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CPA Releases Competitiveness Strategy for the United StatesCPA Releases Competitiveness Strategy for the United States

Friday, November 20th, 2015

For several years, organizations and elected representatives in Congress have proposed developing a national manufacturing strategy. For example, the Information Technology& Innovation Foundation (ITIF) released a report, “The Case for a National Manufacturing Strategy,” in April 2011 and the Alliance for American Manufacturing has repeatedly put forward a “Plan to Save Manufacturing,” calling for a national manufacturing strategy to reverse the decline in U.S. manufacturing and the good jobs that come with it. Bills sponsored by Illinois Rep. Dan Lipinski (D) have even passed the House of Representatives, but have died in the Senate.

On November 11th, the Coalition for a Prosperous America (CPA) released “A Competitiveness Strategy for the United States – America at a Crossroads,” which addresses other sectors of our economy in addition to manufacturing.

“America needs to start winning again,” said Michael Stumo, CEO of CPA. “That is why the mission of the Competitiveness Strategy is to:

‘Win the international competition for good jobs, sustained real economic growth and prosperity with a national strategy to counter foreign mercantilism, balance trade and grow strong domestic supply chains.’”

“Across the USA, localities and states employ plans to attract jobs,” said Brian O’Shaughnessy, CPA Chief Co-Chair and Chairman of Revere Copper Products. “Other countries have sophisticated national strategies to acquire industries and bring good paying jobs to their countries. The USA has no comprehensive national strategy for domestic production and good paying jobs to guide trade negotiators and administration officials.”

CPA’s Competitiveness Strategy argues that:

The United States is losing an economic competition against other nations whose mercantilist strategies are destroying our manufacturing jobs, critical industries, our standard of living, our national security, the security of our food supply, and our children’s futures.

The threat to the U. S. economy and national security is grave. Other trading nations are using comprehensive strategies to import jobs across all economic sectors, but are particularly focused on strategically significant technologies and industries. American companies in these sectors face not only wide-ranging mercantilist practices and non-tariff trade barriers such as currency manipulation, tariffs and subsidies, but also much more sophisticated and specific strategies aimed at identifying, acquiring, or otherwise controlling critical technologies.

CPA’s strategy holds out the promise that the U. S. is in control of its own destiny and can re-assert itself as a great manufacturing and producing nation with a rising standard of living for all. We can develop and implement a comprehensive strategy that retains and reinforces our leadership in innovation, locates investment and production in the United States, and raises employment by creating good paying jobs.

The ultimate mission of the strategy is to win the international competition for good jobs and sustained economic growth. The mission recognizes we are in competition with other countries. The Competitiveness Strategy includes nineteen action steps focused upon three interrelated goals:

  1. Identifying and countering foreign mercantilist strategies that grow their economies at the expense of other countries through achieving a persistent trade surplus
  2. Balancing the national trade deficit
  3. Growing domestic supply chains

“All three goals are interrelated and must be pursued together,” continued Stumo. “The President rightfully created the National Network for Manufacturing Innovation to grow domestic supply chains, but the effort cannot succeed unless we combat powerful foreign tactics to take those industries away. Further, a new effort to counter foreign mercantilism and trade cheating is essential, but must have the goal of balancing trade to be fully effective.”
“Additionally, balancing trade is essential, but merely exporting raw materials is insufficient. American must grow and retain a diverse array of industries that add value to our products and create good jobs, with special attention paid to advanced and critical industry supply chains,” Stumo concluded.

CPA’s competitiveness strategy shown below is succinct, yet comprehensive:

“Identify and counter foreign mercantilist strategies that grow their economies at the expense of other countries through achieving a persistent trade surplus

  1. End both currency exchange rate imbalances and the accumulation of excessive US dollar holdings by non-US public and private entities.
  2. Impose offsetting tariffs to neutralize foreign government subsidies to industries and supply chains that compete with ours.
  3. Counter foreign government policies that force offshoring by conditioning access to their markets on transfers of technology, research facilities and/or production to their countries, as well as compliance with export performance and domestic content requirements, while their exporters have access to US markets without these conditions.
  4. Ensure that foreign greenfield investments in the US and acquisitions of existing US companies provide a clear “net benefit” to the US with special scrutiny in cases of state influenced foreign entities.
  5. Protect US food security from foreign government tactics to seize markets.

Balance trade

  1. Offset cumulative trade deficits of recent decades and excessive accumulations of dollar reserves through sustained trade surplus to ultimately achieve a long term overall trade balance.
  2. Insure that the composition of trade includes a substantial trade surplus in high value added and advanced manufactured goods.
  3. Make the US workforce more cost competitive by promoting fair pay, rising living standards and safe working conditions for workers everywhere.
  4. Reduce US producers’ trade disadvantage through tax reform which finances the reduction of payroll taxes and health insurance costs with a border adjustable consumption tax in a revenue and distribution neutral manner.
  5. Lower corporate tax rates and end corporate inversion and profit shifting tax avoidance by taxing the income of unitary business groups, whether domestic or foreign, based upon proportion of global sales in the US.

Grow Domestic Supply Chains

  1. Preserve and develop domestic manufacturing and agricultural supply chains to maximize value added production in the US.
  2. Develop, build and maintain a world-class land, water, air, communications and energy infrastructure.
  3. Safeguard our military strength and national security by insuring that critical technologies, weapons & IT components are developed and manufactured in America by American controlled companies.
  4. Develop, commercialize and retain strategic and economically significant advanced technology and grow their manufacturing supply chains in the US.
  5. Increase public support for, and incentives for private investment in, basic and applied research, infra-technologies and new product and process technologies.
  6. Continually raise the competitiveness of American workers by improving Science, Technology, Engineering and Math (STEM) education available at all levels, systematically enhance lifelong learning for existing workers, and fostering a national system of apprenticeship and paid internships through collaborative public-private endeavors that are connected to actual opportunities in the labor market.
  7. Raise the competitiveness of small and medium sized domestic enterprises by increasing long-term private sector financing, the sharing of research on common issues and the diffusion of new technologies and production methods.
  8. Preserve our right to adopt and enforce domestic policies that insure the quality of our food and goods, and protect the health, safety and general welfare of our citizens without restrictions from international trade agreements.
  9. Ensure that domestic manufacturing and agriculture benefit fully from an expanded supply of low cost US produced energy”

Anyone involved in efforts to revitalize American manufacturing already has a bookshelf full of books, studies, and reports containing recommendations on a national manufacturing strategy. My book, Can American Manufacturing Be Saved? Why we should and how we can has a chapter on “How Can We Save American Manufacturing?” that contains a summary of the recommendations of many organizations as well as my own recommendations, which I incorporate into articles and presentations whenever possible. As chair of the California chapter of CPA, I plan to incorporate this competitiveness strategy into future articles and presentations whenever possible.

The brilliance of CPA’s strategy is that it is not limited to manufacturing and is not a “to do list” of actions to take. The Competitiveness Strategy will work best when pursued as a whole. The three objectives are interrelated because, for example, we cannot balance trade without growing domestic supply chains to produce more, and add more value in the U. S. We cannot grow domestic supply chains unless we neutralize foreign mercantilism (trade cheating) that offshores otherwise competitive industries that we started and developed in the U. S. We cannot address foreign mercantilism without the guidance of a balanced trade objective.

Businesses must have a strategic plan to start and grow. This strategic plan guides the business with regard to product development, finance, marketing, production, procurement, etc. Many other countries have an economic strategy to grow their economy. A country’s strategy guides their economic, fiscal, trade, innovation, finance and monetary policy, so that they all work together to enhance their competitiveness as a nation.

The United States has no comprehensive strategy ? just a hodgepodge of laws and rules. Trade negotiators have had no strategic plan to guide them, and neither do the administrative agencies relevant to manufacturing, agricultural, and use of natural resources. The United States needs a comprehensive competitiveness strategy that clearly expresses exactly what we want to achieve for our country… not for an industry or special interest… but our country as a whole.

We do not have to “keep reinventing the wheel.” It is time for our leaders to “stop fiddling while Rome burns” and show some real leadership. Action, not lip service is what we need now!

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Posted in Economic Development, Economy, Jobs, Manufacturing, National security, Reshoring, Trade, Trade Policy | No Comments »

Traditional Industries Generate High-tech Spinoffs in Southwest Florida

Tuesday, November 3rd, 2015

My last article featured the stories of two companies that I visited, so this article will feature the four other companies I toured during my brief visit to Lee County earlier this month as the guest of the Lee County Economic Development Office.

Shaw Development is a family-owned company with the third generation now involved and specializes in the design, development and manufacturing of custom fluid management solutions, including Diesel Emissions Fluid (DEF) systems (headers, reservoirs, caps, adapters, strainers, etc.) for heavy-duty vehicles and machinery, such as trucks, buses, construction, mining, military vehicles, as well as agriculture and forestry equipment, power generation, and locomotive equipment.

Stephen Schock, Director of Manufacturing, gave us a plant tour first, and then we met with Lane Morlock, Chief Operations Officer. Lane told me that Frank Shaw founded the first Shaw company, Shaw Metal Products, in 1944 Buffalo, New York as a machine shop to support the military and developing aerospace market.

Shaw Aero Devices, Inc. was founded in 1954 to add engineering to their core capability and develop products with proprietary intellectual property. Frank’s son, Jim Shaw, headed up this company, and it became the industry standard for a variety of fuel, oil, water, and waste components and systems. Shaw Aero Devices moved Naples, Florida (Collier County) in the early 1980s and moved to Fort Myers in Lee County 1993. The company relocated back to Naples in 2001 after it outgrew its Lee County location.

Lane, said, “Shaw Development, LLC was formed in 1959 to transfer Shaw Aero Devices technology to ground vehicle markets particularly the lift and turn technology for fuel caps. We moved into our current 50,000 sq. ft. plant in Bonita Springs in 2008. Shaw entered into the DEF system business early on, and business has grown dramatically in the last 6 to 7 years.”

When I asked how much they outsource, he said, “We have a fair amount of capability in-house ? machining, stamping, forming, welding, paint, assembly and test capabilities. In 2009, we vertically integrated plastic injection molding by acquiring Gulf Coast Mold to bring back our molding from China. We bought a robot for welding that saves us a great deal of time. We buy some machining and sensors outside. In 2014, we added 17,000 sq. ft. to our production space in the plant and expanded our injection molding operation by 6,500 sq. ft. We added 75 employees over the past 3 years and our revenue has been increasing +25% YOY in this time period. We are now up to about 200 employees, so we are the second largest manufacturer in the region.”

In response to my question about their challenges, Lane said, “Our biggest challenge is to get the right talent. We work with Florida Gulf Coast University (FGCU) and more recently, we have engaged with the University of Miami to find the right talent. We work with local schools and the Southwest Regional Manufacturers Association to develop curriculum and manufacturing industry awareness to the local area. We are heavily involved with STEM and bring in students as interns and offer them the opportunity to work on private projects. One of our welders took a job with the local technical college to train welders, and this has provided us with an opportunity to work with this program and provide them with industry experience.”

With regard to my inquiry about being a lean company, he said that he had spent two years at NUMMI (Toyota Joint Venture) gaining an in-depth understanding of the Toyota Production System prior to spending seven years in a leadership role at General Motor’s corporate Lean Office. He added, “We have a full time Lean black belt to train our employees. We have gone from 43-day material turnaround to an average of 27 days in the past two years. Our model for business planning is Hoshin Kanri, and we have a five-year business plan and an annual business plan tied into it. Our on-time delivery is 98.8% year to date, and our quality PPM has improved by 60% in the past two years. We use a two-bin Kan Ban system and one-piece flow for our assembly line operations. Our employees are cross trained, and we review our manufacturing cell metrics at weekly meetings.”

With this emphasis on lean and the fact Shaw Development is both ISO 9000 and 14000 Certified, I could see why the company has been recognized as the Manufacturer of the Year for the State of Florida and Southwest Regional Manufacturer of the year.

