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How the Trade Secrets Act will Benefit Manufacturers

Tuesday, August 16th, 2016

Many times, Congress passes important bills that are go unreported by the mainstream media. Such was the case with the Defend Trade Secrets Act of 2016 (DTSA – S. 1890), passed by the Senate and House of Representatives with near unanimous support in April and signed by President Obama on May 11, 2016. This beneficial bill was authored by U.S. Senators Chris Coons (D-DE) and Orrin Hatch (R-UT) and cosponsored by nearly two-thirds of the Senate.

The bill was supported by a broad industry coalition that included manufacturers and organizations, such as the Alliance of Automobile Manufacturers, the Association of Global Automakers, Inc., Biotechnology Industry Organization, The Boeing Company, Caterpillar Inc., Corning Incorporated, Eli Lilly and Company, General Electric, Honda, IBM, Intel, The Intellectual Property Owners Association Johnson & Johnson, Medtronic, National Alliance for Jobs and Innovation , National Association of Manufacturers, The Procter & Gamble Company, Siemens Corporation, Software & Information Industry Association (SIIA), U.S. Chamber of Commerce, and United Technologies Corporation (click here for full list). This industry coalition sent a letter dated December 2, 2015 to Senators Hatch, Coons and Flake, saying in part:

“Trade secrets are an essential form of intellectual property. Trade secrets include information as broad-ranging as manufacturing processes, product development, industrial techniques, formulas, and customer lists. The protection of this form of intellectual property is critical to driving the innovation and creativity at the heart of the American economy. Companies in America, however, are increasingly the targets of sophisticated efforts to steal proprietary information, harming our global competitiveness.

Existing state trade secret laws are inadequate to address the interstate and international nature of trade secret theft today. Federal law protects trade secrets through the Economic Espionage Act of 1996 (“EEA”), which provides criminal sanctions for trade secret misappropriation. While the EEA is a critical tool for law enforcement to protect the clear theft of our intellectual property, U.S. trade secret owners also need access to a federal civil remedy and the full spectrum of legal options available to owners of other forms of intellectual property, such as patents, trademarks, and copyrights.

The Defend Trade Secrets Act will create a federal remedy that will provide a consistent, harmonized legal framework and help avoid the commercial injury and loss of employment that can occur when trade secrets are stolen. We are proud to support it.”

The intent of the DTSA is:

“IN GENERAL.—Section 1836 of title 18, United States Code, is amended by striking subsection (b) and inserting the following:

‘‘(b) PRIVATE CIVIL ACTIONS.—

‘‘(1) IN GENERAL.—An owner of a trade secret that is misappropriated may bring a civil action under this subsection if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce.”

‘‘(c) JURISDICTION.—The district courts of the United States shall have original jurisdiction of civil actions brought under this section.

However, the DTSA does not preempt state law. Therefore, the owner of a trade secret could potentially file a federal claim and a state law claim at the same time.

In a May 11, 2016 guest post on www.manufacturinglawblog.com by Ian Clarke-Fisher of Labor & Employment and Jim Nault of Robinson + Cole’s Intellectual Property Litigation Practice Team, they wrote, “…the DTSA provides the following important provisions, among others:

Federal Civil Action: The DTSA creates a federal civil cause of action, giving original jurisdiction to United States District Courts. This will allow companies to decide whether to bring claims in federal or state courts, and may have the net effect of moving most trade secret litigation to federal courts…Importantly, similar to federal employment laws, the DTSA does not supersede state trade secret laws.”

“Seizure of Property: The DTSA includes a provision that permits the Court to issue an order, upon ex parte application in ‘extraordinary circumstances,’ seizing property to protect against to improper dissemination of trade secrets…the DTSA permits such an order only if the moving party has not publicized the requested seizure…”.

“Damages and Attorney’s Fees: In addition to the seizure of property and injunctive relief, the DTSA permits for the recovery of damages for actual losses and unjust enrichment, and allows for exemplary (double) damages trade secrets that are ‘willfully or maliciously misappropriated’… The DTSA also provides for the recovery of reasonable attorney’s fees in limited instances…”

In a blog article prior to the bill’s passage (April 8, 2016), Nuala Droney and James Nault, members of Robinson + Cole’s Intellectual Property Litigation Practice Team commented: “The law provides for the award of damages for trade secret theft as well as injunctive relief. It even includes a provision allowing a court to grant ex parte expedited relief to trade secret owners under extraordinary circumstances to preserve evidence or prevent dissemination of the trade secret…”

They explained that “Trade secrets are a form of intellectual property that are of increasing importance to many manufacturers for a variety of reasons. A trade secret can be any information that is (i) valuable to a company, (ii) not generally known, and (iii) not readily ascertainable through lawful means, as long as the trade secret holder has taken reasonable precautions to protect it. A classic example of a trade secret is the formula for Coca-Cola. A more recent example is DuPont’s innovative Kevlar product, which was the subject of a large scale trade secret theft in 2006. Trade secret theft is a huge problem; a recent Pricewaterhouse-Coopers study showed that trade secret theft costs American businesses $480 billion a year.”

Dennis Crouch, Law Professor at the University of Missouri School of Law and Co-director of the Center for Intellectual Property and Entrepreneurship, provides this commentary on his blog:

” The Defend Trade Secrets Act (DTSA) includes a new provision added to the Economic Espionage Act (EEA) that, depending upon how it is interpreted, may govern how district courts handle trade secret information in all cases. The new section will be codified as 18 U.S.C. 1835(b) and reads:

(b) Rights Of Trade Secret Owners—The court may not authorize or direct the disclosure of any information the owner asserts to be a trade secret unless the court allows the owner the opportunity to file a submission under seal that describes the interest of the owner in keeping the information confidential. . . .

Courts already liberally allow parties to file documents under seal – so that doesn’t provide the entire impact of the provision. Rather, the provision’s importance is that it extends beyond briefs being filed by parties and instead reaches disclosures at trial and court opinions. Thus, the statute presumably prevents a court from disclosing a trade-secret in its opinion without first providing the trade-secret owner with the opportunity to brief the issue of disclosure. In addition, it provides non-parties with a right to request (under seal) non-disclosure of their trade secret rights.”

However, the website of the Essex Richards law firm of Charlotte, NC has a warning that “businesses should know that the DTSA contains certain requirements that affect their employment and similar agreements with provisions protecting against disclosure or misappropriation of the company’s trade secrets or confidential information.” Here are a few provisions of the DTSA that they highlight as important for employers to understand:

“The DTSA provides immunity from trade secret misappropriation claims to whistleblowers who disclose their employer’s trade secrets or confidential information to government officials for the purpose of reporting or investigating a violation of the law.
The DTSA requires all employers to notify employees of the DTSA’s whistleblower protection provisions in any contract or agreement with an employee that governs the use of a trade secret or other confidential information. Otherwise, an employer will be deprived of exemplary damages and attorney’s fees under the DTSA. This notice requirement is satisfied if the agreement cross references a separate written policy that addresses reporting suspected violations of the law. Importantly, the DTSA broadly defines “employee” to include any individual “performing work as a contractor or consultant for an employer.” Therefore, independent contractors and consultants, in addition to “W-2 employees,” are covered under this definition. The notice requirement applies to agreements that are entered into or modified after May 11, 2016.
The DTSA provides a variety of remedies. If the court finds liability, it may: (1) issue an injunction so long as the order does not prevent an individual from entering an employment relationship and does not conflict with applicable state law prohibiting restraints on lawful employment; (2) order that a party take certain affirmative action to protect the trade secret; (3) award actual damages and damages for unjust enrichment; (4) condition future use of the trade secret on payment of a reasonable royalty, and (5) in a case of willful misappropriation, award exemplary damages not more than twice the original damages amount. In addition, if the court determines that a party willfully and maliciously misappropriated a trade secret, or if it finds that a misappropriation claim or a motion to terminate an injunction has been brought in bad faith, it may award reasonable attorney’s fees to the prevailing party.
In the event a defending party is damaged due to a wrongful seizure, it may sue for and recover “relief as may be appropriate,” such as damages for lost profits, damages for loss of goodwill, reasonable attorney’s fees and punitive damages if the seizure was sought in bad faith.”

As a director on the board of the San Diego Inventors Forum, I am particularly interested in the fact that the DTSA is the first federal legislation that allows private citizens, without first having to obtain patent, trademark, or copyright registration, to sue in federal court to protect their trade secrets. This will be a great help for inventors and existing businesses that do not have “patentable” Intellectual Property and have to rely on trade secrets to protect their “secret” formulas or processes to produce their products.

Tags:infringement, Intellectual Property theft, theft, Trade secrets
Posted in Inellectual Property, Innovation, Patent Reform | No Comments »

Why Should the U. S. Have a Specific Productivity Policy?

Wednesday, July 27th, 2016

This question is answered by Robert D. Atkinson, President of the Information Technology & Innovation Foundation (ITIF) in Part II of the report, “Think Like an Enterprise: Why Nations Need Comprehensive Productivity Strategies.” He states, “Rather than think of an economy as a large market with self-interested actors transacting on the basis of price and seeking to maximize productivity, it is more accurate to conceive of an economy as a large, integrated enterprise that requires coordination of activities that individual enterprises will not effectively undertake on their own.”

His opinion is contradictory to that of most Anglo-Saxon nation economists, whose policies are based on two major competing doctrines vying for influence: “neoclassical and neo-Keynesian economics, neither of which supports a national productivity policy.” In a nutshell, he states, “the neoclassical economic doctrine is focused on limiting government’s role in the economy, even as neo-Keynesians see the government’s main role as managing the business cycle and supporting a fairer distribution of income.” His definitions were so simple that even non-economists like me could understand them:

Neoclassical ? focuses on the “managing scarce resources in such a way that maximizes the net benefit from their use, and that produces the quantity and mix of goods and services most beneficial to society.”

