopefully I can contribute more to this group as my skill and knowledge grow as well. Great story about the advantages of Canada. One of my favorite places to visit, especially in BC.
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Welcome to the Yakezie, CoM. Keep putting out great content like you’re doing.
[...] Canadian Natural Resources and the Ecology of Business [...]
Those are some striking photographs! I love looking at the clothes and hairstyles people wore in past decades. It’s amazing how different things change over time.
@ Untemplater – in all the photos of the era, men wore their shirts buttoned right up to the top. I wonder which year it became the fashion to leave the top button open.
[...] whole series of photos I found on Wikimedia for the last post on Canadian Resources was totally fascinating. The one photo of the miners digging ditches, [...]
I’m amazed at how business strategy evolves and changes. 10 years ago, everything centered around labor arbitrage. Now companies vary strategies based on business environment. It makes me wonder what the next iteration will be.
Wayne @ Young Family Finance recently posted..Affordable Modes of Transportation
Hi Wayne – the internet has been a game changer in more ways than one. I have a strategy meeting next week where we’ll discuss how to source some specialized design engineering. In this case, location will be a bigger issue than cost. Responsiveness and speed of execution will be key. Because we have several engineering houses physically close to our company, I suspect speed will win out.
[...] 101 Centavos presents Canadian Natural Resources and the Ecology of Business posted at 101 Centavos, saying, “In my day job, I have to scour the planet for the [...]
[...] Centavos published Canadian Natural Resources and the Ecology of Business , saying, ‘In my day job, I have to scour the planet for the cheapest/best/safest companies to [...]
[...] Centavos @ 101 Centavos writes Canadian Natural Resources and the Ecology of Business – In my day job, I have to scour the planet for the cheapest/best/safest companies to [...]
[...] Centavos @ 101 Centavos writes Canadian Natural Resources and the Ecology of Business – In my day job, I have to scour the planet for the cheapest/best/safest companies to [...]