My next visit was to American Traction Systems (ATS), a privately owned company formed in 2008 by Bonne Posma, as an affiliate of his other company, Saminco, Inc. ATS specializes in the design and manufacturing of electric propulsion systems for on and off road electric vehicles such the Ford Fusion, fuel cell buses, Hybrid trucks and buses, streetcars, trolleys, trams, GenSet Locomotives, Hybrid Diesel-Electric marine vessels, airline ground support vehicles. ATS has manufactured electric traction drives for Fuel Cell Buses designed by Ballard and Georgetown University, Hybrid-Electric systems for Allison Electric Drive division of General Motors as well as over 3,500 AC/DC and DC/DC controllers for underground mining vehicles. All design and manufacturing is performed in the Fort Myers, Florida facility with the capacity to deliver production of several hundred units per month.

General Manager Lem Vongpathoum led the plant tour at ATS and then we met with Mr. Bonne Posma and his niece, Cari Posma Wilcox, Vice President of Saminco, Inc. In a phone interview with Cari after returning home to clarify some details, she told me that Bonne was born in Indonesia of Dutch parents just as WWII erupted in Asia and spent the war years in a prison camp with his parents. His family returned to the Netherlands after the war and then immigrated to Canada. Mr. Posma founded Saftronics in 1968 in Johannesburg, South Africa and then opened a second facility in Ontario, Canada in 1976, which is still in operation as Saft Drives. He opened a Saftronics plant in Buffalo, New York in 1986, which he moved to Ft. Myers, Florida a year later. He left Saftronics and founded Saminco in 1992. Saftronics was sold to Emerson in 2005. After founding American Traction Systems in 2008, he opened a Saminco service office in China in 2009 and a service office in South Africa in 2011. He also opened an ATS facility in South Africa in 2013. Bonne’s energy and excitement about his companies was that of someone half his age when he showed us around Saminco and gave us a demonstration of some of the mining equipment at their testing yard.

Bonne clarified the difference between the three companies he has founded, saying “Saftronics made variable speed drives. Saminco makes solid-state electric vehicle traction controllers powered by batteries, diesel-hybrid, fuel cells and power systems, mainly for underground mining equipment. American Traction Systems makes electric and hybrid-electric propulsion systems for a variety of vehicles and equipment. I am the sole owner of both Saminco and ATS, and we have about 120 employees at the Ft. Myers Saminco and ATS plants. We also have a repair facility in Huntington, West Virginia that has 35-40 employees.”

Bonne explained, “We are competing with major corporations like Siemens, ABB and GE. We have to be more nimble to compete successfully. We competed against these companies for a Navy contract for a propulsion system for the USNS Waters operated by the Military Sealift Command and won the contract. We are getting into solar and working on a new diesel electric propulsion system for a Load Haul Dump (LHD) vehicle that is like a large Bobcat. We are also working on a new induction motor for ‘Mag lev’ trains.”

When I asked him about his suppliers, he said, “We use all American suppliers for what we can’t do in-house. We buy machining and sheet metal fabrication and use a contract manufacturer for our PCBs. We do full power testing in our lab.”

He added, “American workers are some of the highest paid workers in the world. There are three things that have destroyed American manufacturing: litigation, regulation, and taxes. If we want to level the playing field, we need to get rid of these three things.”

On my last morning in southwest Florida, we visited JRL Ventures, Inc. dba Marine Concepts headquartered in Cape Coral, Florida. The facility contains 42,000 sq. ft. of manufacturing and office space, equipped with state of the art CNC robotic machining centers and other technologies. Marine Concepts opened its doors in 1976 under the leadership of Augusto “Kiko” Villalon to be able to go from design to production of boats. Marine industry veterans, J. Robert and Karen Long, purchased Marine Concepts in 1994. As a leading manufacturer for nearly 40 years, Marine Concepts is now the largest manufacturer of tooling and molds for the marine industry in the United States. They make CNC plugs, composite molds (open and closed silicone/LRTM), CNC molds, CNC parts, limited production composite parts, scale models, and CNC cold mold kits. In 2012 Marine Concepts opened a facility in Sarasota, Florida with over 260,000 sq. ft. of manufacturing and office space. The two plants provide 300,000 sq. ft. of manufacturing space and seven 3 – 5-axis CNC milling machines.

Mac Spencer, CFO, gave us the plant tour where we watched a boat mold being machined by their very large machining robot. We met with Dan Locke, Design Manager and Senior Designer, who has been designing boats since the 1980s, using Unigraphix software that provides more free style for designing surfaces than Solid Works. Mr. Spencer said that normally their business was 80% marine vs. 20% non-marine, but during the recession, it was reverse. They diversified into making composite figures and structures for resort parks, such as Disneyland, Universal Studios, and Six Flags. They also make composite parts for trams and electric buses. Design work for other marine companies is also a growing part of their business. We briefly met with President Matt Chambers before departing.

My last visit was to Nor-Tech Boats where we met with Cindy Trombley, Director of Administration. She said the company was founded in 1980 by Trond Schon, who had moved with his family from Norway to Cape Coral, Florida. Nor-Tech manufactures high performance powerboats using advanced technologies, unique manufacturing processes, and stylish designs. The main manufacturing facility in North Fort Myers encompasses over 45,000 sq. ft. complete with a 20’ x 60’ downdraft paint booth. Within the main building a state of the art rig shop and in house upholstery departments are climate controlled year round to insure a clean and work friendly environment. The in-house engine development and production division is housed in a secondary facility along with the service department and a rigging facility. We could see three boats in various stages of production in the main plant, but we did not have time to go visit the secondary facility.

Cindy said they currently have 107 employees, but survived the recession by dropping down to only 35 and going into debt. She said they can make boats up to 80 ft. long, and most of the larger sized boats go overseas or to Canada. They make every style of powerboats except for “T-tops.” Cindy said, “Our biggest challenge outside of heat and humidity in Florida is finding skilled labor. There are no vocational schools teaching how to build boats. We have low turnover, but an aging workforce. One of the advantages of Florida is that there are no corporate or personal income taxes.”

A common thread for most of these companies is the concern about finding the right workers now and in the future. As I have discussed in past articles, this is a nationwide problem, not just in southwest Florida. During discussions with the management of the Lee County Economic Development office and members of the Southwest Regional Manufacturers Association at breakfast, lunch, and dinner meetings during my visit, I shared what is being done to address this problem in other parts of the country and by organizations such as SME’s PRIME schools, ToolingU, and Project Lead the Way that I have written about in previous articles. The more manufacturers and trade associations that get involved in solving this problem, the more successful we will be in attracting and developing the next generation of manufacturing workers.

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Posted in Economic Development, Education, Innovation, Lean, Manufacturing, Reshoring, Taxes/Regulations, Workforce Development | No Comments »

Southwest Florida Attracts Manufacturers, not just Retirees

Tuesday, November 3rd, 2015

During my recent trip to southwest Florida as the guest of the Lee County Economic Development agency, I learned that in recent years, there has been an increasing number of business owners that have been regularly vacationing in the area who have decided to either move their business or set up a business where they like to play.

Lee County is on the Gulf of Mexico side of Florida about 125 miles south of Tampa and about 50 miles north of the Everglades National Park. There are five incorporated cities in the country: Cape Coral, Ft. Myers, Bonita Springs, Ft. Myers Beach, and Sanibel. The county population grew 63% from 1994 to 2014, but 55% live in the unincorporated area.

My tour host, Shane Farnsworth, Manager of Business Development for the Lee County EDO, told me that Cape Coral was a planned “bedroom” community, but many people never built homes on the lots. So, Cape Coral offers the greatest area of growth for industrial development through the purchase and combining of these parcels into industrial sites. Ft. Myers is the oldest of the five cities, so there is very little undeveloped land and new industrial sites will occur through redevelopment. During my visit, I met with executives of several manufacturing companies in three of five and the city of Naples to the south in Collier County (most of Collier County is taken up by the Big Cypress National Park.).

My first interview was with Bill Daubmann, founder and Senior V. P. of KDD, Inc. dba My Shower Door and a member of D3 Glass LLC. Bill originally had  established a closet organization business in Springfield, MA in 1986 and obtained a license agreement with Mr. Shower Door in 1989. After visiting the Lee County region for several years on vacation, he decided to move to Naples in 2001 and opened a showroom in 2003. His son, Doug, moved also and joined the company. He took the Fast track entrepreneur course by the Kaufman Foundation with one son in 2007 to “hone” their management skills, and took it again in 2011 with his other son.

Bill said, “It was a tough struggle from 2008 – 2010 due to the Great Recession, as southwest Florida was “ground zero” for the decline in the new home building market. We survived by mostly doing home remodeling.”

In 2011, they were informed that their Mr. Shower Door license would not be renewed for 2012, so they explored setting up their own manufacturing plant to make the tempered and glazed needed for shower doors. After analyzing how much glass they were buying out of the state and the problems they had with breakage and defective glass, they set up D3 Glass LLC in 2012 when new home building started coming back in a building they had bought during the recession. Bill’s oldest son, Keith, became President of KDD, Inc. dba My Shower Door. Bill said that the ovens for tempering the glass cost one million and everything else cost another million. They had to buy two custom-outfitted trucks to deliver the glass to their showrooms and customers.

Since Florida requires a license for the glass and glazing business, Bill and his sons took the test and got their licenses. Bill said, “We hired a consultant to do a “SWOT” analysis for our shower door business to make sure that our business model worked in all parts of the country. We wrote a business plan and did a beta test site. We are now selling our business model to others and running an academy on how to run a shower door business. We have four affiliate stores: Oklahoma City, OK, Grand Rapids, MI, St. Paul, MN, and York, PA. We also sell the specialized hardware for shower doors to our affiliates and other shower door companies.”

In the last two years, they expanded from just doing shower doors into other markets for tempered glass and recently finished providing all of the tempered glass for the new Hertz headquarters building that will open next month. Bill said, “We went from 22 to 50 employees in 18 months and are now up to 64 employees. We just made the INC magazine list of 5,000 companies at #2,085 and will be going to the big event next month.”

After I told him that I am part of the Reshoring Initiative to promote bringing back manufacturing to America, he said, “We were buying aluminum extrusions from China, but just switched to a vendor in the United States.”

In answer to my question about the advantages of being located in the region, he responded, “It is easy to deal with the people in the local government agencies, there is good transportation available on I-75 and Rt. 41, the new airport has flights going to our markets, and there are good local colleges for preparing the future workers we will need.”

My second interview was with Brian Rist, President and CEO of Smart Companies, of which Storm Smart is the largest subsidiary. Storm Smart is Florida’s largest manufacturer & installer of hurricane protection products and is the ninth largest manufacturer across all industries in Lee County. Brian is the inventor of the innovative Storm Catcher Wind Abatement Screens. He also moved from the northeast to southwest Florida to run his business. Brian said, “I started out with a couple of partners in a general contracting business and wound up as the sole owner. The first three years were a struggle to find a niche. The building codes were changing and I became the expert in the new codes, even teaching architects. After Hurricane Ambrose came in 1994, I tried to find a fabric that would replace plywood for covering windows. We talked with people in energy management and got everyone’s opinion. I founded Storm Smart in 1996 to manufacture fabric window protection. We became known as who to talk to about window protection. If you fail to plan, then you plan to fail. We did a CD on what businesses could do for emergency planning because 83% of businesses that have a disaster never recover.”

Brian explained that the building codes changed in Florida for developing sites in 1997 requiring window protection to be part of building a home. In 2001 new codes came out and insurance regulations changed also. Everyone has to have separate hurricane insurance. Insurance companies offered special rates for homes that had protection, and the State of Florida offered a rebate program.

“We started making polypropylene window protection by hand cutting the material, but we needed to ramp up to higher production. Getting a sales tax credit helped us to be able to buy a laser cutting machine in 2013, and it eliminated the bottleneck in our business helping us develop new products.”

They work with the biggest companies in the world that use fabric for hurricane protection. While their products protect homes from hurricanes, they also reduce energy costs. Brian said, “You can build a business based on a known market of saving energy and not just protection from hurricanes. Impact-rated windows are a fast growing part of our business. Most new homes come with impact rated windows.”