Neo-Keynesian ? is “grounded in the core belief that demand for goods and services from business investment, government spending, and consumer spending drives growth.”

Atkinson particularly criticizes neoclassical economists because they “do not study how societies create new forms of production, products, and business models to expand productivity; rather, they study markets to see how commodities are exchanged.”

He criticizes neo-Keynesian economic policy prescriptions because they “revolve around increasing government spending to keep the economy at full employment and ensuring economic fairness and redistribution, because…their goal is not productivity growth, it is full employment.”

Atkinson states. “Thus, the first step for any policymaker seeking to maximize the economy’s productivity is to reject the conventional neoclassical and neo-Keynesian economic advice and embrace an alternative economic doctrine grounded in an understanding of the economy as an integrated, complex enterprise.”

He adds, “This approach is grounded in understanding that productivity is less about markets and more about organizations and systems, in particular about how technology is developed and deployed to drive productivity.”

Atkinson concludes, “Few conventional economists bother to “look inside the black box” of actual organizations or industries and crossindustry systems. Yet it is there that the keys to raising productivity and the keys to the right productivity policy will be found.” He comments that “conventional economics is of little help in understanding the sources of productivity growth, much less in providing useful or actionable advice on productivity policy.”

The rest of Part II discusses how “public goods, externalities and other enterprise failures, and system interdependencies for development and adoption of productivity-enhancing tools all mean that markets alone will not maximize productivity.”

Public goods are “a good or service provided without profit to all members of a society—to increase their productivity.” Some examples are transportation infrastructure such as roads, highways, bridges, airports, seaports or the education infrastructure for K–12 and higher education. Atkinson comments,”… though public goods are necessary, they are not sufficient.”

Atkinson comments that rather than maximizing productivity companies “can maximize profits from increasing revenues or reducing costs. Many companies focus less on boosting productivity and more on increasing revenues, either by getting more customers or increasing revenue per customer by selling products or services with higher margins.”

What he does not cover is that the best way for companies to boost productivity is to transform themselves into lean companies through the adoption and implementation of lean principles, tools, and strategies.

In addition, “some industries do not have strong incentives for driving productivity because “productivity increases hurt its implementers…In such industries, workers ‘control the means of Production’ and therefore productivity is a direct threat to their jobs.”

I found his brief discussion on the effect of system interdependencies on productivity interesting in how he shows that there is a relationship between product innovation and “interdependencies that are only observable and actionable at the industry or economy level.” For example, “when Apple developed the iPod, it needed customers with broadband Internet access and it needed music to be available for purchase online. Without either, the iPod would have gone the way of the Newton (an earlier, failed Apple attempt at creating a PDA).”

Market failure can stem “from markets tending to be poor at coordinating action when multiple parties need to act together synergistically and simultaneously. These chicken-or egg challenges must be overcome for productivity-enhancing innovation to occur in many technology platforms…Unless government plays a facilitating role, relying on markets alone can mean significantly delayed implementation.”

Atkinson identifies another challenge: “Many technology solutions require mutual adoption and coordination for them to be effectively deployed… For example, when automobiles were first developed few paved roads had been built. Only after a certain number of autos were sold was demand strong enough that the government needed to build roads. But initially cars could be driven on dirt roads that horses used, so adoption could grow gradually in the absence of government construction

In Part III, Atkins lays out a comprehensive and actionable agenda for spurring productivity growth, which can be used as a guide to tailor national productivity policy policies. This agenda includes policy recommendations…and the ways in which governments need to organize themselves to advance effective productivity policies.”

He states, “The conventional theory holds that the only thing government can do is to remove barriers and fix policy failures so that firms reacting to price signals can do whatever they may choose to drive productivity. This overly passive framework ignores the complexity and enterprise-like nature of economies, which actually require more strategic productivity policies.” He recommends that an “effective productivity policy needs to go beyond the standard limits to embrace four other key components:”

Incentives, including tax policies, to encourage organizations to adopt more and newer “tools” to drive productivity…In particular, governments should use the tax code to provide incentives for acquisition of new capital equipment
.Policies to spur the advance and take-up of systemic, platform technologies that accelerate productivity across industries. Many of the information technologies central to driving future productivity have chicken-or-egg network effects which mean that adoption will lag unless governments adopt smart, technology-specific policies.
A research and development strategy focused on spurring the development of productivity-enabling technologies, such as robotics…Governments need to focus a much larger share of their R&D budgets on advancing technologies that will reduce the need for labor.
Sectoral productivity policies that reflect the unique differences between industries. In terms of productivity and productivity policy, industries differ in significant ways…Any effective national productivity policy will need to be grounded in analysis-based, sector-based productivity strategies.

Within these four policy components, Atkinson makes some recommendations that are more controversial, such as:

Roll back policies favoring small business – “special benefits to small business and discriminatory policies that place tax and regulatory burdens only on large businesses. He recommends, “To boost productivity, governments should embrace firm-size agnosticism in all policies.” (pages 70-73)

Replace the term informal with the accurate term the illegal economy – “individuals are breaking the law by not registering their businesses and paying taxes. Informality is a drag on productivity growth, not a progressive force.” (pages 73-74)

Set a reasonable set minimum wage indexed to inflation – this helps make it more economical for organizations to substitute capital for labor” and “in some sectors may expedite the adoption of automated equipment and new technology to increase labor productivity.” (page 81)

Atkinson warns, “Countries that protect entrenched, incumbent, or politically favored industries from market-based competition only damage their own country’s productivity and economic growth potential… This limits the ability of firms at the productivity frontier to take market share away from firms with lower productivity.”

Atkinson acknowledges that “The challenge is that few governments have designed their scientific research programs explicitly around advancing technologies to drive productivity. Instead, they follow the advice of neoclassical economists that governments should not pick particular technology areas and should focus on curiosity-directed basic science… if economies are to maximize productivity growth, they need to craft technology research agendas specifically around productivity.”

In fact, Atkinson recommends that “Governments need to focus on identifying and funding many more research and engineering projects that are specifically targeted to developing Technology that can replace human labor.”

He explains, “Productivity policy cannot be fully effective unless it is grounded in a sophisticated understanding that industries differ significantly with regard to their productivity dynamics… Three key factors differentiate industries when it comes to considering productivity policy.” They are

Scale ? Industries differ in terms of average firm size.
Competition ? Industries differ in the extent to which they face competition.
Incentives ? The third factor is intensity of incentives for an industry to increase productivity.

This is why Atkinson recommends that “An effective national productivity policy needs to be based on an analysis of individual industries and when appropriate, broader production systems.”

In his conclusion, Atkinson recommends, “The single most important step governments can take to boost productivity is to make higher productivity the principal goal of economic policy, more important than managing the business cycle, defending liberty, or promoting equality.”

He adds, “National governments should also identify or establish one agency or laboratory whose main mission is to support development and adoption of productivity technology as well as of platform and sectoral productivity strategies. In the United States, this might be the National Institute of Standards and Technology.”

Finally, Atkinson states: “Productivity is the key to improving living standards—so policymakers should ignore conventional economists who say there is little government can do about it and instead make it the principal goal of economic policy.”

Even if you do not agree with all of his premises, recommendations, and conclusions, this is an important report that should be widely read and debated for some time to come.

Neo-Keynesian ? is “grounded in the core belief that demand for goods and services from business investment, government spending, and consumer spending drives growth.”

In addition, “some industries do not have strong incentives for driving productivity because “productivity increases hurt its implementers…In such industries, workers ‘control the means of

Production’ and therefore productivity is a direct threat to their jobs.”

Incentives, including tax policies, to encourage organizations to adopt more and newer “tools” to drive productivity…In particular, governments should use the tax code to provide incentives for acquisition of new capital equipment.

Policies to spur the advance and take-up of systemic, platform technologies that accelerate productivity across industries. Many of the information technologies central to driving future productivity have chicken-or-egg network effects which mean that adoption will lag unless governments adopt smart, technology-specific policies.

A research and development strategy focused on spurring the development of productivity-enabling technologies, such as robotics…Governments need to focus a much larger share of their R&D budgets on advancing technologies that will reduce the need for labor.

Sectoral productivity policies that reflect the unique differences between industries. In terms of productivity and productivity policy, industries differ in significant ways…Any effective national productivity policy will need to be grounded in analysis-based, sector-based productivity strategies.

Within these four policy components, Atkinson makes some recommendations that are more controversial, such as:

areas and should focus on curiosity-directed basic science… if economies are to maximize productivity growth, they need to craft technology research agendas specifically around productivity.”

Scale ? Industries differ in terms of average firm size.
Competition ? Industries differ in the extent to which they face competition.
Incentives ? The third factor is intensity of incentives for an industry to increase productivity.

This is why Atkinson recommends that “An effective national productivity policy needs to be based on an analysis of individual industries and when appropriate, broader production systems.”

Even if you do not agree with all of his premises, recommendations, and conclusions, this is an important report that should be widely read and debated for some time to come.

Tags:jobs, manuacturing, productivity
Posted in Economic Development, Economy, Innovation, Jobs, Manufacturing | No Comments »

What is the Heart and Soul of Manufacturing?

Tuesday, March 15th, 2016

Once in awhile you read a book that has such kernels of truth that they touch your soul. One such book is The Heart & Soul of Manufacturing by Bill Waddell that I just finished reading. The subtitle reveals the focus of his book: “How Lean Management aligns with the better angels of our nature to create extraordinary business results.”

I met Bill in 2014 when we were both speakers at the Lean Accounting Summit in Savannah, Georgia and reconnected with him at the summit in Jacksonville, Florida last year. I knew that we connected at a higher level because of his presentations and the topics we cover in our blogs, but reading his latest book confirmed it.