He added, “The building codes changed again and they are much more about retaining heat rather than saving heat. International codes are also changing. We watch what percentage of our business is with builders. We went to Cancun and set up small operation during recession in Mexico. We are currently doing work in Los Cabos, Mexico also. We sell to Caribbean countries like Bermuda, Jamaica, and wherever else there are resorts.

We have experienced fast growth and have been picked by Inc. magazine four times as one of the 5,000 fastest growing companies. We went from 26 employees to 100 employees after Hurricane Charlie. We went from five to six jobs per month to about 100 jobs per month.

We looked at all of their jobs and decided to really go back into the customer service business to be a sustainable business. We started to invest in our people and getting to know who they were. We had to make sure they were doing things right. We have to ‘walk the talk.'”

After we discussed some of the articles I have written on developing and recruiting the next generation of manufacturing workers and my involvement with the Coalition for a Prosperous America, he added, “‘ Walking the talk” also involves working with students and getting involved with the Southwest Regional Manufacturers Association [for which he is in the current Vice-President.] He said, “We won the manufacturer of the year for the local region last year. We work with five different academies related to construction. Only about 20% of kids go to college and only about 20% of them graduate from college. We had a tour of our plant during Manufacturing Day and had about 13-14 students come on the tour. Florida is too reliant on tourism and construction. Manufacturing creates more different opportunities for good-paying jobs. Our Governor was at our plant three weeks ago, and he understands manufacturing. By partnering with government and education, we can be more effective in growing manufacturing in Florida. In order to grow, we have to develop the next generation of manufacturing workers. Team building, time management, and ethics are the same regardless of the industry.”

In answer to my inquiry about Lean training, he said, “We have been very involved with lean manufacturing and are working with the Florida Manufacturing Program. We are going through a program for an ERP system in order to continue to grow. We have a plan to develop the company over the next three years. Part of it will involve having licensed dealers.”

The outlook for business in Lee County is very good according to the Lee County Business Climate Survey Report, Third Quarter, 2015 prepared by The Regional Economic Research Institute, Lutgert College of Business, Florida Gulf Coast University, released on August 27th, 2015. The key findings were:

  • 74 percent of executives stated that the current economic conditions have improved over last year
  • 66 percent of the executives stated that the current economic conditions for their industry have improved over last year
  • 67 percent of executives expect economic conditions for their industry to improve over the next year
  • 68 percent of companies expect to increase investment next year and none expect to reduce investment levels
  • 61 percent of executives reported increasing employment over the last year, while four percent reported reducing employment
  • 57 percent of executives expect to increase employment at their companies during the next year

While manufacturing represents only 2% of the economy of Lee County today, the staff of the Lee County Development agency is working with the economic development offices of the five cities and members of the Southwest Regional Manufacturers Association to grow the manufacturing industry and expand that percentage. Their work will be aided by the fact that Florida ranks 5th in the 2015 State Business Tax Climate Index with a score of 6.91. The corporate income tax rate is only 5.5% for C corporations only. There is no inventory tax for businesses, and there is no personal income tax. There are nine universities and colleges, and the two largest, Florida South Western State College and Florida Gulf Coast University have a combined enrollment of over 30,000 students. There is good technical training at the two-year community college level as well as at the Fort Myers Institute of Technology, Cape Coral Institute of Technology, and at the ITT Technical Institute. The Ft. Myers airport (RSW) is served by 15 air carriers offering nonstop flights to 46 destinations, most of which are east of the Mississippi.

The stories of these two companies are good examples of innovation to develop new products, becoming a lean company, creating a new business model, and expanding into new markets. These are some of the recommendations I made in the chapter “What manufacturers can do to save themselves” in my book, Can American Manufacturing be Saved? Why we should and how we can.

Having no corporate and personal income taxes and providing a friendly business climate are ideas I discuss in the chapter on what government can do to save manufacturing in my book. My next article will tell the stories of other companies I visited in Florida.

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Northwest Ohio’s Advantages as a Manufacturing Location

Thursday, July 30th, 2015

I was recently provided the opportunity to tour manufacturing plants in the Toledo, Ohio region by the Regional Growth Partnership (RGP), a privately held economic development corporation. Coming from drought-stricken San Diego where everything is brown to the lush green of Toledo was like being in paradise. I was even more impressed by the diversity and use of advanced technology, automation, and robots at the companies we visited. These were no “rust belt” companies.

John Gibney, V. P., Communications and Marketing, of RGP, was our tour host for the five plant visits we did over a two-day period. There were three of us journalists on the tour, Jill Jusko from Industry Week, Jenny McDonald from Manufacturing News, and myself as a freelance journalist. Also along were photographer Ana Duee from JobsOhio and Hannah Dixon of Development Counsellors International, RGP’s Public Relations firm that selected us for the tour.

As a 100 percent, privately funded economic development organization, the Regional Growth Partnership can operate beyond political boundaries. Investors include major corporations in the region, banks, utilities, universities and service providers such as law, finance, and insurance firms. The RGP offers a full range of traditional business development services, working in collaboration with its partners across the region to expedite and simplify the site selection process.

The RGP vision is that “Northwest Ohio and the adjoining Michigan region will be a premier global location for business and a leader in knowledge-based economic growth.” Their mission to achieve this vision is that “We will be the primary, private sector contributor to a collaborative regional economic development enterprise driving growth in jobs, capital investment, and wealth to Northwest Ohio and Southeast Michigan.”

The RGP serves as Northwest Ohio’s network partner for JobsOhio, “a private, nonprofit corporation designed to drive job creation and new capital investment in Ohio through business attraction, retention and expansion efforts.” The RGP is one of the six regional economic development partners of JobsOhio, known collectively as the JobsOhio Network. The Network “provides the necessary connectivity to achieve a One Firm, One State approach to selling Ohio.”

I asked John if the region had lost any major companies or divisions of during the depth of the recession, and he responded, “No, we did not lose any corporations. We had cutbacks and layoffs during the depth of the recession, but no actual company relocations.” He added, “We had a peak unemployment rate of 13.8% in June 2009 for the Toledo Metropolitan Area, but it dropped down to 4.8% by May 2015.

I also asked John what has been their biggest success story of recruiting a company to locate in their region, and he replied, “Brazilian firm Valfilm North America purchased the former Dow Chemical Company plant in Findlay, saving the 55 employees left over from Dow. The company expects to add an additional 80 jobs with capital investment in excess of $13 million. Findlay beat out sites in South Carolina and Texas in a competitive search process.”

In data provided by RGP, I noted that out of a total workforce of 635,057 in the 17-county Northwest Ohio region, there are 172,805employed in Manufacturing. I calculated that nearly 25% (24.8) of the workforce have associate, bachelor, or graduate degrees, and 63.7% are between the ages of 25-54, so it is a younger workforce that most regions.

As a director on the board of the San Diego Inventors Forum, I was most interested in the fact that “the RGP created Rocket Ventures, a business assistance and pre-seed venture capital organization that operates in an 18-county area of Northwest Ohio. Rocket Ventures, LLC’s mission is to prepare technology-based start-up companies for funding and sustainability by providing intensive business assistance, enhanced management services, and pre-seed investments. Its vision is to create high-tech, high-wage jobs and to generate wealth in Northwest Ohio. Eligible clients of the organization possess significant intellectual property for revolutionary technologies.” I know how important it is for startup ventures to be able to get the investors they need to go complete their product development process and get their product successfully launched in the marketplace.

The Regional Growth Partnership’s business development efforts are focused on six primary cluster industries:

  • Advanced & Alternative Energy
  • Advanced Materials & Manufacturing Technologies
  • Automotive
  • Bioscience
  • Food Processing & Agribusiness
  • Transportation & Integrated Logistics

Toledo and Northwest Ohio have been called the “Solar Valley” because of having nearly 2,000 people working in industries related to photovoltaic development. “Moving forward, Toledo and Northwest Ohio are uniquely positioned for success in the solar industry due to a manufacturing and glass-making heritage, world-class research and educational facilities, thin film next-generation photovoltaic expertise and supply chain resources and logistics. In addition, the State of Ohio in 2010 designated Northwest Ohio as a Solar Hub of Innovation.”

Two of the companies we visited are in the Advanced and Alternative Energy industry cluster and one was in the automotive cluster.

The first company we visited on our tour was First Solar, Inc., the largest solar assembly plant in North America and the overall company is the world’s largest manufacturer of thin film Cadmium-Telluride (CdTe) photovoltaic modules. Founded in 1999, First Solar was the first solar company to produce 1GW in a single year, break the $1/watt manufacturing cost barrier, and implement a global PV module-recycling program. While the company headquarters is in Tempe, AZ, the U. S. manufacturing plant is located in Perrysburg, a suburb of Toledo, to be in close proximity to their glass technology that is centered in the Northwest Ohio area. They have installed 10GW worldwide and have 3GW in their contract pipeline. After watching a video about the company, Mike Koralewski, Sr. Vice President, Module Manufacturing, Jim Koedam, Plant Manager, and Jay Lake, Manager, Manufacturing Training, gave us a tour of the main manufacturing building at the Perrysburg site that houses four production lines making their solar panels. The campus includes over one million sq. ft. of floor space and they are converting a warehouse to another production building. They have about 1,300 employees in Perrysburg. They also have six manufacturing plants in Malaysia.

We next visited the Rossford plant of Pilkington North America, Pilkington is part of the NSG Group, one of the world’s largest manufacturers of glass and glazing products for the architectural, automotive industry and technical glass sectors.? Founded in 1918, the company was transformed in 2006 with the acquisition of Pilkington plc, itself a global leader in the glass industry and the inventor of the Float Glass process.? The Pilkington name was retained as a brand for the Group’s architectural and automotive products.

Pilkington North America has five float glass lines in the U.S. ? Rossford, Ohio (2); Laurinburg, North Carolina (2); and Ottawa, Illinois (1). The company has approximately 4,700 employees in North America. The Rossford plant makes float glass for the automotive market and also fabricates glass for specialty transport vehicles, such as farm equipment.

V. P. of Sales and Marketing, Stephen Weidner, conducted the tour for us and told us that the Rossford plant has about 2.5 million sq. ft. of floor space and the glass float production line is as long as a football field. At the beginning of the line, the furnace melts the pure Silica in the form of sand, limestone, and other ingredients into a liquid at 2900o C, which is cooled down to 1,050o C as it floats over the liquid tin and then further cooled down to about 200o C by the end of the line, where robots handle the glass until it is scored and broken into the right size for the end product, stacked into “books” of glass, and cooled enough for human handling. This production line was truly an amazing sight to a person who is fascinated by all types of manufacturing processes.

We next visited the General Motors Powertrain plant in Toledo where the six and eight-speed transmissions are manufactured. Plant Manager Joseph Choate gave us an overview of the division and a plant tour of both the six and eight-speed transmission production lines. This plant has about two million sq. ft. of floor space and about 2,000 employees (1,844 hourly and 184 salaried). One interesting note is that he showed us a picture of the solar panels on a portion of the roof of the building supplied by First Solar, providing 10% of their power.

As a sales rep who has sold every kind of metal casting processing, I have never seen such complex, intricate die castings as those supplied to GM. I was also impressed with the integration of robotics and automation with the human production line workers, which essentially made their jobs easier to perform, ergonomically safer, and more varied because every worker is cross-trained for every job in both the six and eight- speed transmission lines. By the end of these three tours, I felt I had walked five miles.

We ended the day by meeting Paul Toth, Jr., President and CEO of the Toledo/Lucas County Port Authority, at the site of the development of the Overland Business Park, an 80-acre site being redeveloped. He told us that it was originally the site of the Willys-Overland plant that converted from bicycle to automotive manufacturing in 1910 and produced the Jeep brand products from the 1940s through 1987, when it was purchased by Chrysler. He said, “The Port Authority purchased the property in 2010 Chrysler during their bankruptcy reorganization and has razed the plant, except for one of the brick smokestacks.” Extensive grading is being done to level the land to provide easier access to the nearby I-75 interchange and two active Class 1 rail lines. We saw the first of several planned Class 1 spec buildings that is nearly finished. What was very interesting to me is that the Toledo Port Authority’s jurisdiction is not limited to land adjacent to Lake Erie or the two tributary rivers as the San Diego Port Authority’s jurisdiction is limited to land adjacent to the San Diego harbor. The Port Authority operates the Port of Toledo, Toledo Express Airport and Toledo Executive Airport, also known as Metcalf Field, and acquired Central Union Terminal from Conrail in 1994, which was rededicated in 1996 after a $3.1 million renovation.

In addition, the Port Authority entered the business finance arena in 1988 and has assisted in financing close to 300 economic development projects representing a total investment of more than $1 billion while helping to create and retain more than 15,000 jobs. The Toledo-Lucas County Port Authority operates the Northwest Ohio Bond Fund.

On day two, we first visited Plastic Technologies, Inc. (PTI), located in Holland, where Chairman and founder Thomas Brady, Ph.D., and President and COO Scott Steele gave us a thorough company overview and tour of their facility. PTI is the leading industrial source for preform and package design, package development, rapid prototyping, pre-production and material evaluation engineering of PET bottles and containers. PTI manufacturing capabilities include injection molding of preforms and blow molding utilizing these injection molded performs. I have seen the extrusion type of blow molding being done here in San Diego, but had never seen blow molding using injection molded performs, which is a much faster process.

We concluded our day with a visit to Surface Combustion, which is celebrating its 100th anniversary this year. Dan Goodman, V. P. Sales & Marketing said that Surface Combustion was founded in Bronx, NY in 1915 to utilize patents covering a heating concept called “surface combustion.” The company relocated to Toledo in 1924 to serve the growing Midwest industrial base and Toledo glass industry. Surface Combustion has used its technology to design and build a diverse array of thermal systems (furnaces) and equipment, such as atmosphere and vacuum furnaces, atmosphere gas generator equipment, and steel mill equipment. It became a family-owned business when William Bernard, Jr. became the majority owner and President in 1998. The 66,000 sq. ft. plant has four manufacturing bays capable of assembling equipment that could be as tall as 25 ft. and as long as 35 ft. in the highest bay, utilizing their 20-ton overhead crane.

There is interconnectedness between four of the five companies we toured. NSG Pilkington makes the glass that First Solar uses to manufacture their solar panels. GM Powertrain has First Solar panels installed on its building. GM Powertrain either directly or indirectly uses heat-treating equipment produced by Surface Combustion. The common reason why all these companies are located in the Toledo region is the abundant source of natural gas as an energy source. The Northwest Ohio region offers some of the lowest industrial electric rates in the Midwest (4.73 cents per kilowatt-hour for industrial electricity.)

A trained, educated workforce is also another advantage of the region served by the Regional Growth Partnership. In addition, recent tax reforms in Ohio have reduced the tax burden by up to 63%. Toledo is located with a day’s drive of nearly half the U. S. and Canadian industrial markets representing nearly 100 million people according to data from the Port Authority. All of these factors add up to making the Northwest Ohio region an attractive manufacturing location.

However, I can’t say it better than what President and CEO Dean Monske said at our dinner, “I am born and raised in the Toledo area but I have traveled the world extensively and gotten the opportunity to witness and experience a wide range of diverse economies. For me, I still come back to Toledo as the perfect place to build your business and love your life. So, yes, I am a passionate champion of this region. But for the Regional Growth Partnership, our biggest cheerleaders in selling Northwest Ohio are the corporate leaders who have lived around the world and chosen this area to live and raise their families. They are our greatest advocates.”

Posted in Economic Development, Jobs, Manufacturing, Technology | No Comments »

Anti-Inventor Legislation Being Proposed in Congress

Tuesday, February 3rd, 2015

Sometimes it seems we have to play “Whack-a-mole” against well-meaning legislation that would have harmful, unintended consequences. Last year, the Innovation Act, H.R. 3309 passed the House of Representatives by a 325 – 91 vote on December 5, 2013. It seemed like a comparable bill would easily pass the Senate until a concerted effort to defeat this bill was undertaken by Randy Landreneu, Founder of the Independent Inventors of America, and another inventor, Paul Morinville, by visiting key people in the offices of about 60 Senators.

Their efforts were aided by such organizations as CONNECT and Biocom in San Diego, the Biotechnology Industry Group, and the Independent Inventors of America. Because of the opposition by these groups and other groups not cited, the bill ended up being dropped in the Senate.

Why did these organizations oppose this effort on patent reform? Gary Klein, V. P. Public Policy, of San Diego’s CONNECT organization, stated: “A startup company’s main asset is its intellectual property. Most investors’ first question to startups is about how their technology is protected. The Innovation Act that passed the House has several provisions – fee shifting, covered business methods, joinder rules, discovery and customer stay – that will have some very serious adverse consequences for small/startup companies, universities and research institutions, as well as companies who use licensing as a business model.”

Joe Panetta, President and CEO of Biocom, stated “Not only does H.R.3309 fail to adequately address the abusive litigation practices it aims to curb, but it would place burdensome and unnecessary requirements and penalties on all patent holders. The bill is likely to inadvertently harm the world’s greatest innovation system by limiting legitimate patent holders’ ability to assert their rights.”

The Biotechnology Industry Group (BIO) was concerned that it would undermine biotech research and innovation. Daniel Seaton noted on BIO’s Patently Biotech blog, “the Act would ultimately make it more difficult for patent holders with legitimate claims to protect their intellectual property…Provisions in the legislation would erect unreasonable barriers to access justice for innovators, especially small start-ups that must be able to defend their businesses against patent infringement in a timely and cost-effective manner, and without needless and numerous procedural hurdles or other obstacles.”

The Independent Inventors of America against Current Patent Legislation, representing independent inventors and small patent-based businesses across the country, disputed the claim that patent infringement litigation had escalated. They initiated a petition stating “The Government Accounting Office Report required by the America Invents Act finds that there is no ‘patent troll’ problem. Data supporting the claim of billions of dollars of reported cost cannot be verified and actually represent primarily voluntary and court directed license agreements for valid patents. In addition, analysis of patent litigation shows that the number of patent suits relative to the number of patents issued today remains consistent over the 200 plus year history of the patent system with the exception of a short period prior to the Civil War when the rate was higher than it is today. The reports supporting this latest round of legislation are simply not valid.”

They argued that “what is being characterized as a “patent troll,” and the target of the proposed legislation, is really an investor. As individual inventors and small patent-based businesses, we need investors to practice and protect our inventions. A patent is sometimes the sole asset we can leverage to attract that investment. Damaging investors therefore damages inventors.”

The petition stated, “This legislation will levy grave harm upon independent inventors and small patent-based businesses, as well as the investors we need to help commercialize new technologies and to protect our inventions.” They “stand firmly against the proposed legislation and any future legislation that would weaken the American Patent System.” The governing body of the San Diego Inventors Forum, of which I am a member, signed the petition along with many of our members.

The main reasons why inventor organizations opposed the Act were:

Loser Pays – would significantly increase the risk and cost of defending a patent and “could be fatal to a large percentage of inventions.”

“Joinder” clause – allows investors to be personally liable for legal fees if inventor loses lawsuit, so this would severely limit investment in new technologies.

Patent Term Adjustment – eliminates a patent adjustment for a delay in patent issuance caused by the U. S. Patent Office (Note: Patents are granted for 17 years, but if it takes five years to get a patent, the patent term would be only 12 years instead of 17.)

New Bill in the Works

Now, Washington, D. C. insiders are indicating that legislation very similar if not identical to the Innovation Act will be introduced in the House of Representatives as early as February.

Why is a new version of the Innovation Act being proposed? The stated purpose is to curb frivolous lawsuits for patent infringement by so-called “patent trolls,” a derogatory term defined by Wikipedia as “a person or company who enforces patent rights against accused infringers in an attempt to collect licensing fees, but does not manufacture products or supply services based upon the patents in question, thus engaging in economic rent-seeking. Related, less pejorative terms include patent holding company (PHC) and non-practicing entity (NPE).”

Proponents of the Innovation Act said that” in the two years since the AIA was enacted, patent litigation has exploded. More and more firms are acquiring broad patents not to use the technology but rather to extract licensing fees from companies that infringe the patents accidentally…so a number of industry groups that weren’t traditionally involved in patent debates have begun agitating for patent reform.”

However, the Patent Freedom organization states, “NPEs are not all cut from the same cloth. Some inventors choose not to pursue the development, manufacturing, and sales of their inventions. They may lack the resources to do so, or the interest, passion, and commitment that such an effort requires. Instead, they may seek to license their inventions to others who can use them to deliver better products and services, often with the assistance of those with experience in this area. Or they may choose to sell the patents outright…. some entities buy patents with the express purpose of licensing them aggressively. For instance, about 25% of “parent” NPEs tracked by Patent Freedom are enforcing only patents that they had acquired. Another 60% are asserting patents originally assigned to them, and the remaining 15% are asserting a blend of originally assigned and acquired patents”

If new legislation is crafted to be similar to the Innovation Act, it would create additional requirements as part of the legal process associated with patent infringement under United States law. Some of the provisions that were in the Innovation Act are paraphrased below:

  • Requires specificity in patent lawsuits – requires specified details concerning each claim of each patent that was allegedly infringed.
  • Makes patent ownership more transparent with a “Joinder” clause requiring patent plaintiffs to name anyone who has a financial interest in the patent being litigated. This would include investors.
  • Makes the loser pay – “if a losing plaintiff cannot pay, the bill would allow a judge to order others who had a financial stake in the plaintiff’s lawsuit to join the lawsuit and pay the costs of an unsuccessful patent lawsuit.” This could force investors to participate in paying the legal fees, which would discourage investment.
  • Delays discovery to keep costs down – gives time to allow the courts to address legal questions about the meaning of patent claims with the goal of reducing legal costs and allow more frivolous lawsuits to be resolved before defendants have incurred large legal bills.
  • Protects end users – allows technology vendors to step into the shoes of their customers and fight lawsuits against trolls on their customers’ behalf in cases where restaurants, supermarkets, airlines, casinos, real estate agents and other brick-and-mortar businesses are being sued for using technology such as Wi-Fi instead of the manufacturers of the equipment.

Randy Landreneu, Independent Inventors of America, stated: “There were a number of provisions fatal to independent inventors, like Loser Pays (if you sued a corporation for patent infringement and did not prevail, you would be liable for their legal costs, which could be over $1,000,000). The Innovation Act also had the provision that an investor with an interest in your patent would be personally liable for these legal costs. This would have eliminated the ability to defend a patent for the vast majority of inventors, as well as greatly reducing any investment in patent related startups.”

Adrian Pelkus, SDIF President, states, “A new version of the Innovation Act horrifies me in the way that it would allow corporations to beat up on small inventors. Financial ruin for inventors would be extremely easy due to the nature of startups, meaning most inventors could lose their fledgling businesses disputing challenges to issued Intellectual Property. If we increase the risk that their IP will be challenged (perhaps even frivolously just to stop them from progressing to market), innovation will grind to a standstill.

At a time when we need American ingenuity and investors to rebuild our economy, taking steps to diminish our rights as inventors is un-American, economically dumb and intellectually suicidal. Stifling innovation in a technologically based society is a sure path to economic ruin which is why the USPTO system was originally designed to reward not punish the inventor. We are a nation of creators and builders living at a time when science and technology is exponentially enriching our quality of life. Disturbing the evolution of ideas disrupts our development as a society, and changes to our patent laws are doing just that. American inventors create new products and jobs. The more we enable inventors, the more our country prospers and the better our lives become. We can expect only the opposite if we if we stifle inventors by allowing laws to be passed by corporations pressuring our representatives to protect only their interests.”

I urge everyone to contact your Congressional Representative before the new bill hits the floor. Tell them that you are against further weakening of patent rights. Tell them that current efforts at “patent reform” will greatly hurt inventors and innovation in America. We must not stifle innovation if we want to create more American jobs and maintain our technological advantage in the global marketplace.