Bill has been a lean guru for more than 30 years, and in his Introduction, he writes this about his journey, “During the time I have grown in my own thinking from seeing lean as an exciting new set of tools to use on the factory floor and in the supply chain, to an all-encompassing business and economic model, to what it truly is: All of the above driven by and centered on a powerful and rare organizational culture.”

My own lean journey has been much shorter ? only 10 years since I attended my first workshop about lean in 2006, but it was preceded by getting my certificate in Total Quality Management in 1993. By the end of the 1990s, I had discerned that TQM failed because it started from the bottom up with “Quality circles” and was not adopted as a philosophy or incorporated into the corporate culture by C-level management.

I began my lean journey with the viewpoint that the adoption and implementation of lean tools and principles would help American companies be more competitive in the global marketplace and play a role in “saving” American manufacturing as expressed in my book published in 2009.

When I read Bill’s book, I resonated with his statement, “The cut throat world of business, and especially manufacturing over the last thirty years, has become centered on the negative: laying off good people in pursuit of lower headcounts, closing plants and moving the work to China, decimating entire small towns across America, and bankrupting small suppliers by abruptly terminating long relationships and replacing them with cheaper foreign sources.” These facts are what motivated me to write my book, Can American Manufacturing be Saved? Why we should and how we can.

The understanding of the importance of the total transformation of the culture of a company was revealed to me when I took classes in 2014 from Luis Socconini of the Lean Six Sigma Institute to acquire my Yellow Belt in Lean Six Sigma and thereafter read his book, Lean Company.

After years of applying the Toyota Production System tools and principles in his consulting, Bill dug deeper into the precepts behind them to understand what enables “Toyota with its nearly perfect track record of providing lifetime employment to its workers ? and making a lot of money at the same time.” One of the five precepts that more Americans need to emulate is “Be contributive to the development and welfare of the country by working together, regardless of position, in faithfully fulfilling our duties.”

Bill realized that there are other people like him “who want to do their jobs well, but also want to treat people well…they want to have a positive impact on the world around them and especially on the people around them.” The purpose of his “book is to send the message to those people that it is possible to do both…it provides a path for good people to combine the crafts of their trade with their moral code, to be good manufacturers because they are good people, rather than feeling they must either be good manufacturers or good people.”

Bill’s book features in depth consideration of companies that are every bit Toyota’s equal in their people-centered culture: ATC Trailers, Barry-Wehmiller, and West Paw Design.

Bill states that a lean culture is more than a “feel good culture;” it must be “a driver for a completely different way of running the business.” It must be based on “servant leadership,” wherein “the servant leader is always asking, ‘How can I help?’ Leadership and management exist to enable the folks on the front lines to better serve customers.”

Bill writes, “Eliminating waste and empowering people intersect beautifully.” But, in the goal to eliminate waste, “The resources that are the most important to eliminate wasting are people’s time and talents.” He adds, “Traditional management sees human beings as little more than unique tools, while lean thinkers see people as the very heart and soul of the organization’s reason for existence.” And, “In a lean company letting a thinking, feeling, growing person go ? laying them off ? is a shameful waste of a resource that is both precious and has enormous economic value.”

Those familiar with lean will understand his emphasis in a subsequent chapter on organizing a company by value streams, which engenders the feeling that “we’re all in this together” in the “shared commitment to the common good.” In a company with a lean culture, “success is defined by how the team performs along the entire end-to-end value stream…Rather than pit people against each other for individual recognition, lean incentivizes people to help each other, and to do whatever they can to make the other folks on the team more capable, to enable them to bring more of their talents to bear on the job.”

In chapter 5, “It’s all about Growth,” he writes, “There is a widespread misconception that lean is a strategy for reducing costs by eliminating waste. Quite to the contrary, lean is an engine for growth. The purpose of waste reduction and ideally elimination is to free up capacity.” When you free up capacity, you can grow, produce more, and make more profits. As Bill writes, “no company has ever cut its way to success…Success can only come from more, and you can’t cut your way to more.”

In chapter 6, “Hard Core Culture,” Bill discusses what is meant by a lean culture in contrast to “the traditional culture of blame, and its companion – arrogance…that causes most companies to fail from the inside out.” While a lean culture eliminates blame to utilize the Deming Cycle of Plan, Do, Check, Act (PDCA), Bill states, “The core concept of respect for people is not just theoretical or philosophical respect based on the belief that we are all children of God and equal in His eyes. It is professional respect, as well…based on the knowledge that no one knows everything about a process or an operation, but everyone involved knows something.”

Chapter 7, “Accounting,” contains Bill’s easy to understand explanation of “the important aspects of lean accounting, and how they support the decisions a principled, faith driven manager…” Lean accounting measures costs “based on cross functional value streams, rather than in each functional silo. It is based on “real money…it largely does away with the various types of cost types typically assigned to them…Standard costs are done away with in lean.”

I became a big proponent of lean accounting after a four-hour module in my Yellow Belt class that was reinforced when I attended sessions at the Lean Accounting summits of 2014 and 2015.

In chapter 8, Bill recounts the horrific story of the Triangle Shirtwaist factory fire that I recounted in my own book, wherein 145 women workers died in a fire because the doors were locked so the women couldn’t get out via the stairs, three of the four elevators weren’t working, and the owners had not installed a sprinkler system. It was the worst industrial incident in American history. It shocked the country and “it set off a series of laws and changes in industrial safety that eventually put an end to sweatshops in the United States.”

Bill then recounts the stories of two equally or more horrific tragedies that occurred in 2012 and 2013 offshore: Tazreen Fashions factory fire in Bangladesh where 117 women died in a fire because of locked doors and no fire prevention system and the Rana Plaza factory building collapse killing more than 1,200 people. He comments, “Since NAFTA was enacted some twenty or more years ago there has been a flurry of global trade agreements that typically pay little more than lip service to moral and ethical issues…These same trade agreements have had the effect of causing American environmental regulations to be something of a sham…great swaths of American manufacturing has moved to places such as China and Vietnam where there has been little or no environmental concern.”

We have actually been outsourcing our pollution to primarily China or Mexico. There is no sky-high fence to keep the air from crossing our border with Mexico, so we are breathing the polluted air being generated by companies in Mexico. In addition, the horrifically polluted air from China is actually coming to the U. S. on the trade winds.

The rest of the chapter 8 is a rather lengthy discussion of the differences between a privately owned vs. a publicly owned company with regard to practicing moral principles in the conduct of business.

Chapter 9 focuses on people, as “lean is a completely people centered business theory… lean management assumes the best and is based on empowerment and trust.” A culture of lean eliminates the conflict between management and labor. He presents examples of the “talent development” aspect of lean and now some companies evaluate people on the basis on their skills and knowledge in a four-square quadrant for both compensation and leadership. He concludes, “The companies with the best people working together on the best teams are the winners, and putting the best people into the best teams is done by principled leaders, not on the basis of accounting parameters.”

Chapter 10 considers “A Few Specifics,” and one of them that flies in the face of modern technology is the elimination of ERP systems as lean companies “see big IT systems as creators of significant levels of non-value adding waste. ERP systems create the need for planners, production schedulers, cost accountants and buyers. They require data collection and entry, as well as supervisors to oversee all of this, along with the costs of the software and hardware itself.” He provides examples of how ATC and West Paw Design use much simpler systems based on kanban (“a Japanese term mean something like ‘display card'”) He explains “Lean companies operate on a demand pull basis, rather than sophisticated forecasting models. Under this approach, they set a minimal inventory level in place and their purchasing and producing simply replenish that which has been used to meet actual customer demand…”

He concludes, “Perhaps the biggest reason lean companies avoid systems such as ERP is their cultural aversion to complexity. Complexity is the enemy of short cycle time, and it is the enemy of continuous improvement.”

The final two chapters contain a plea to take action and start leaning. He states, “You can’t change the basic trajectory of the business unless you change how you manage it…The gut wrenching, radical transformation in the business is not on the shop floor ? it is in the management office.” He states that successful lean leaders don’t come to this enlightened approach to management through logic, “they come to it through their principles…a principled leader is not content with the basic shop floor tools…they delve deeper and deeper into lean to find the zone of the management structures and philosophies need to allow them to manage by their principles and they dive even deeper into the core of lean culture until they fully understand and support the cultural rules need to turn the whole company into one driven by the leader’s strongly held beliefs.” He encourages companies to “learn why a strong culture is the linchpin of Lean success.”

The kernels of truth I briefly highlighted herein are why I recommend this book to everyone who wants to live and work by his higher principles while achieving greater success. If more American companies had the type of lean culture that Bill envisions, we truly could rebuild our manufacturing industry to make America great again and create jobs for millions of out of work Americans.

Tags:jobs, Lean accounting, Lean culture, manufacturing, offshoringvalue streams
Posted in Environment, Innovation, Jobs, Lean, Manufacturing, Trade Policy | No Comments »

CPA Criticizes Peterson Report on Trans Pacific Partnership Agreement

Sunday, March 13th, 2016

On January 25, 2016, the Peterson Institute for International Economics (PIIE) released a report on the Trans-Pacific Partnership trade agreement. The Coalition for a Prosperous America (CPA) promptly released their commentary on the Peterson Institute report the same day, which was based on oral and written testimony CEO Michael Stumo had given to the U. S. International Trade Commission on January 15, 2016.