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“Manufacturing in Golden State Summit Highlights Threats to Prosperity”

Tuesday, October 28th, 2014

On October 16th, about 130 business leaders met at the conference facilities of AMN Healthcare in San Diego for the third “Manufacturing in the Golden State – Making California Thrive” economic summit. The summit was hosted by State Senator Mark Wyland in partnership with the Coalition for a Prosperous America and a long list of other regional businesses and associations. The purpose of the summit was to discuss how several national and California policies are threatening the growth and prosperity of California manufacturers and what policies should be changed to help them grow and thrive.

After State Senator Wyland welcomed attendees, Michael Stumo, CEO of the Coalition for a Prosperous America, provided an overview of the schedule for the day.

I provided an update to the overview of California manufacturing that I had presented at our summit in Brea on March19th covered in a previous article. California lost 33.3% of manufacturing jobs between 2000 and 2009 compared to 29.8% nationwide and 25% of its manufacturing companies. California lags in manufacturing job growth at a .36% rate compared to the national 6.09% rate.

I highlighted that the San Diego region offers a great deal of help for inventors and start-up technology based companies through the San Diego Inventors Forum, CONNECT’s Springboard program, the Small Business Development Centers in North County and South County, CleanTech San Diego, as well as groups like the San Diego Sports Innovators. San Diego also offers more career path and workforce training programs than most other states, including those offered by three of our event sponsors: California Manufacturing Technology Consulting, the Center for Applied Competitive Technologies, and the Lean Six Sigma Institute.

The good news is that California is benefitting from the reshoring trend that is sweeping the county. According to data collected by the Reshoring Initiative, California ranks first in the number of companies (28) that have reshored and third in the number of jobs created by reshoring (6,014).

I then moderated a panel of the following local manufacturers, who gave their viewpoints of the effects of some of our national policies and the challenges of doing business in California:

  • James Hedgecock, Founder and General Manager of Bounce Composites
  • Scott Martin, President, Lyon Technologies
  • Robert Reyes, Head of Strategic Sourcing, Stone Brewing Company

Hedgecock stated that Bounce Composites is less than two years old and makes thermoset composites, starting with paddle boards and branching into small wind turbine blades this year. He bemoaned the fact that in California you have to pay $800 to incorporate a company, which is double to quintuple the cost of incorporating in other states. Also, as a LLC, you have to pay taxes on gross profits rather than net profits, which is tough on a start-up company.

Martin said that Lyon Technologies has been in business since 1915 and has changed its products several times over the years. Current products include bird and reptile incubators, poultry products, and veterinary products, which they export to about 100 countries. He stated that the Value Added Taxes (VATs) that are added to the products they export and the currency manipulation practiced by several countries make it difficult for their products to be competitive in the world marketplace.

Reyes said they are expanding out of San Diego and are building a new $25M brewery and restaurant in the Marienpark Berlin, scheduled to open by end 2015/beginning 2016. Stone exports beer to Germany and other European countries and having a brewery in Germany will ave on shipping costs for exporting. They are also planning on opening a brewery on the East Coast in Virgina.

The national expert panel included Greg Autry, Adjunct Professor of Entrepreneurship, Marshall School of Business, University of Southern California; Pat Choate, economist and author, “Saving Capitalism: Keeping America Strong”; Mike Dolan, Legislative Rep., International Brotherhood of Teamsters; and Michael Stumo, CEO of CPA.  The focus of the talks was on national security, manufacturing growth strategies, tax strategies and fixing the trade deficit.

Autry, led off the national panel with the topic of “National Security Concerns with U. S. Trade Regime.” He began by stating, “An economy that builds only F-35s is unsustainable – productive capacity is what wins real wars. Sophisticated systems require complex supply chains of supporting industries. They require experienced production engineers and experienced machinists.” He added that we cannot rely on China to produce what we need for our military and defense systems. “We should not be relying on Russia’s Mr. Putin to launch our satellites and space vehicles and provide us a seat to get to the international space station.”

He pointed out that our technical superiority in military systems will not assure our national security any more than the technical superiority of Nazi Germany’s aircraft and tanks did for them. Economic superiority is what matters. The manufacturing industry of the U. S. out produced Germany during WWII and the Soviet Union in the Cold War.

Autry stated that Wall Street’s new hero, Jack Ma, founder of Chinese company Alibaba Group Holding Ltd, is a danger to American interests by the fact that Alibaba just overtook Amazon as the world’s largest online retailer by market capitalization. It was the wealth he created at Amazon that enabled founder Jeff Bezos to now lead a new company, Blue Origin, which was just selected by the United Launch Alliance to finish development of a new engine to replace the Russian made RD-180 rocket engine used by ULA’s Atlas 5 rocket. There is considerable skepticism by many of Mr. Ma’s independence from the Chinese government. Mr. Ma’s next target appears to be PayPal, which is responsible for the wealth of Elon Musk, now CEO and CTO of SpaceX, CEO and chief product architect of Tesla Motors, and chairman of SolarCity.

Next, Michael Stumo presented “A Competitiveness Strategy for America: Balance Trade and Rebuild Domestic Supply Chains.” He said, “Our ultimate goals should be: improved standard of living, full employment, and durable, sustainable growth. America has no strategy to win. Our trade deficit cuts our growth in half. Domestic supply chains were sacrificed to global supply chains; i.e. offshored and hollowed out….We need a strategy to win.”

He pointed out that “free trade is supposed to produce balance and address foreign mercantilism, but our trade policies enable mercantilism…We must replace the goal of ‘eliminating trade barriers’ and have Congress establish a new directive via statue to balance trade.”

He said that to achieve balanced trade, we must address, reciprocity, currency manipulation, forced technology transfer [by China], foreign VAT rebates, state-owned enterprises, and government subsidies.

In conclusion, he recommended that we should:

  • Create durable comparative advantage through technical superiority, infrastructure, low energy costs, etc.
  • Balance trade and fight foreign mercantilism
  • Create our own comparative advantage
  • Maximize domestic value added
  • Identify and minimize our advantages while minimizing our disadvantages

In conclusion, he urged, “Don’t be afraid of asserting and pursing our national economic interest.”

The next speaker was Mike Dolan, Legislative Representative for the Teamsters, who has long experience working for Fair Trade (fighting expansion of the job-killing NAFTA/WTO model). He said that big corporations want Congress to pass Trade Promotion Authority in the “lame duck” session to grant the president Fast track Authority for the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP) Agreements. He called the TPP “NAFTA on steroids” and said that TTIP is just as bad. He said that Fast Track was invented by President Nixon and has been used 16 times. He said that we need a new form a Trade Promotion Authority where Congress has input with regard to the countries involved in the Agreement, certifies that negotiating goals were met, and votes to approve it before it is signed. He urged attendees to contact their Congressional Representative to oppose the TPP for the following reasons:

  • “Lack of transparency during negotiations warrants more thorough consideration than a up or down vote
  • Under previous trade deals, the U. S. has hemorrhaged jobs and cannot afford more of the same
  • The TPP is too large and complex to delegate constitutional authority away from Congress”

Pat Choate (Economist; Author, Saving Capitalism: Keeping America Strong) discussed how our trading partners have used Value Added Taxes (VATs), and currency manipulation to their advantage and to the disadvantage of the U. S. VATs or border adjustable consumption taxes are used by other countries to offset income, payroll, or other employer taxes to help their manufacturers be more competitive in the global marketplace or to offset other costs like national health care or pension programs. VATs range from a low of 10% to a high of 24%, for an average of 17%.

While tariffs have been dropped since 1968 as part of many trade agreements signed since then, the effective trade barriers have remained constant because of the VATs being imposed.

These consumption taxes have been a causative factor in increasing our trade deficits with our trading partners, which was $471.5 billion in 2013, $318 billion with China alone. He supports CPA’s advocacy of making changes in U. S. trade policy to address this unfairness which tremendously distorts trade flows.

During lunch, keynote speaker Dan DiMicco, Chairman Emeritus of Nucor Steel Corporation, spoke on “Seizing the Opportunity.” He led off by shocking the audience with facts about the real state of our economy and our unemployment rate. By September 2014, we still had not reached the level of employment that we had when the recession began in December 2007 although 81 months had passed. We lost 8.7 million jobs from December 2007 to the “trough” reached in February 2010, but because our recovery has been much slower than the previous recessions of 1974, 1981, 1990, and 2001, the gap in recovery of jobs compared to these recessions is actually 12,363 jobs.

In contrast to the misleading U-3 unemployment rate of 5.9% for September 2014 that is reported in the news media, the U-6 rate was 11.8%. The government’s U-6 rate is more accurate because it counts “marginally attached workers and those working part-time for economic reasons.”However, the actual unemployment is worse because the participation in the workforce has dropped from 66.0% to 62.7%. In other words, if the December 2013 Civilian Labor Force Participation Rate was back to the December 2007 level of 66.0%, it would add 8.2 million people to the ranks of those looking for jobs.The manufacturing industry lost 20% of its jobs, and the construction industry lost 19% of its jobs.

Unemployment Data Adjusted For Decline in Civilian Labor Force Participation Rate
(Adjusted For Decline from December 2007 Level Of 66.0% to 62.8% in September 2014)

Reported Unemployed U.S. Workers 9,262,000
Involuntary Part-time workers 7,103,000
Marginally Attached To Labor Force Workers 2,226,000
Additional Unemployed Workers With 66% CLF Participation Rate 8,199,000 
Unemployed U.S. Workers In Reality 26,770,000
Adjusted Civilian Labor force 166,287,000
Unemployment Rate In Reality 16.1%

 

DiMicco said, “We got in this position from 1970 until today because of failed trade policies allowing mercantilism to win out against true FREE Trade. We bought into wrongheaded economic opinions that America could become a service-based economy to replace a manufacturing-based economy. Manufacturing supply chains are the Wealth Creation Engine of our economy and the driver for a healthy and growing middle class! The result has been that manufacturing shrank from over 30% to 9.9% of GDP causing the destruction of the middle class. It created the service/financial based Bubble Economy (Dot.com/Enron/Housing/PONZI scheme type financial instruments.)”

He added, “We have had 30 years of massive increases in inefficient and unnecessary Government regulations. These regulations, for the most part, in the past have been put in place by Congress and the Executive Branch. However, today they are increasingly being put in place by unelected officials/bureaucrats as they intentionally by-pass Congress.

American’s prosperity in the 20th century arose from producing more than it consumed, saving more than it spent, and keeping deficits to manageable and sustainable levels. Today, America’s trade and budget deficits are on track to reach record levels threatening our prosperity and our future.”

He said, “Creating jobs must be our top priority, and we need to create 26-29 million jobs over the next 4-5 years. There are four steps we can take to bring about job creation:

  • Achieve energy independence.
  • Balance our trade deficit.
  • Rebuild our infrastructure for this century.
  • Rework American’s regulatory nightmare.

In conclusion, DiMicco said, “We need to recapture American independence through investment in our country’s people, infrastructure, and energy independence, and by reversing the deficit-driven trends that currently define our nation’s economic policy. Real and lasting wealth IS, and always has been, created by innovating, making and building things — ALL 3 ? and servicing the goods producing sector NOT by a predominance of servicing services!”

As the mid-term election approaches, we need to cast our votes for candidates who address the serious issues discussed at the summit, so that we can work together as Americans to restore California to the Golden State it once was and restore America to be “a shining city upon a hill whose beacon light guides freedom-loving people everywhere,” as declared by Ronald Reagan in 1974.

Posted in Economic Development, Jobs, Manufacturing, National security, Reshoring, Taxes/Regulations, Trade Policy, Training | No Comments »

San Diego Celebrates Manufacturing Week not just Manufacturing Day

Tuesday, October 14th, 2014

To highlight the importance of manufacturing to the economy of the San Diego region, the Mayor and City Council declared the week of September 30 – October 5, 2014 to be Manufacturing Week instead of only Manufacturing Day on October 3rd.

One of the highlights of the week was an all day Workforce Conference held on October 2nd put on by the San Diego Workforce Partnership and the San Diego and Imperial Counties Community Colleges Association Regional Consortium. The conference presented a summary of a detailed research report conducted by these two organizations of each of the sectors that are vital to the regional economy. San Diego’s five priority sectors are:

  • Life Sciences
  • Health Care
  • Clean Energy
  • Information & Communication Technologies
  • Advanced Manufacturing

More than 250 businesses were surveyed for the report, and industry associations and organizations with industry expertise also contributed to the study. The results of the study can be used to help these priority sectors, which are experiencing rapid growth and projected skills shortages, conduct workforce planning and management of resources. The Conference presentations included an overview of the research findings and panel discussions with industry experts and employers.

Since my interest in these sectors is limited to manufacturing, I only attended the session on Advanced Manufacturing, presented by Dr. Mary Walshok, dean of UC San Diego Extension. Describing San Diego’s manufacturing industry, she said, “It ain’t your old assembly line manufacturing. It’s about a network of suppliers. It’s about organizations that are prototyping and doing R & D on site…I think the moniker for San Diego should be drones, phones and genomes … Let’s add to that surfboards, skateboards, and golf equipment.”

Key data presented was the fact that “The Advanced Manufacturing sector accounts for 10% of all establishments, 15% of all paid employment and 22% of all annual payrolls” in San Diego County. The fact that the “sector is dominated by small-to-medium-sized businesses with 82% of firms employing less than 20 employees” confirmed my more than 30 years experience in San Diego’s manufacturing industry.

Utilizing a broader definition of what constitutes manufacturing, the report listed the manufacturing employment at 170,800 in contrast to the California Economic Development Department total of 96,900 manufacturing jobs in San Diego in August 2014, an increase of 2,200 manufacturing jobs since August 2013. The report projects a 6% increase in manufacturing jobs by 2018 for a total of 180,700 jobs.

The Advanced Manufacturing sector is no longer dominated by any one industry like it was 20 years when aerospace/defense was the dominant industry. Now, it is comprised of diverse industries in which no industry has more than 13% (electronic equipment and components). Aerospace/defense has dropped to 11%, and the fabricated metal products industry comes in a close third at 10%. Industrial/commercial machinery and computer equipment represents 8% of the industry, and signs and advertising specialties represents 6% of the sector. I was surprised that biotechnology only represents 5%, when San Diego is ranked third in the nation as a center of the Life Science industry sector after Greater Boston and the San Francisco Bay Area.

The report states, “Most Advanced Manufacturing occupations require high school education at a minimum. Moving up the career ladder requires on-the-job experience or more academic credentials, some are provided by 2-year or 4-year colleges. Many occupations require a specific set of skills for their workers, which can be acquired with an education credential. There are certain educational credentials that can be applied to multiple occupations.”

The study revealed the four occupational clusters that are most commonly employed in Advanced Manufacturing:

  • Engineers
  • Computer/Software
  • Drafters and Technicians
  • Production

The drafter category has morphed into people with expertise in Computer Aided Design and 3D modeling skills instead of traditional hand-drawn drafting skills.

The top five occupations that have a gap in the supply of workers produced by the regions educational institutions compared with the number of available job openings are:

  • Software developers, applications and systems software
  • Assemblers and fabricators
  • Aerospace engineers
  • Computer user support specialists
  • Machinists

The report goes into specific detail about the skill sets needed for each of the above occupations. To address this gap in the supply of workers with the requisite skills, the following recommendations are made:

•” Inform the public about the skills and levels of compensation in the Advanced Manufacturing sector.

• Develop an Advanced Manufacturing talent pipeline.

• Increase employer knowledge about business assistance programs for workforce training.

• Add an internship and/or work experience requirements to education and training programs.

• Encourage critical thinking and real world application in education and training programs.

• Standardize certifications and articulation agreements.”

Dr. Trudy Gerald, Deputy Sector Navigator for Advanced Manufacturing at San Diego City College moderated a panel of that included two manufacturing representatives: Nancy Boessow, HR Manager for Johnson Matthey Medical Components and Rick Urban, COO and CFO of Quality Controlled Manufacturing, Inc., a leading precision machining manufacturer of complex components and assemblies for the aerospace, defense, and energy industries.

Joining the panel was Jo Marie Diamond, President and CEO of the East County Economic Development Council and newly appointed as the region’s representative on the Executive Board for the Advanced Manufacturing Partnership – Southern California, one of only 12 federally designated Investing in Manufacturing Community Partnership (IMCP) consortia and the only one west of the Mississippi. Ms. Diamond said that the advanced manufacturing sector has an aging workforce, so “We’re going to have to fill that pipeline [with training and education].”

There has been a shortage of skilled machinists, especially lathe operators for the past 15 years, and since I have discussed this issue with Mr. Urban personally, I am aware of what his company is doing with regard to training. The company website states, “QCMI needed to establish an Education / Training Competitive Workforce Initiative. The QCMI WEA winning initiative includes: a mentoring program for entry-level employees; promotion and training from within; partnering with high schools and colleges; and the creation of a nonprofit Academy.” The Academy training and apprenticeship program began earlier this year with a curriculum that took a year to develop.

At the conference, he stated, “We’re going to do a lot of training…The people that come in at an entry level position are allowed to stay there for six months. They have to move up or it doesn’t make sense because we have to keep that pipeline going.”

The conference was well attended by people within the five industry sectors, as well as those seeking to make career transitions or improve their skills, career counselors, trainers, and educators. The presentations and panelists provided a complete picture of what employers are looking for in the current and future labor force and set the stage for the events that followed on Manufacturing Day.

Manufacturing Day began with a breakfast at the new central library in downtown San Diego organized by the San Diego Regional Economic Development Corporation. President and CEO Mark Cafferty and Congressional Representatives Susan Davis and Scott Peters gave introductory remarks welcoming attendees, and then Jack Stewart, president of the California Manufacturers and Technology Association, moderated the following a panel of local manufacturers that represent a cross section of San Diego’s diverse industries:

Bob Cassidy, Senior Director of Operations, ViaSat – producer of satellite and other digital communication products for the commercial and government sectors

Guillermo Romero, General Manager, 3D Robotics’ plant in Tijuana – producer of miniature commercial unmanned aerial vehicles (drones)

Kevin Graney, Vice President and General Manager, General Dynamics NASSCO – shipbuilding of Naval and commercial ships and tankers

Carlos Nunez, COO, Care Fusion – producer of infusion, interventional procedures, medication and medical supply management, respiratory care and surgical products.

Dave Klimkiewicz, co-founder of Sector 9 skateboards

Mr. Stewart remarked, “Manufacturing was the industry on the outs. Service industries aren’t creating the good paying jobs…”This isn’t your father’s factory floor anymore…Now manufacturing is new, high tech, and robotic…Just as manufacturers have retooled their operations to be more efficient, more clean, more innovative, the universities, community colleges, the high schools must retool their education systems.” He added, “Advanced manufacturers in California have to be the cleanest, the best, cut costs, and improve productivity.”

Each panelist gave a brief overview of their company’s products and services, and then took turns answering questions posed by the moderator. With regard to finding qualified workers, their comments corroborated the comments of the panelists the previous day at the Workforce Partnership conference.

Cassidy said, “We have a very stable workforce with very low turnover, but it’s an aging population, especially on the electro-mechanical team…We need more with solder training and wireless technician certificates.”

Graney said that they have the largest backlog in their history and are hiring anyone who can fit or weld. “We end up training everybody that basically comes in the gate,” he said. “We’ve got eight weeks to develop a fitter or welder, before they’re out on the production run. We have had really only frankly limited success doing it any other way.” He added that they are making data available electronically to their welders at their workstations, and their painting process has reduced 90% of emissions.

All of the panelists made comments about how high schools need to get back to basics, including computer skills and technical training in wood shop, auto shop, and metal shop for those not going to go to college. Mr. Nunez said that STEM education needs to be supplemented with hands-on projects, such as ones using a “Raspberry Pi [A breadboard device for prototyping circuits].”

In answer to the moderator’s question about what are the benefits of bi-national manufacturing, Mr. Nunez said that the majority of the manufacturing for their infusion pumps and tubing takes place in Tijuana and Mexicali. Mr. Romero said that most of their SKUs are made in Tijuana, and the close proximity allows their engineers to visit the plant in the morning. He said, “It’s important to buy the right equipment and hire the right people.

The panelists touted San Diego’s collaborative effort among businesses and organizations, as well as opportunities created by the region’s proximity to Mexico. They also commented on the higher costs of doing business in California compared with other regions.

After the breakfast ended, I went on three tours out of the more than 25 tours offered in the San Diego region’s manufacturers. First, I visited D & K Engineering in Rancho Bernardo. D&K Engineering was started in 1999 by Scott Dennis and Alex Kunczynski as an engineering design and product development firm that evolved into providing contract manufacturing services for such companies as ecoATM and Retail Inkjet. D & K offered tours every half hour from 11 AM – 3 PM and 10 people were allowed on each tour. Besides business people, there were one mother and her pre-teen, home-schooled son and daughter on my tour.

Next, I visited Alphatec Spine in Carlsbad that makes implants made from PEEK and Titanium used in spinal surgery and reconstruction. My last stop was a mixer sponsored by the California Manufacturing Technology Consulting and the City of Santee at one of our many microbreweries, BNS Brewing & Distilling Company in Santee. The guest of honor at the mixer was Sid Voorakkara, a Senior Business Development Specialist from the Office Governor Brown. He provided the attendees with a brief overview of the new California Competes Tax Credit and the Manufacturing and R & D equipment sales and use tax exemption (for details go to http://www.business.ca.gov/ )

The producers of Manufacturing Day 2014 have bragged that “This year’s Manufacturing Day set another record with almost twice as many events as last year. The final count was over 1,650 events in all 50 U.S. states, three Canadian provinces, and Puerto Rico.” However, until we get more educators, parents, and students to attend these tours, we will not achieve our goal of attracting more youth to manufacturing and other STEM careers.

Posted in Economic Development, Education, Jobs, Manufacturing, Training | No Comments »

Manufacturing Thrives in San Diego’s North County Region

Tuesday, July 8th, 2014

On the morning of July 1st, the San Diego North Economic Development Council (SDNEDC) hosted a North County Manufacturing Executive Roundtable at the City of Vista Civic Center. Over 100 professionals were welcomed by County Supervisor Dave Roberts and Lee Morrison of Bank of America. Bank of America and The Eastridge Group of Staffing Companies sponsored the Roundtable.

In an interview prior to the event, KPBS Morning Edition anchor Deb Welsh spoke to Carl Morgan, CEO of the San Diego North Economic Development Council. Morgan said. “Manufacturing is alive and well in San Diego’s North County.” He said the manufacturing executive roundtable would discuss why companies chose to locate and stay in the region. Ms. Morgan asked him what North County’s six key industry clusters are, and he responded that “the sports and active lifestyle, clean technology, biotechnology and medical and informational technology “are doing very, very well” besides the craft and brew industry.

Reo Carr, executive editor of the San Diego Business Journal, moderated the panel, which also discussed such topics as reshoring of manufacturing, environmental concerns, filling the gap between education and manufacturers’ need for skilled labor, sufficient, accessible transportation, and the economic incentives that are and should be available.

The six panelists were: Clark Crawford, VP Sales and Business Development, Soitec Solar, which manufacturersconcentrated photovoltaic (“CPV”) solar modules; Christine Jensen, special programs coordinator at Mira Costa College, which offers classes in biotechnology, engineering, and machining; Jeffrey McCain, CEO, McCain, Inc, a pioneer of advanced traffic control equipmentas well as a contract manufacturer; Michele Nash-Hoff, President, ElectroFab Sales and Chair, California Chapter of the Coalition for a Prosperous America; Chris Roth, vice president, Lee & Associates, the Nation’s largest broker owned commercial real estate services firm.; and Martin Wood, CEO, Delkin Devices, the largest US memory card manufacturer.