The Peterson Institute used the “”computable general equilibrium (CGE) model.” I’m not an economist. I live and work in the real world of manufacturing. Thus, I am not familiar with some of the terms economists use for economic models, and had not heard of this term previously. I try to find explanations that make sense, but even the Wikipedia definition was complex; “A CGE model consists of (a) equations describing model variables and (b) a database (usually very detailed) consistent with the model equations… CGE models are useful whenever we wish to estimate the effect of changes in one part of the economy upon the rest. For example, a tax on flour might affect bread prices, the CPI, and hence perhaps wages and employment. They have been used widely to analyse trade policy.”

The World Bank states, “Computable General Equilibrium (CGE) models offer a comprehensive way of modeling the overall impact of policy changes on the economy… However, CGEs are significantly affected by the assumptions that they are based on which, depending on their definition, can impact on the results.”

CPA criticized the PIIE for using “the controversial computable general equilibrium (CGE) model to analyze the TPP rather than models that produce less optimistic results.” Stumo stated that the CGE model is increasingly recognized as unreliable because:

Untrue Facts Assumed ? “full employment always exists, trade is in balance, that wages and productivity stay in alignment rather than diverge, and that all countries have perfectly free markets with rational economic behavior.” These assumptions are false ? “full employment rarely exists; trade is almost never in balance; wages have diverged downward from productivity for the past several decades; and many TPP countries have state-directed capitalism or strong industrial policies to influence and alter market outcomes.”

Untrue Past Results ? The CGE model was used to analyze China’s being granted Permanent Normalized Trade Relations with China (China PNTR) in 2000 and the Korea-U. S. trade (KORUS) agreement in 2012. A reduction in the trade deficits were predicted for both countries, but the reality is that U. S. trade deficit with China increased from $68.7 billion in 1999 to $337 billion in 2015, and the Korea trade “deficit worsened by $12 billion annually between 2012 (date of KORUS implementation) to 2015.” (US Census Bureau)

Untrue Assumption of No Net Job Losses? “The CGE model wrongly assumes that there are no job losses to produce its results. The International Trade Administration assumes that for every billion dollars of U.S. exports supported 5,796 jobs, down from 7,117 jobs per billion dollars of U.S. exports in 2009. Conversely, every billion dollars of imports has the opposite result. Thus, where trade agreements result in worsening trade deficits, as is the case for the NAFTA, Korea and China PNTR deals, the job losses are drastic.”

Additionally, Stumo criticized the Peterson report because it ignores the fact the Trans Pacific Partnership Agreement does not address problems with currency misalignment, border taxes (VATs), and industrial policies, such as state-owned enterprises and government subsidies.

Stumo stated, “The PIIE model incorrectly assumes that currency valuations will be set by the perfectly free market and will not be manipulated. It does not take into account rising foreign value added taxes – which replace tariffs – charged to imports from the US. It also ignores the industrial policy and state-directed strategies that Japan, Vietnam and others use to give an advantage to state-influenced or national champion domestic industries.”

Stumo criticized the fact that PIIE admits the TPP will create no new jobs and little growth even if the CGE model’s conclusions are true.

Job Creation Will Not Occur ? “…while the TPP is not likely to affect overall employment in the United States, it will involve adjustment costs as US workers and capital move from less to more productive firms and industries. Section 4 estimates that 53,700 US jobs will be affected—i.e., that number is both eliminated in less productive import-competing firms and added in exporting and other expanding firms—in each year during implementation of the TPP. This kind of movement between jobs and industries is what economists refer to as “churn,” and most kinds of productivity growth cannot occur without it taking place. For perspective, 55.5 million American workers changed jobs in this way in 2014—so the transition effects of the TPP would represent only less than 0.1 percent increase in labor market churn in a typical year. Most workers who lose jobs do find alternative employment, but workers in specific locations, industries, or with skill shortages may experience serious transition costs including lasting wage cuts.”

The Peterson report even admits job loss from past trade agreements, stating “The largest loser is the United States, whose trade and current account deficits have been $200 billion to $500 billion per year larger as a result. The United States has thus suffered 1 million to 5 million job losses.

The reality is that we lost 6.2 million manufacturing million jobs in the past 20 years as a result of NAFTA, China’s being granted PNTR in 1999, and the subsequent trade agreements with Central America, Korea, and other countries. Since manufacturing jobs create three to four other supporting or related jobs, we really lost 18 – 20 million jobs, which partly explains why 94,610,000 Americans are no longer in the labor force, which is the lowest participation rate in 38 years.

What do the report’s authors mean by “import-competing firms”? It appears to me that this means American manufacturing firms whose domestically-made products compete with imports for market share in the U. S. In addition, the Made in USA products are also competing as exports to other countries against the exports of China, Korea, our other trading and non-trading partners. So what guarantee do we have that the people losing jobs at import-competing firms will find jobs at exporting companies? None!

In addition, the CPA commentary highlighted the following:

Income gains are Negligible ? “The study projects that, by 2020, US incomes will rise a mere 0.1% of GDP. (Table 2). This means that 99.9% of growth will happen without regard to the TPP. The number 0.1% is equivalent to, or less than, a rounding error. It can only come true if all untrue assumptions in the CGE model are true. It will take another 10 years for the optimistic projection to deliver a meager 0.5% income gain by 2030.”

Middle Class Will Not Benefit ? “Assuming (which we do not) the small income gains are realized, the study is silent on who benefits from them. The Economic Policy Institute reported that trade agreements account for 90% of wage inequality. If there are any income gains, the middle class will be a net loser.”

Other countries will “benefit” more than the US ? “The Peterson Study projects that Japan, Malaysia and Vietnam will gain far more than the United States. The US Trade Representative, by pushing the TPP, is helping open markets for competitors in Japan and other countries. Japan is estimated to gain five times more income (in relation to GDP) than the US, Vietnam 16 times more, and Malaysia 15 times more. (Report, Table 2).”

Finally, the CPA commentary points out that other economic models show losses to the U.S. and other TPP countries. The commentary cites the fact that scholars at the Global Development And Environment Institute of Tufts University released a working paper in January 2016 that used the United Nations Global Policy Model (GPM). The Executive Summary of this paper states, “This GDAE Working Paper employs a more realistic model that incorporates effects on employment excluded from prior TPP modeling. We find that any benefits to economic growth are more limited, and even negative in some countries such as the United States. More importantly, we find that TPP would lead to losses in employment and increases in inequality. This is particularly true for the United States, where GDP is projected to fall slightly (-0.54 percent), employment to decline by 448,000 jobs, and inequality to increase as labor’s share of income falls by 1.31 percent.”

The paper states that the job loss would not be limited to the U. S, stating, The TPP would lead to employment losses in all countries, totaling 771,000 lost jobs…Participating developing economies would also suffer employment losses, as greater competitive pressures force them to limit labor incomes and increase production for export.”

In fact, it also states that job losses would not be limited to TPP trading partners: “The TPP would lead to losses in GDP and employment in non-TPP countries. In large part, the loss in GDP (-3.77 percent) and employment (879,000) among non-TPP developed countries would be due to losses in Europe, while developing country losses in GDP (-5.24%) and employment (-4.45 million) would reflect possible losses in China and India.”

The CPA commentary concludes that “the PIIE report as revealing the lack of any economic benefit from the TPP under the most optimistic, albeit implausible, circumstances. It is more likely that job destruction and industry shrinkage will continue being the net result.”

I will be even more emphatic in my predictions if the TPP is approved by Congress. The TPP will result in millions of job losses since past predictions were always exceeded. It will be another nail in the coffin of American manufacturing. The TPP is so overreaching in its scope that it would change many aspects of American life. I’ve written several previous articles posted on the blog section of my website under “trade” on the dangers of the TPP and why we must stop it from being approved by Congress. Do your own research and don’t be fooled by the rhetoric of its supporters. You can read the full text of the agreement for yourself here.

Tags:China mercantioism, Economy, job loss, manufacturing, trade policy, Trans-Pacific Partnership
Posted in Inellectual Property, Innovation, Jobs, Manufacturing, Trade Policy | No Comments »

What Could be done about China’s Theft of Intellectual Property

Sunday, March 13th, 2016

Hardly a week goes by without a report of Chinese “hacking” or Intellectual Property Theft, so it was no surprise that a published analysis by CrowdStrike, a California-based cyber security company, revealed that China violated its cyber agreement with the United States the very next day after CNBC reported that President Obama and China’s President Xi Jinping agreed to not conduct cyber theft of intellectual property on Friday, September 25, 2015. President Obama said. “The United States government does not engage in cyber economic espionage for commercial gain, and today I can announce that our two countries have reached a common understanding on a way forward.” However, the U.S.-China agreement “does not prohibit cyber spying for national security purposes.”

It is interesting to note that the day before the announcement, September 24, 2015, Chet Nagle, a former CIA agent and current Vice President of M-CAM, penned an article in the Daily Caller, stating, “At FBI headquarters in July, the head of FBI counterintelligence, Randall Coleman, said there has been a 53 percent increase in the theft of American trade secrets, thefts that have cost hundreds of billions of dollars in the past year. In an FBI survey of 165 private companies, half of them said they were victims of economic espionage or theft of trade secrets — 95 percent of those cases involved individuals associated with the Chinese government.”

He blamed the corruption of Chinese government officials for the problem and stated that “President Xi Jinping has instituted a strict anti-corruption campaign. Regrettably, the campaign has focused on “tigers” — senior government officials — at the expense of eliminating the rampant corruption by the “flies” — officials at the provincial and local level. In any event, putting a dollar value on direct corruption does not address the totality of the costs. Business confidence and foreign direct investment in China are already falling because of the absence of the rule of law.”

He concluded, “China’s disregard of the rule of law should be the underlying driver for all discussions of commercial topics during the coming visit of China’s president. Lack of the rule of law is the most difficult challenge American enterprises face in China.”

In researching this topic, I found out that three years earlier, May 22, 2013, the bipartisan Commission on the Theft of American Intellectual Property of the U.S. International Trade Commission released a report. Dennis C. Blair, former Director of National Intelligence and Commander in Chief of the U.S. Pacific Command, and Jon M. Huntsman, Jr., former Ambassador to China, Governor of the state of Utah, and Deputy U.S. Trade Representative, were the Co-chairs of the Commission.

The day after the release, Forbes published an article about the report, stating that “China accounts for at least half – and maybe as much as 80 percent – of U.S. intellectual property theft.” The article briefly discussed the problem of China’s Intellectual Property theft and included quotes from the co-chairs, but did not go into any detail about the recommendations of the Commission.

The article did provide the link to the 100-page report, which I have since read. In view of the continuing problem, it is time to reconsider the key findings of the report, titled, “The Impact of International IP Theft on the American Economy”:

”Hundreds of billions of dollars per year. The annual losses are likely to be comparable to the current annual level of U.S. exports to Asia—over $300 billion…”
Millions of jobs. If IP were to receive the same protection overseas that it does here, the American economy would add millions of jobs.
A drag on U.S. GDP growth. Better protection of IP would encourage significantly more R&D investment and economic growth.
The incentive to innovate drives productivity growth and the advancements that improve the quality of life. The threat of IP theft diminishes that incentive.

The report stated, “A core component of China’s successful growth strategy is acquiring science and technology. It does this in part by legal means—imports, foreign domestic investment, licensing, and joint ventures—but also by means that are illegal. National industrial policy goals in China encourage IP theft, and an extraordinary number of Chinese in business and government entities are engaged in this practice.”

The report stated that existing remedies are not keeping up with the problem because of:

Short product life cycles – “the slow pace of legal remedies for IP infringement does not meet the needs of companies whose products have rapid product life and profit cycles.”
Inadequate institutional capacity ? a shortage of trained judges in developing countries
China’s approach to IPR is evolving too slowly – “improvements over the years have not produced meaningful protection for American IP.”
Limitations in trade agreements? there are also significant problems in the WTO process that have made it impossible to obtain effective resolutions. “Bilateral and regional free trade agreements are not a panacea either.”
Steps undertaken by Congress and the administration are inadequate.

The Commission recommended short-term, medium-term, and long-term remedies. The short-term measures are immediate actions that are largely regulatory or made effective via executive order and include the following:

Designate the national security advisor as the principal policy coordinator for all actions on the protection of American IP.
Provide statutory responsibility and authority to the secretary of commerce to serve as the principal official to manage all aspects of IP protection.
Strengthen the International Trade Commission’s 337 process to sequester goods containing stolen IP.
Empower the secretary of the treasury, on the recommendation of the secretary of commerce, to deny the use of the American banking system to foreign companies that repeatedly use or benefit from the theft of American IP.
Increase Department of Justice and Federal Bureau of Investigation resources to investigate and prosecute cases of trade-secret theft, especially those enabled by cyber means.
Consider the degree of protection afforded to American companies’ IP a criterion for approving major foreign investments in the United States under the Committee on Foreign Investment in the U.S. (CFIUS) process.
Enforce strict supply-chain accountability for the U.S. government.
Require the Securities and Exchange Commission to judge whether companies’ use of stolen IP is a material condition that ought to be publicly reported.
Enforce strict supply-chain accountability for acquisitions by U.S. government departments and agencies by June 1, 2014, and work to enhance corporate accountability for the IP integrity of the supply chain.

The Commission made the following medium term recommendations to build a more sustainable legal framework to protect American IP that Congress and the administration should take:

Amend the Economic Espionage Act (EEA) to provide a federal private right of action for trade-secret theft. If companies or individuals can sue for damages due to the theft of IP, especially trade secrets, this will both punish bad behavior and deter future theft.
Make the Court of Appeals for the Federal Circuit (CAFC) the appellate court for all actions under the EEA. The CAFC is the appellate court for all International Trade Commission cases and has accumulated the most expertise of any appellate court on IP issues. It is thus in the best position to serve as the appellate court for all matters under the EEA.
Instruct the Federal Trade Commission (FTC) to obtain meaningful sanctions against foreign companies using stolen IP. Having demonstrated that foreign companies have stolen IP, the FTC can take sanctions against those companies.
Strengthen American diplomatic priorities in the protection of American IP. American ambassadors ought to be assessed on protecting intellectual property, as they are now assessed on promoting trade and exports. Raising the rank of IP attachés in countries in which theft is the most serious enhances their ability to protect American IP.

The more idealistic long-term recommendations are:

Build institutions in priority countries that contribute toward a “rule of law” environment in ways that protect IP.
Develop a program that encourages technological innovation to improve the ability to detect counterfeit goods.
Ensure that top U.S. officials from all agencies push to move China, in particular, beyond a policy of indigenous innovation toward becoming a self-innovating economy.
Develop IP “centers of excellence” on a regional basis within China and other priority countries.
Establish in the private, nonprofit sector an assessment or rating system of levels of IP legal protection, beginning in China but extending to other countries as well.

Of particular interest is the mention in the report that an annual survey in late 2012 of member companies of the American Chamber of Commerce in the People’s Republic of China “over 40% of respondents reported that the risk of data breach to their operations in China is increasing, and those who indicated that IP infringement has resulted in “material damage” to China operations or global operations increased from 18% in 2010 to 48% in 2012,” and that “The longer the supply line, the more vulnerable it is to IP theft.”

The risk of Intellectual Property is one of the major reasons many companies are returning manufacturing to America through reshoring. This is also why I urge the inventors that are part of the San Diego Inventors Forum to avoid going to China if at all possible, and if they have to go to China to meet their target Bill of Material cost, they should never source all of the parts of their product with one vendor. Otherwise, they are at risk of being victimized by their Chinese vendor stealing their IP and getting a counterfeit version of their product on the market first.

In conclusion, “The Commission considered three additional ideas for protecting the intellectual property of American companies that it does not recommend at this time.” The following one of the three is particularly interesting to me because of the enormous trade deficits we have with China:

“Recommend that Congress and the administration impose a tariff on all Chinese-origin imports, designed to raise 150% of all U.S. losses from Chinese IP theft in the previous year, as estimated by the secretary of commerce. This tariff would be subject to modification by the president on national security grounds.”

“The Commission is not prepared to make such a recommendation now because of the difficulty of estimating the value of stolen IP, the difficulty of identifying the appropriate imports, and the many legal questions raised by such an action under the United States’ WTO obligations. If major IP theft continues or increases, however, the proposal should be further refined and considered.”

What is outrageous to me is that it is obvious to me that none of the short-term, medium-term or long-term recommendations have been implemented or we would not still have the serious problem of cyber espionage and Intellectual Property Theft three years later.

Supporters of developments in China “essentially argue that when China begins producing its own intellectual property in significant quantities, the country’s own entrepreneurs and inventors will put pressure on political and Communist Party leaders to change the laws and improve IP protections.” Since China has the stated goal of becoming the superpower of the 21^st Century and is Intellectual Property Theft is one of their tools to achieve this goal, I do not feel that this will ever happen.

To me, the most important conclusion of the report is “If the United States continues on its current path, with the incentives eroding, innovation will decline and our economy will stagnate. In this fundamental sense, IP theft is now a national security issue.” It will be interesting to see if the next president and the next Congress we elect will have the courage to play hardball with China by implementing some of the recommendations of the Commission.

Tags:China, Cybersecurity, innovation, Intellectual Property, trade policy, Trade secreta\s
Posted in Inellectual Property, Innovation, Manufacturing, National security, Trade Policy | No Comments »

Mixed Messages at San Diego’s Economic Outlook Events

Tuesday, February 9th, 2016

Economists and industry experts presented conflicting outlooks at the three of the Economic Outlook events held in San Diego this month. I attended two of the three ? the 32^nd Annual San Diego County Economic Roundtable and the San Diego 2016 Economic Outlook by the National University Institute for Policy Research ? and read about the third, the San Diego Business Journal (SDBJ) Economic Trends event.

The SDBJ event focused on the areas of expertise of industry panelists in banking, health care, insurance, commercial real estate, tax, and employment, which is why I did not attend this event. If you are involved in these industries, then you were happy to hear that these experts forecast a healthy year for San Diego with the U. S. economy growing about 2.5%. Home prices have increased, consumer spending is growing, wages are increasing, and commercial real estate vacancy rates are below the 10-year average.

The other two events paid more attention to the manufacturing sector in which I am involved. Marney Cox, Chief Economist for the San Diego Association of Governments (SANDAG) participated in both events, and he and Kelly Cunningham, Chief Economist at the National University Institute of Policy Research (NUPR) were more cautious, forecasting a more modest 1.9% growth in the region, 2.1% in California as a whole and only 1.8% growth in the U. S.

Kelly Cunningham stated that it took us 74 months after the last recession to get back to the job level we had in 2007, which was two to three times as long as the recessions of 1980-81, 1990-91, and 2000-2001. The average GDP growth after these three previous recessions was 4-5% annual growth, but the U. S. GDP has grown an average of only 2% since the Great Recession. At the SDWP event, Marney Cox opined that the regional GDP growth should be >3%.

San Diego is adding jobs faster than the rest of California, and he forecast that the San Diego unemployment rate would remain at the low of 4.8% reached in December 2015 compared to 5.8% for California. He emphasized that this is the commonly used U3 rate of employment, not the U6 rate that includes part-time and discouraged workers. The U6 rate is about double the U3 rate, and was 9.8% in December 2015. However, the U3 rate doesn’t include people who have dropped out of the labor force. At the SDWP event, Marney Cox stated that 698,000 people had dropped out of the labor force in San Diego since 2005.