Crawford said that when his company (Soitec Solar Industries headquarted in Grenoble, France) decided to set up another manufacturing plant in the U.S., they were wooed to come to many states, including Texas, but they chose to move to California because California’s GO-Biz worked with them to identify possible site locations around the state and to define all statewide incentives that could be available to their company. GO-Biz participated in several rounds of site selection tours that helped to qualify the final locations, out of which they chose San Diego. They were able to get the former Sony building in Rancho Bernardo before it went on the open market. When fully operational, Soitec will directly employ 450 and indirectly support 1,000 jobs.

The other reason they chose California is that it is the largest market for solar energy, and California offers good financial incentives for residents and business to convert to solar energy.

Crawford mentioned that GO-Biz also worked with the California Employment Training Panel (ETP) staff to help qualify Soitec for training funds to help their company train and prepare employees for the high-skilled jobs at their newly established factory in San Diego. During my subsequent phone interview, Mr. Crawford told me they were awarded $300,000 in training funds by the California ETP, and they provided over 15,000 training hours to their San Diego employees. They completed the training in early April 2014.

When asked why his company stays in California instead of moving to another state, McCain said, “California is currently the 8th largest economy in the world. A tremendous amount of our business, current and future, will come from this economy. Even though it is still difficult to find qualified employees, it is my experience that California is rich in qualified workforce, compared to other states.”

He added, “Our success depends greatly on the advantages of our workforce in Mexico. However, over the last 20 years, I have come to realize the culture in Mexico makes it difficult to do manufacturing that requires ingenuity and innovation. We will typically do our first articles and fixturing and any automation type manufacturing in the U.S. When it comes to labor intense, higher volume products, we can turn it over to the plant in Mexico where they can be very successful producing quality products. That allows the company to compete successfully, not only in the U.S. but also against offshore companies. The operation in Mexico, just over the last two years, has allowed us to grow our U.S. side, which has nearly 200 employees.”

In contrast, Martin Wood, stated, “We are solicited often by other States to move our manufacturing facility and jobs to NV, TX, FL, AZ and others. While it would be disruptive, in all cases, it would be like handing employees and the company a raise. Lower or zero State taxes is a big incentive to move. “

“While previous offers were less appealing, they are becoming more and more sophisticated involving real estate and grants, development and hiring help, and of course, no taxes for an extended period or permanently. Any business that is truly run for profit above all would be foolish to not at least consider these offers. We try not to let it consume us, and only entertain them on an annual basis. Right now, California edges out other states in our analysis, based on a number of support, service availability, and quality of life issues, but the gap is narrowing.”

“People in City, County and State Government should be aware this poaching is going on, and try to find a way to bring advantages to manufacturers in California and incentivize them to stay. We know we bring high paying employment wherever we go, and our customers are based worldwide. I see no reason these offers will not continue and expect them to get more and more appealing. Don’t get me wrong, I love California and my family is firmly entrenched here, but to truly own and manage a manufacturing business, you must make hard decisions and be right most of the time.”

Roth stated “the quality of life here in Southern California is a great incentive for companies to continue operating here even though [manufacturing companies] are not receiving the same type of incentives from the local and state governments.” This was one of the major points made in explaining why manufacturers tend to stay in California, despite the sometimes harsh business environment. Roth also stated that a key decision factor in contemplating company relocation is the difficulty entailed in moving employees and their families.

I commented that a company is more than a product; it is also the people who formed and comprise the existing company, and many times, employees aren’t willing to relocate to another state, and the company loses people key to its success. This is often what happens when an out-of-state company buys a San Diego regional company. Key employees don’t move with the company, and the acquisition becomes “buying a product” rather than “buying a company.” In addition, I pointed out that over 90% of California’s manufacturers are less than 100 people, and their customers are most local obtained through word of mouth and referrals. If they decide to move the company, it would be as if they started a new company from scratch.

When Reo Carr asked the question about reshoring, I explained that it started because of quality issues and expanded because of increases in wages in China over the last few years. I mentioned that China and other Asian nations don’t honor U.S. patent laws, which leads to intellectual property theft, hurting U.S. companies in the long run. The other panelists added their opinions as to why outsourcing manufacturing to China is becoming of a thing of the past (increasing wages, quality control, and logistics problems and problem-resolution) and why America is benefiting from the shift to returning manufacturing to America.

McCain confirmed that the contract manufacturing division of his business is benefitting from regional companies returning manufacturing to America.

In answer to the question about the impact of environmental and other regulations, I pointed out that we have been outsourcing our pollution to China and other Asian countries to escape the costs of regulation here. The consequences of industrialization with environmental regulations has been horrific for China and India, which I described one of the chapters in my book (Can American Manufacturing be Saved? Why we should and how we can) When asked about the environmental regulations that apply to his plant in Mexico, Mr. McCain said that Mexico is quickly catching up with the U. S.

A question from the audience about the shortage of local, trained machinists led into a discussion about two connected issues: workforce training and mass transit. Ms. Jensen shared that colleges are shifting in the programs they are now offering in an effort to meet the needs of employers. Mira Costa has both certificate and Associate degree courses in biotechnology, engineering, and manufacturing skills such as machining. She encouraged the companies to check with their local community colleges to inquire about the various programs available. I shared that there are now four high schools that provide up to two years of training to be a machinist and that for years and years, the San Diego Community College District has provided machining and welding training, as well as other manufacturing skills.

Wood said, “it is hard to find people to fill the positions they need, because most of [the blue collar laborers] live further south, in South County.” Crawford seconded that comment, saying that workers are coming from points south, as well…even from Mexico. McCain added mass transportation needs to improve to deal with the issue of where employees are traveling from to accommodate the job availability.

I pointed out that San Diego doesn’t have a “hub” center of manufacturing where everyone is going to work. The industrial business parks are scattered around the county (mainly in 13 of the 18 cities in San Diego County). Mass transit doesn’t work well for this type of region, and I don’t know how feasible it would ever be for mass transit to get workers coming from across the border to these scattered business parks.

In conclusion, the panelists shared that for the time being, the advantages of doing business in California outweighed the disadvantages. The biggest draw is still the quality of life the region offers, as well as the great weather. I shared that the successful company that stays in San Diego has a high dollar, high value, low to mid volume product, which has proprietary technology and lower labor content. When this type company does a Total Cost Analysis of doing business in San Diego/California, it pencils out positively. Crawford agreed that doing this kind of analysis is what enabled them to make the decision to locate Soitec in San Diego.

While it is hard to compete against the incentives and low or no taxes of some other states, we may have fewer companies making the decision to move out of California if more companies did this type of analysis. Of course, it would be even better if the governor and legislature actually proposed and passed legislation that would benefit manufacturers instead of adding to their costs of doing business in California.

 

Posted in Economic Development, Jobs, Manufacturing, Nearsourcing, Reshoring, Taxes/Regulations, Training | No Comments »

California’s Unmanned Aircraft Systems (UAS) Summit Explores Potential Industry Growth

Tuesday, June 17th, 2014

The California UAS Summit held on Tuesday, June 10, 2014 in San Diego brought together thought leaders from government, trade organizations, military, academia and a diverse mix of private sector companies to explore how California can continue to be a world leader in unmanned aircraft systems and be positioned to support businesses in this industry while helping facilitate the FAA’s initiative to integrate UASs into National Air Space in a safe and responsible way, while allowing for innovation and the development of new and exciting uses.

Besides exploring the challenges facing the UAS industry and the economic and jobs impact to the state, the summit participants considered how to balance regulation with innovation and advance safety and security.

California is a Center of Excellence in the development, manufacturing, and testing of Unmanned Aircraft Systems. From industry leaders General Atomics, Kratos Defense Solutions, and Northrop Grumman’s Center for Unmanned Systems headquartered in San Diego, as well as The Boeing Company and AeroVironment in Los Angeles County, major UAS companies have a history in California. With the addition of numerous small and emerging companies throughout the state, like 3D Robotics and AirCover Solutions, California is the world leader in taking UAS into the commercial space, developing innovative systems and advancing capabilities in preparation for integration.

Even though California ranks as the #1 UAS region, it was not chosen as one of the designated test sites by the Federal Aviation Administration in December 2013. The six selected operators are: the University of Alaska, the state of Nevada, New York’s Griffiss International Airport, North Dakota Department of Commerce, Texas A&M University, and Virginia Polytechnic Institute and State University. Geographic and climatic diversity were key requirements for the selection, and the test sites were to begin operation within 180 days of the announcement to conduct research to help the FAA develop regulations and operational procedures for the safe integration of UAS into national airspace.

The coalition to develop an UAS Test Range in California was headed up by already established entity called the California Unmanned Systems Portal (Cal UAS Portal), based in Indian Wells. The coalition expanded in April 2013 to include the AUVSI San Diego Lindbergh Chapter, the San Diego Regional Economic Development Council (EDC), the San Diego Military Advisory Council (SDMAC), the Imperial County EDC, County of Imperial, Holtville Airport, Indian Wells Valley Airport District (IWVAD), and defense contractors including General Atomics, Cubic Corporation, and Epsilon Systems Solutions, Inc. The proposed UAS Test Site would have extended from the NAS China Lake/Edwards Air Force Area, West to the Pacific Ocean, South to the Mexican border and East to the Arizona border.

Currently, UAS are being used around the word in categories from A to Z, such as: aerial imaging/mapping, agricultural, Border Patrol surveillance, disaster management, environmental monitoring, law enforcement monitoring, oil and gas exploration, telecommunication, TV news coverage, sporting events, moviemaking, weather monitoring, and wildfire mapping.

The summit’s keynote speaker was Gretchen West, Executive Vice President, Association for Unmanned Vehicle Systems International (AUVSI) was. She said that AUVSI was started 42 years ago, has 30 chapters, and publishes two magazines, Mission Critical and Unmanned Systems, as well as a UAS directory and Robotics directory. AUVSI is active in public policy advocacy in Washington, D. C., and there is an Unmanned Systems Caucus in the House and Senate, as well as a Congressional Robotics Caucus.

She gave a brief overview of the UAS industry, and said that the FAA integration is the key to expanding opportunities for UASs in the U. S. The bill mandating that the FAA safely integrate UAS into national airspace passed in February 2012, and safe integration is supposed to be completed by September 30, 2015. Until then, commercial applications of UAS are prohibited in the U. S. The selection of the site for the UAS Center of Excellence will be made in March 2015.

One of the major problems for the UAS industry is the negative — and incorrect — public perception of drones as immoral killing machines or intrusive spy machines hovering at our windows. Because of this misperception portrayed by the news media, several states have outlawed use of UAS by either private citizens or law enforcement or both, and several other states have pending legislation. These bans would prohibit use of UAS for many of the above listed applications and would inhibit the growth of commercial usage of UAS.

Three panels of speakers followed Ms. West. Panel #1 was “Large Industry – Manufacturing and Production – Economic impact, jobs & industry growth.” The panelists were:

RADM Christopher Ames (USN Ret), director, international strategic development, General Atomics Aeronautical Systems, Inc. – he said that there have been 17 variants of General Atomics’ Predator over the past 20 years, logging over 2.8 million flight hours. The challenge is to have access to U. S. national airspace. GA-ASI is developing and testing an air-to-air sense and avoid system.

VADM Jerry Beaman, (USN Ret), president, Kratos Defense, Unmanned Combat Aerial Systems Division – he said his company is focused on a jet powered UAS that will fill the high performance, high altitude market. Key features of their UASs will be ability to operate in a contested airspace and a GPS denied environment.

Albert Bosco, business development, unmanned airborne systems, The Boeing Company – he said, “UAS aren’t a panacea, so need to decide how, when, and where to use them.” UAS use by First Responders, environmental monitoring, and infrastructure monitoring may be major areas of focus.

Carl Johnson, vice president, unmanned systems, Northrop Grumman Corporation – he provided the highlight of this panel by showing the video of Northrop Grumman’s Global Hawk X47B landing successfully on an aircraft carrier.