What concerns me is that manufacturing is only 9.5% of the regional GDP (based on 2014 data), up from the low of 7.6% of GDP in 2008. This is still considerably down from the high of 30.1% in 1980. It had slipped to 24.8% by the end of 1999, but that is less than a 6% loss in 19 years, whereas we have now dropped another 15.3% in 15 years. Also, San Diego’s GDP dropped from 7^th in 1999 to 17^th in ranking of the top 35 metropolitan areas in the U. S.

According to NUPR report, San Diego has “added 7,000 manufacturing jobs back as 2015 ended. Half of the new manufacturing jobs are in non-durable goods, one-quarter in aerospace, and the rest among other durable goods production, including shipbuilding and recreational goods…” However, this is about 5% or 6,000 fewer jobs than we had in 2007 (102,400) and more than 26,000 fewer jobs in manufacturing than we had in 1999 (128,300).

Since you have to make it, grow it, or mine it to generate tangible wealth, it is questionable whether or not San Diego can even maintain its level of prosperity in the future. Agriculture did not even show up on the pie chart of GDP for San Diego, and natural resources only represented .5% of the GDP. Thus, it is critical that San Diego maintain a strong manufacturing base. Manufacturing jobs create 3-4 other support jobs, while service jobs only create 1-2 other jobs.

Construction dropped from 3.8% of the region GDP in 2008 to only 3.3% at the end of 2014, but there has been very little recovery in the number of construction jobs as the number of jobs is still down by 12% from what the number was in December 2007. The NUPR report stated, “In 2016 we do not foresee a significant increase of this part of the economy, in part because of the

relatively small number of housing permits approved in the County. Absent a fundamental change of that figure, this part of the economy will continue to struggle.”

Since manufacturing and construction represent good paying jobs for the middle class, this explains why middle wage jobs are decreasing. The NUPR report released at their event defines “middle wage jobs as those paying between $35,000 and $77,000 per year in 2014 dollars” and states that “in 2001 middle wage jobs accounted for 56.6 percent of all payroll wage jobs…the ratio continued to shrink, standing at 49.5 percent as of 2014.”

Essentially in San Diego, we are creating six times more low paying jobs than high paying jobs and double the number of low paying jobs than middle wage jobs. Higher wage jobs “increased from 21.2 percent in 2001 to 26.2 percent by 2014,” and lower wage jobs “increased from 22.3 percent in 2001 to 24.3 percent as of 2014.”

This trend is nothing new. I remember Marney Cox expressing concern over the shrinking number of middle wage jobs at economic roundtables I attended in the mid 1990s.

Another trend Marney Cox mentioned is that the percentage of workers age 55+ has increased from 25% of the workforce to 35.1%, and there has not been a recovery in employment for those ages 25-54. Since these years are supposed to be the “golden years” of making money in a career, this does not bode well for the future for this age bracket. My own son and daughter are in this age bracket, and my son has had to work as an independent contractor since early 2010 without being able to find a permanent, full-time job in an occupation related to construction. Neither of my children has been able to afford to buy a house because with rents as high as they are, they can never save enough money for a down payment. Their dad and I were able to buy our first house in our mid 20s when houses cost about 3-4 times a median annual salary, but now they cost 9-10 times an annual median salary.

As I have mentioned in past articles, San Diego has been an innovation hub of advanced technology for the past 30 years, and we now have many startup companies at various stages of development in the more than 45 different accelerator/incubator programs in the region. This is why I was very concerned when Marney Cox stated that venture funding being invested in San Diego companies has greatly diminished. Last year, venture fund investment was <$One Billion and represented only 2% of national investment compared to 4-5% previously.

If this trend continues, it would have far-reaching effects. San Diego’s diverse industry clusters derived from technology-focused R & D have always helped the region perform slightly better than the rest of the country. However, if early stage companies cannot get venture funding beyond the Angel investor stage, it will be more difficult for them to ramp up into the full production stage where the majority of job expansion occurs. As a mentor for startup technology-based companies for the San Diego Inventors Forum and the CONNECT Springboard program, I am witnessing the increasing difficulty entrepreneurs are experiencing in getting investment funds. Crowdfunding is helping more companies get off the ground, but they will not be able to succeed in the long run and scale up to full production without significant Angel and venture funding.

San Diego’s economy cannot depend on military/defense spending and tourism for growth in regional GDP. Tightening defense/military budgets because of sequestration have been a drag on the San Diego regional GDP growth for the past three years, and the slight increase in defense spending in the current fiscal year budget will not make much of a difference.

These considerations are why I think that the conclusion reached in the NUPR report is valid: “World and national headwinds suggest battening down the hatches with a prognosis for tightening economic conditions…San Diego will be fortunate to achieve a seventh year of continuous positive economic momentum in 2016. These indicators of economic activity, however, do not portend an acceleration, but rather uneasy movement going forward.”

Based on the economic indicators I am seeing for the national manufacturing industry, I would say that these words of caution should also be applied nationally.

Tags:Economic forecast, loss of manufacturing jobs, San Diego GDP
Posted in Economic Development, Economy, Innovation, Jobs, Manufacturing, Technology | No Comments »

Louisville Knocks Manufacturing out of the Park

Thursday, December 31st, 2015

In mid-November, I had the pleasure of touring manufacturing plants in the Louisville, Kentucky region as the guest of the marketing consortium of the Greater Louisville Inc. Initiative. Well-known as the home of the Louisville Slugger baseball bat and the start of the “Bourbon Road” tours of bourbon and rye whiskey distilleries, Louisville has a much more diverse manufacturing base than I expected. My hostesses for the plant visits were Eileen Pickett and Ceci Conway, members of the marketing consortium.

Our first visit was FirstBuild, which is a partnership between GE Appliances and Local Motors. We met with Director Venkat (Natarajan Venkatatakrishman) and Randy Reeves of Operations. Venkat said that they are creating “a new model for the appliance industry, engaging a community of industrial designers, scientists, engineers, makers and early adopters to address some of the toughest engineering challenges and innovations.” He explained that “Firstbuild’s mission is to invent a new world of home appliances by creating a socially engaged community of home enthusiasts, designers, engineers, and makers who will share ideas, try them out, and build real products to improve your life.”

The Microfactory is divided into four sections: an interactive space for brainstorming, focus groups and product demonstration, a lab for prototyping, a fabrication shop, and assembly area. In the interactive space, there were some current projects on display: a smart chillhub refrigerator with two integrated USB hubs, an easy-load double oven with a sliding drawer, a wall-mounted pizza oven for home use, and a micro kitchen. Randy Reeves gave us a tour of the fab shop, and besides the expected 3D printers, they have a CMC mill and lathe, a small turret press, a press brake, a small stamping press, and a laser-cutting machine. The shop is capable of producing up to 2,000 units per year of a new product.

Venkat said, “We test the market for a new product using innovative techniques including Indigogo for crowd funding and preordering of the products. If there is sufficient interest in a new product, we can then manufacture those designs in our Microfactory for rapid product introduction and iteration. We are pioneering the future of work with a new model for inventing, building, and bringing the next generation of major appliances to the market. Since we opened on July 23rd, 2014, we have launched 10 products, and one has been scaled up to mass production.”

After lunch, we visited D. D. Williamson (DDW), the world leader in caramel color and a leading provider of natural colors for major food and beverage companies. DDW’s natural colorings are used in everything from beer, malt ale, soft drinks, sauces, baked goods, cheese, ice cream, and confectionery products.

I was frankly astonished when Chairman and CEO Ted Nixon told me that the company had been founded in 1865 by Dutch immigrant Douw Ditmars Williamson in New York to manufacture burnt sugars for the brewing industry. He said that the company was well positioned to provide caramel color when the cola soft drink industry started and then expanded into colors for other products in the latter part of the 1900s. The company set up a plant in Louisville in 1948, and then moved its headquarters to Louisville in 1970.

Nixon said, “We set up our first plant outside of the U. S. in Ireland in 1978 to produce caramel for the European cola industry. Then, we set up a plant in Shanghai to manufacture caramel color for customers in Asia. In 1999, we began producing in Swaziland to supply customers in Africa, the Middle East and South Asia. In 2001, we opened a plant in Manaus, Brazil to service the South American market and acquired a company in Manchester, England in UK in 2004. Now we have nine plants on five continents.”

He added, “About ten years ago, we launched the first certified organic caramel colors in North America and added annatto extract, turmeric, paprika, and red beet to our natural color portfolio. Our lab is continually working on new natural flavors to keep us as the leading producer of natural colors.”

Our last visit of the day was to Peerless Distillery in downtown Louisville. Chairman Corky Taylor gave us a brief history of the company. He said, “The company was originally founded in 1881 by Elijah Worsham and Capt. J. B. Johnston as Worsham Distillery Company in Henderson, Kentucky. My great grandfather, Henry Kramer, purchased the company in 1889 after Mr. Worsham died and reincorporated as Kentucky Peerless Distilling Company in 1907. My great grandfather invested in new equipment and built the company up from 300 barrels of bourbon a year to a peak of 23,000 barrels in 1917. He stopped production when America entered WWI that year to aid in the conservation of corn for the war. Production did not resume after the war because prohibition went into effect. The 63,000 barrels in the warehouse were sold for medicinal use during prohibition. My great grandfather invested in and became president of First National Bank of Henderson. My dad went to military school and went in an army. During WWII, he was one of the aides to General Patton.”

I asked him what his prior career had been and why he chose to recreate Peerless, and he said, “I owned successful financial services that focused on designing pension systems for government agencies. About five years ago, I sold my business and retired to Sarasota, Florida. Walking the beach one day, I realized that being retired and boring was depressing and boring, so I moved back to Louisville to resurrect my great grandfather’s business and leave a legacy. I needed something to make life worth living.”

Corky’s son Carson was a building contractor and they hired an associate of his, Michael Vaughn, to rehab the building they selected in the historic downtown area being redeveloped. It took over a year to rehab the building, and they began production last February. Michael Vaughn stayed on as Operations Mgr. and is working to become a Master Distiller. Michael gave us the tour of the distillery and told us that it takes four years to age bourbon and two years to age rye whiskey, so they are producing moonshine in the meantime. They have developed unique flavors, and we were each allowed to have a half ounce of two flavors. As a virtual non-drinker, I liked the Green Apple and Chocolate the best. The moonshine is only 44 proof, about the same as wine, and it was a nice way to end our busy day.

The next day, we visited Amatrol, located across the river from Louisville in a 120,000 sq ft. headquarters plant in Jeffersonville, Indiana. President Paul Perkins said that his parents, Don and Roberta Perkins, founded the original parent company, Dynafluid, Inc. in 1964. He said the company started as a manufacturer of industrial automation systems for many Fortune 500 companies including Coca Cola, General Electric, Alcoa, Ford, Chrysler, and others.

Perkins said, “Many of our customers wanted help in training their employees to use and maintain the automation systems and other equipment we built, so Amatrol was created as the educational division of Dynafluid in 1978 and was formally incorporated as a separate company in 1981.” Amatrol, short for Automated Machine Controls, first provided training equipment to industrial and educational clients for new technologies like those being implemented in Dynafluid’s systems.”

Perkins said, “Amatrol was in a unique position to effectively develop training programs for these technologies because its engineers and technicians were thoroughly familiar with the design, application and maintenance of them. Since that time, Amatrol has grown significantly, becoming the leading company in our primary market segments.”

Over the years, Amatrol focused its business model by providing training equipment and highly engaging interactive multimedia online training software in the following areas for high schools, colleges, and private industry: Advanced Manufacturing, Biotech, Certified Production Technician, CNC Machine Operator, Construction Technology, Engineering Technology, Green Energy Technology, HVAC, Industrial Maintenance, Iron and Steel, Mechanical Maintenance, Mechatronics, Mining, Oil and Gas, Packaging, Power and Energy, Solar Technology, and Wind turbine technology.

Perkins said, “A key factor to our success is that we have a group of people who have developed a very close connection and understanding of the needs of our customers and a realization that satisfying the needs of our customers to make them successful makes our company successful.”

Our next visit was to Rev-A-Shelf, back in Louisville. Rev-A-Shelf was originally a division of Ajax Hardware in California. In 1978, it was established as a division of Jones Plastics and Engineering, a family owned injection molder of appliances parts, and other custom polymer components that now has five manufacturing facilities in Kentucky, Tennessee, and Monterrey, Mexico.

General Manager David Noe said, “We began making metal and polymer Lazy Susan components for some of the largest U.S. cabinet manufacturers. We are a family owned business with a national scope and a passion for innovation. We have grown our product line from Lazy Susans to Kitchen Drawer Organizers, Base Cabinet and Pantry Pull-Outs, functional Waste Containers, LED lighting systems and Childproof Locking System to become a market-leading innovator of quality, functional residential cabinet storage and organizational products. We have factories, warehouses and satellite offices strategically located to serve our expanding customer base of kitchen dealers, architects, furniture manufactures, cabinet industry distributors and retail home centers worldwide.”

We toured the assembly plant and didn’t visit their plastic injection molding facility down the street. The two buildings total 315,000 sq. ft. of space, and the company has about 250 employees. When I asked about Lean, Noe said, “We are currently implementing a comprehensive “Lean Manufacturing” initiative throughout the company. Our goals are to add value to our customers with quality, service, and innovation in everything we do. We are committed to a more functional and organized life for our consumers. Our Marketing Slogan is “We Are Going to Change the Way You Think about Cabinet Organization!”

The last company I visited on my trip was Dant Clayton that manufacturers bleachers and stadium grandstand structures. Founded in 1979 by Bruce Merrick, the company started out making bleachers for Little League ball fields and has grown to providing everything needed for up to 60,000 seat stadiums.

We toured the two production plants built next to the corporate headquarters of the Dant Clayton campus, consisting of 350,000 sq. ft. of production space, spanning 25 acres. The company has a full range of material finish capabilities in-house, including powder coating of steel and aluminum and blasted slip-resistant deck. It was astonishing to see 3 ft. X 12 ft. steel beams attached to hooks moving down the 600 ft. robotic powder coating line before entering the oven to cure. I have never seen such a large supply of aluminum extrusions anywhere. I am sure that having these capabilities and equipment internally allows for greater quality control and continuous improvement.

Merrick said, “For the first few years, we experienced 20% growth before flattening for awhile. Thereafter, we would experience growth spurts for two or three years, and during the growth spurts, we doubled the seating capacity of our bleachers from 500 to 1,000, to 2,000, to 5,000, to 10,000, to 25,000 and then 50,000.” Merrick explained that they “are the most competitive when they get involved at the design stage and provide engineering, construction management, and installation services.”

When I asked what are the key factors are that have led to his company’s success, he said, “A culture of continuous improvement that goes beyond lean manufacturing to include product development, R&D efforts, and discovering latent customer needs, as well as rigorous hiring practices, and a culture of personal development and accountability by all employees.”

The examples of commitment to excellence and continuous improvement displayed by the companies I visited in Louisville are what make America great. And, yes I did get to visit the home of the Louisville slugger between appointments. The company was wooed back from Indiana to set up their manufacturing plant right on the main street of downtown Louisville, and you can watch the bats being made through windows on two sides of the building and visit the museum that houses the model bats for all of the famous baseball sluggers.

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

CONNECT’s Most Innovative New Product Awards Feature Cutting Edge Technology

Thursday, December 31st, 2015

On December 1, 2015, CONNECT presented its Most Innovative New Product awards to winners in eight categories at its 28^th annual event at the Hyatt Regency Aventine. CONNECT is a premier innovation company accelerator in San Diego that helps startup entrepreneurial teams become great companies in the technology and life sciences sectors by providing access to the people capital, and technology resources they need to succeed. CONNECT has assisted in the formation and development of more than 3,000 companies since 1985. Lead sponsors for the event were Ardea Biosciences, Cubic Corporation, and JP Morgan Chase & Company.

Under the new leadership of CEO, Greg McKee, CONNECT has refocused its vision for the future. In his opening comments, McKee said, “We enable and empower scientists and entrepreneurs to transform their ideas into products and services that change lives. We create and activate a powerful network of the world’s leading researchers, entrepreneurs and investors that have an innate drive to be purposeful in making the world a better place. The CONNECT experience elevates the value of this network to make San Diego the center of extraordinary and highly convergent technology. The people of CONNECT are dedicated, authentic, and passionately committed to making a difference in our region and the world. CONNECT’s community ignites San Diego’s position as a leader in the global innovation economy.”
He announced a new big goal to “build the next ten ONE BILLION DOLLAR COMPANIES” by 2025 to help grow the San Diego 200 billion dollar ecosystem to 300 billion dollars.” While admitting the goal is ambitious, he said it is important “Because companies of this size are the life blood of our community – they bring jobs, tax revenues, international recognition, sophistication, and most importantly, they are a magnet to the next generation of leaders. The more successful companies we can create, the stronger the gravitational pull to San Diego becomes.”

Continuing, he said, “But, San Diego’s entrepreneurs are no strangers to creating billion dollar companies. Just off the top of my head, there’s Illumina, Dexcom, Cubic, Care Fusion, Amylin, Idec, Life Technologies, Nuvasive, Callaway, Auspex, Viasat, Resmed, Cymer, Ardea, and I almost forgot that little startup Qualcomm, just to name a few.” He concluded by saying, “This is the next generation of CONNECT, and if you are with me, if you believe that San Diego’s future depends on being a leader in the global innovation economy, then JOIN US!”

Over 100 companies applied for the Most Innovative Product Award this year. To be eligible, a company must have developed the product in the San Diego or Baja California region, introduced the product and generated revenue from sales between March 2014 and August 2015, and not have been nominated previously. A more than 60 member selection committee pre-screened the applicants and narrowed them down to 24 finalists, three in each of the following eight categories.

Aerospace, Security and Cyber Technologies

Ocean Aero won for its Submaran, which is a wind and solar-powered surface and subsurface vessel, designed for extended autonomous ocean observation and data collection. This unmanned vessel is changing how we observe our oceans because of its survivable and undetected ability to perform long-term data-gathering missions without the need to refuel or recharge.

CEO and President, Eric Patten said, “Ocean Aero is incredibly honored to receive this award, especially considering the competitive field of finalists.” He added, “This award validates the massive potential of the Submaran for the Ocean Aero team.”

The other finalists were Cubic Global Defense for its Javelin missile simulator and Tortuga Logic for its security software suite.

Cleantech

Q Factory 33 won for its B3 Bypass Device that facilitates 625% increases in energy potential of solar, wind, stationary battery backup systems and electrical generators and enables 30% increases in conductivity, five?fold reductions in soft costs and elimination of expensive electrical upgrades.

President and CEO Randy Hughes said, “CONNECT’s recognition of the potential of the B3 Bypass to overcome one of the solar industry’s most perplexing challenges — the bus bar limitations imposed on energy backfeed potential of solar, storage and wind systems across the board — lends another valuable validation to the relevance of our work to drive widespread adoption of clean tech solutions.”

The other finalists were Flux Power for its lithium-ion battery pack and Yulex for its plant-based, natural rubber wetsuit.

Communications and IT

Mushroom Networks won for its VOIP Armor, which if a “Voice over IP” gateway device that automatically heals and works around any network problems that otherwise negatively impact phone calls. You set and forget it for crystal clean phone calls with unbreakable reliability for your business.