Panel #2 was “Commercialization of Small and Medium UAS – Balancing privacy with innovation combat aerial systems division.” The panelists were:

Jill Meyers, senior manager, 3D Robotics – she said that while their headquarters is in Berkeley, they have engineering support in Sam Diego, marketing and video production in Austin, Texas, and manufacturing in Tijuana, Mexico. They have three “copter” models and an airplane, and have a DIY community of 54,000 active users of Droneshare in the Cloud. There is an innovation evolution occurring on autopilot software through their open source development.

Roy Minson, senior vice president and general manager, AeroVironment, Inc. – he said that AeroVironment makes small unmanned systems and have seven vehicles in the Smithsonian. He announced that this was the day the “FAA grants the first-ever over-land restricted type certificate to AeroVironment Puma AE UAS for use in day-to-day operations at the BP-operated Prudhoe Bay oil field on Alaska’s North Slope,” and that BP had selected AeroVironment for 3D mapping and other services at their North Slope operations over a multi-year period. AeroVironment flew a Puma AE drone on its first commercial flight Sunday to survey BP pipelines, roads and equipment at Prudhoe Bay, the largest oil field in the U.S., according to the FAA. Using the Puma’s sensors, BP hopes to target maintenance activities, in an effort to save time, improve safety and increase reliability in the sensitive North Slope environment.

Nelson Paez, CEO, DreamHammer – he said that Dreamhammer has developed an “operating system” for UAS, and their Drone OS has open applications built-in for specific industries.

Steven Bishop, Business Development, INSTU – he said that INSTU is a wholly owned subsidiary of Boeing that started as a company looking for tuna and now has two unmanned vehicles, the Integrator, and Scan Eagle, as well as ground control stations, and a UAS launcher, Skyhook. They also provide field operation and logistic services, payload, and training. They did a demo with Conoco in the Arctic in 2013.

Cliff Johnson, CEO, CTJ & Associates, LLC – he said that CTJA Unmanned Systems Engineering doesn’t sell into the U. S. at all; all of their customers are international. Their manufacturing is conducted in Portland, Oregon, but systems integration is done in San Diego. They have four vehicle platforms that utilize solar turbines, and the solar power is stored in ultra capacitors so the vehicles can fly up to 14 hours at night.

Panel #3 was “Campus Research and Development – Advancing technology for safety and security.”The panelistswere:

Charles Johnson,Senior Advisor for Unmanned and Autonomous Systems, Armstrong Flight Research Center – he said that the Armstrong Center has been working under contract to help the FAA review and analyze data to develop the rules for commercial use of UAS in the U. S.

Dr. Jason Miller, Senior Research Officer, Cal State University Channel Islands – he said that there is great interest at his campus in using UAS to monitor the Channel Islands, study the humpback whale, and study wildfires.

Dr. Vibhav Durgesh, Assistant Professor, Department of Mechanical Engineering, Cal State University Northridge – he heads up the aerodynamics lab that could provide airfoil data for UAS manufacturers.

Brandon Stark, Mechatronics, Embedded Systems and Automation (MESA) Labs, University of California Merced – he said that they see UAS as toolset for solving large problems, and they have a fleet of small unmanned platforms that monitor water and air quality, take soil samples, and other types of environmental monitoring.

Dr. John Kosmatka, Mechanical & Aerospace Engineering Department, University of California San Diego – he said that UCSD actually developed a UAS for the City of Napes, Italy and conducts research in applications, science missions, and sensor development.

“A lot of people are familiar with UAS in some of the military applications,” said Treggon Owens of Aerial Mob. “What they may not be familiar with is the first responder and rescue and agriculture. So, there’s a numerous amount of platforms – it really goes beyond what people usually think of a UAS. And that’s when you get into commercial applications.” Aerial Mob is one of the growing number of companies using new technology invented by the military. The company displayed thrilling images of UAS flights at the summit.

”It’s as big as our own imagination, really,” said Kevin Carroll of Connect. “The applications for unmanned systems are endless. It’s not going to supplant the existing world,” continued Carroll. “What it’s going to do is augment this world. And you’re looking at 17,000+ jobs in California. And these are very high-paying jobs, advanced manufacturing jobs. And then you look at the economic impact – it’s around $14 billion when you go out 10 years as they integrate the airspace.”

The panel discussions showed that the UAS industry is at a crossroads facing significant challenges in business, government, and law. The U. S. industry faces competition from foreign countries, many of whom have a more positive business climate. There are severe limitations in the civilian market in the U. S. until the FAA integration is complete. The challenges faced on the governmental side are: slow-to-develop rulemaking by the FAA, inconsistent support from federal, state and local authorities, and troublesome legislation at the state and local level that threatens to hamper the industry. Finally, there are many legal challenges facing the UAS industry: A near total ban on “commercial” drone operations, defined as any non-recreational use, unclear standards for designing, building and operating UASs, and undeveloped liability standards paired with unproven insurance products.

The current forecast is that California’s UAS industry is expected to create 18,161 jobs within a decade of airspace integration, which would have an estimated $14.37 million economic impact. However, this forecast would be reduced if California becomes one of the states that ban use of UAS by private industry and law enforcement. Now is the time to voice your support for the UAS industry to your elected representatives in California.

Posted in Economic Development, Innovation, Manufacturing | No Comments »

Why Manufacturing is Critical to California’s Economy

Tuesday, February 25th, 2014

For every one job created in manufacturing, at least two to three jobs are created to support the sector. Further, manufacturing firms create regional wealth by producing a product that is exported to other states and countries. This attracts additional funds to the region — creating business, individual and community wealth. Because of this ripple effect, manufacturing firms have a deeper impact on the state of the economy than most other industries.

California is the number one state for manufacturing jobs, firms and output – accounting for 11.7 percent of the total U. S. output, and employing 9 percent of the U. S. manufacturing workforce. California manufacturing generates $229.9 billion, more than any other state. Manufacturing is California’s most export-intensive activity contributing significantly to California’s $159 billion in exports in 2011. Overall, manufacturing exports represent 9.4% ($120 billion in goods) of California’s GDP, and computers and electronic products constitute 29.3% of the state’s total manufacturing exports. More than one-fifth (21.9%) of all manufacturing workers in California directly depend on exports for their jobs.

Since January 2001, the manufacturing sector lost 33% of its job base, down from 1.86 million jobs in 2001 to 1.237 million jobs in 2019. In 2010, the manufacturing sector began adding employment, regaining 7,900 jobs. California exports have also increased — up from $104 billion of manufactured goods in 2009 to $124 billion in 2010.

A 2011 report by the Center for Applied Competitive Technologies (CACT) at El Camino College and the Center Of Excellence (COE) of the Los Rios Community College District identified the following 17 cluster industries in California:

  •  Aerospace Manufacturing
  • Biotechnology, Medical Devices, & Pharmaceutical Manufacturing
  • Building Materials Manufacturing
  • Chemical Manufacturing
  • Computers/Electronics Manufacturing
  • Dental Equipment, Supplies & Laboratories Manufacturing
  • Fashion/Clothing Manufacturing
  • Furniture Manufacturing
  • Household Products Manufacturing
  • Machinery Manufacturing
  • Metals Manufacturing
  • Paper Products Manufacturing
  • Petroleum Manufacturing
  • Plastic Products Manufacturing
  • Printing and Publishing
  • Transportation Manufacturing

 The report states, “With the exception of food manufacturing, biotechnology, dental equipment, and petroleum, nearly every manufacturing cluster in California has shed jobs over the last five years [2006-2011.] Building materials lost the most jobs with a decline of 32%, followed by printing (22%), and computers/electronics (10%).”

Challenges

The report states that the “manufacturing sector must address a variety of challenges, from navigating a complex regulatory environment to developing strategies to compete with low cost economics. There are a number of factors that have inhibited the manufacturing sector’s ability to compete locally and internationally.” Some of these challenges are:

  • California’s regulatory climate is difficult, expensive and time consuming to navigate
  • Higher health care expenditures compared to countries where health care is paid for by general tax revenues
  • Higher salaries and other benefits, such as paid leave, insurance, and retirement plans
  • Higher costs associated with litigation claims
  • Higher costs associated with environmental compliance;
  • Higher corporate tax rates than most other countries (the United States’ tax rate is 40%, the second highest tax rate among major trading partners.)

Opportunities

Competition from low-cost economies, such as China, India, Singapore, South Korea, Thailand, and Vietnam, is one of the major challenges faced by the manufacturing sector. However, the total cost of outsourcing to other countries is often miscalculated. According to the Reshore Initiative, the true cost of manufacturing outside of the United States does not include costs associated with:

  •  National policy issues (trade negotiations, etc.)
  • Changes in currency exchange rates
  • Intellectual Property theft
  • Supply chain disruptions
  • Lengthy delivery times
  • Traveling to the manufacturing site to assess and resolving production issues

Further, in the last few years many countries have started to raise their prices to adjust for increases in wages and higher transportation/fuel expenses. By examining the total cost of outsourcing, the Reshore Initiative argues that hiring local production firms is just as price sensitive as hiring firms from low-cost economies. Also, there are several benefits to working local, such as:

  •  Improved quality and consistency of inputs
  • Ability to create just-in-time operations that reduce inventory and shipping costs and improve business-to-business relations
  • Intellectual property security
  • Faster delivery to customers

As this viewpoint has gained popularity, it has started to shift production back to the United States, creating jobs and wealth in the process. By 2013, the Reshoring Initiative estimated that about 80,000 jobs returned to the United States through reshoring, about 15% of the nationwide increase of 526,000 manufacturing jobs since 2010.

If you are in the southern California region, you can find out more about how we can help the manufacturing industry thrive in California by attending the “Manufacturing in the Golden State – Making California Thrive” economic summit on Wednesday, March 19, 2014, 9:30 AM – 1:30 PM.

This leadership summit will explore how to grow manufacturing jobs and businesses in California. National experts and local business owners will present the best solutions to help craft a successful growth strategy. 

Where:  Brea Community Center, 1 Civic Center Circle, Brea, CA 92821

Keynote Speaker:   Dan DiMicco, Chairman Emeritus, Nucor Steel Corporation

Speakers/Topics:

* Dr. Greg Autry – Senior Economist, Coalition for a Prosperous America; Adjunct Professor of Entrepreneurship, Marshall School of Business, University of Southern California (Trade Reform)
* Pat Choate – Economist; Author, “Saving Capitalism: Keeping America Strong” (Manufacturing Strategy)
* Mike Dolan – Legislative Representative, International Brotherhood of Teamsters (Currency Manipulation) (invited)
* Michael Stumo – CEO, Coalition for a Prosperous America (Tax Reform)

Panel of local business leaders (partial listing):

* Michele Nash-Hoff – Chair, Coalition for a Prosperous America CA Chapter; President, ElectroFab Sales (Overview of California Manufacturing)

*Dana Mitchell, Advanced Mold Technology Inc.
* Nick Ventura – Co Founder, Venley by Youth Monument

Presented by:  Senator Mark Wyland, in partnership with the Coalition for a Prosperous America and other regional businesses and associations.

Cost: Early Bird Rate $25 through March 5, 2014; $35 thereafter (Includes light breakfast and full lunch)

 Sponsors:

City of Brea

ATE Corporation (ATEC)

California Manufacturing Technology Consulting

Industrial Metal Supply Company

Event partners
APICS – Orange County Chapter

Brea Chamber of Commerce

Corona Chamber of Commerce
Cypress Chamber of Commerce

Fountain Valley Chamber of Commerce

Fullerton Chamber of Commerce
Garden Grove Chamber of Commerce
Global Innovative Systems

La Habra Chamber
PlanetTogether

Orange County Hispanic Chamber of Commerce
Orange County SBDC
Riverside County Manufacturers & Exporters Association
West Orange County Regional Chamber
Yorba Linda Chamber of Commerce

Register today for this important event.

For more information, or if you are unable to pay online, contact Sara Haimowitz (202-688-5145, sara@prosperousamerica.org).

Also: click here to find out about becoming an event sponsor!

Thanks,

Michele Nash-Hoff, Chair
California Chapter of the Coalition for a Prosperous America

 

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