“MIP Awards are the Oscar’s of the IT industry and is very important for our company as it confirms our innovative approach to bringing solutions to the market”, said Cahit Akin, Mushroom Networks CEO.

The other finalists were Field Logix for its innovative dispatching solution and the Lytx DriveCam^TMVideo-based safety solution for commercial fleets.

Life Science Diagnostics and Research Tools

CureMetrix won for its CureMetrix image analysis platform that quantifies the qualities of anomalies in images. As a first target, CureMetrix is focused on doing early and accurate detection of breast cancer in mammograms along with reducing unnecessary biopsies.

CEO Kevin Harris said, “Winning the CONNECT Most Innovative Product Award in Life Sciences was no small feat since the companies in this category all have amazing teams and products. For us, this is one more bit of validation and recognition that were are working on something that is incredibly important and has the opportunity to change lives.”

The other two finalists were DermTech for its non-invasive adhesive skin biopsy kit and Gattaco for its CENTREPON Centrifuge Replacement Tool.

Mobile Apps

Chalk Digital won for its Instant Mobile Ad Platform that is a Do-it-Yourself advertising solution (portal and app) that builds locally target, affordable campaigns with mobile optimized landing pages within minutes. It offers businesses and consumers the ability to build, target, and launch their own personal advertisement in minutes that is displayed in thousands of mobile apps based on your location.

The other two finalists were Boost Academy for its one-on-one math tutoring and Cubic Transportation Systems’ mobile payment app for trains and buses.

Pharmaceutical Drugs and Medical Devices

PureWick won for its PureWick device that empowers women with safe and simple incontinence management in hospitals, nursing facilities and at home. A non-invasive, disposable wick comfortably moves urine away from the body providing a new standard of care without the need for catheters or specialized nurses.

PureWick President, Camille Newton, M.D. thanked the judges for “recognizing the disruptive elegance in something so simple and intuitive.” She also said that she hoped that the “award will help them get their product to market faster to help women to be dry, comfortable, and safe.”

The other two finalists were RxSafe’s robotic production of strip packaged medications and Tandem Diabetes Care for its t-flex^®Insulin Pump.

Software and Digital Media

Comhear‘s MyBeam won for its MyBeam single, portable, wireless 12-18″ sound bar device that produces spatialized, localized, and binaural virtual surround sound. MyBeam delivers a fully immersive audio experience through a portable personal device that replaces headphones. The device commercializes a patent-pending algorithm that sends sound directly to your ears precisely the way your body was designed to receive it.

CEO Perry Teevens said, “CONNECT is an excellent organization and a great platform for innovative companies to gain recognition for their products. We are looking forward continuing our relationship with SD CONNECT and associated members of the organization. Making it to the finals and eventually winning this category has been a thrilling experience. I’m grateful to our employees and partners who made winning this award possible.”

The other two finalists were AristaMD’s Referral intelligence Platform and the SOCI for scoring the social web.

Sport and Active Lifestyle Technologies

Hush won for its Hush Smart Earplugs, which are the world’s first smart earplugs that help people sleep better in noisy environments. Combining a sound machine, earplug, and Smartphone connectivity, Hush allows you to drown out noises that keep you up at night, while simultaneously allowing you to hear the alerts and notifications you need.

Co-founder/CEO, Daniel Lee said, “Winning the MIP award has been a pretty incredible milestone for Hush. As we gear up to finally launch and ship out our long-awaited Hush product, winning such a prestigious award couldn’t have been more timely. As each week passes by, we become less of the college students with lofty dreams and more of a legitimate company with a legitimate product. The MIP award was a landmark milestone defining this maturation.”

The other finalists were the FORECAST new film system by Ride100% and the hookit scoring engine for athletes.

The final award of the evening was the William W. Otterson Award, CONNECT’s highest honor given to technology or a product that has demonstrated a significant impact on society and our quality of life. This year the award was given to the RQ-4 Global Hawk, developed by Northrop Grumman. “The RQ-4 Global Hawk is a high-altitude, long-endurance (HALE) unmanned aircraft system (UAS) designed to provide military field commanders with comprehensive, near-real-time intelligence, surveillance, and reconnaissance (ISR), plus detection of moving targets over a large geographical area for battle management, targeting, and situation awareness of enemy actions. The superior performance of the Global Hawk’s system significantly enhances the U. S. military’s ability to prevail in all types of operations from sensitive peacekeeping missions to full-scale combat.”

The event concluded after “Brennon Crist, Managing Director at JP Morgan Chase & Company, presented a $230,000 check to CEO Greg McKee to support CONNECT in the development of small business clusters in San Diego…Crist stated, We understand that many entrepreneurs are tackling some of the world’s biggest problems, which is why we support start-up accelerators like CONNECT who are making a dramatic difference in the way small businesses work and how they succeed.”

CONNECT is the oldest of the over 40 different accelerators or incubators in the San Diego region, which is one reason why San Diego ranks #2 in the world for the most patents issued. After 30 years leading San Diego’s innovation economy, CONNECT has a built an unbeatable roster of over 500 highly-qualified individuals to serve as Springboard Entrepreneurs-In-Residence and Mentors who volunteer their time as mentors to help entrepreneurs develop successful companies. I am honored to be a new member of the Mentor group after working with inventors for the last six years as part of the San Diego Inventors Forum, which is a “feeder” organization for CONNECT’s Springboard program for entrepreneurs.

Posted in Cleantech, Innovation, Manufacturing, Technology | No Comments »

Vogt Awards Make Entrepreneurs’ Dreams Come True

Sunday, December 13th, 2015

I had the pleasure of witnessing the dreams of entrepreneurs come true when I attended the Vogt Invention and Innovation Awards Demo Day in Louisville, Kentucky on November 17^thand watched Inscope Medical Solutions LLC, a Louisville-based startup, win $100,000 in grant funding.

Inscope Medical has developed an innovative laryngoscope, the OneScope, which integrates controllable suction and wireless video to provide a clear view of the vocal cords, improving the efficiency, speed, and safety of airway intubation.

The entrepreneurial team consists of CEO Maggie Galloway, chief scientific officer Dr. Mary Nan Mallory, and Chief Operating Officer Adam Casson, all of which are graduates of the Forcht Center for Entrepreneurship in University of Louisville’s College of Business.

Four other companies competed for the $100,000 grant during the Vogt Awards Demo Day. Each company had been awarded $20,000 in seed funding in August, which is non-dilutive, meaning no equity was taken. The $20,000 is designed to help the selected companies gothrough the program and maximize the value of the connections they are provided.It enables them to be able to create their first working prototypes via access to world-class resources.

Each company also received ten weeks of intense entrepreneurial training by the EnterpriseCorp staff and mentors, participated in a 10-week Lean Start-Up course by Nucleus and prototype development resources through the University of Louisville’s Rapid Prototyping, GE’s FirstBuild and LVL1 Hackerspace.

Winners also participated in Louisville Mini Maker Faire and were encouraged to network within the entrepreneurial community through Venture Connectors.

Upon completion of the program, companies then pitch their products at Vogt Demo Day. To have a chance to win an additional award up to $100,000 and meet with interested investors who can help take their business to the next level.

Lisa Bajorinas, Director of the Kentucky Innovation Network told me that the Vogt Awards are made possible by the Community Foundation’s Vogt Invention and Innovation Fund. During the 16 years of the program, nearly $2.5 million has been awarded to 50 companies. The program is administered by the entrepreneurial arm of Greater Louisville Inc., EnterpriseCorp, which is focused on assistance for entrepreneurs.

Lisa said, “The late Henry V. Heuser Sr., a native Louisvillian and founder of the Henry Vogt Machine Company, created a $5 million endowment at the Community Foundation to support local entrepreneurship shortly before his death in 1999. Henry had been able to use the equipment on his shop floor to assess the viability and commercial potential when he had an idea about how to make something better, quicker, or easier. He wanted to establish an award that would allow engineers and entrepreneurs access to the same kinds of resources.”

The four runners-up included:

Hue Innovations LLC – developed MiColor, a machine that includes a scanner, polish shaker, and ink that customizes creation of any non-toxic regular or gel nail polish color on demand for nail salons to reduce wasted polish, lower toxicity levels for salon workers, and enhance customer satisfaction by providing more color choices.

Stinger Equipment – created a concrete saw with its own engine and dust collection that safely cuts large blocks in a single pass eliminating fatigue, dangerous cuts, and exposure to lung cancer caused from silica dust inhalation.

Sunstrand – supplier and processor of value-added bio-material for domestic polymer composites using a proprietary line of bamboo and applied to hemp, kenaf, flax and jute offering increased potential to decrease weight and green-up plastics.

TriBlue Engineering Corporation – created a gas sweetening unit that allows natural gas processing plants to remove unwanted CO2 and H2S from their lines to make processing sour gas more economical and allows additional revenue streams to be made available because of the improved quality of the by-products.

The day after the Vogt Demo Day, I had lunch with Maggie Galloway and Adam Casson of Inscope Medical. Maggie explained that she and Adam had been MBA students at the University of Louisville and met Dr. Mary Nan Mallory, also studying for her MBA. They were assigned to form a team to find a problem and solve it. Dr. Mallory and her colleague, Dr. Thomas Cunningham, had experienced a failed intubation in the past and wanted to develop a better laryngoscope.

Maggie said, “Dr. Mallory and Dr. Thomas Cunningham, who was a resident physician in the Department of Emergency Medicine at University of Louisville, had the idea for the technology, so the University of Louisville filed the first patent on the device which they are licensing to Inscope Medical.” She said, “The OneScope streamlines the intubation process for physicians and emergency medical practitioners by combining the laryngoscope and the suction catheter so that physicians don’t have to juggle multiple tools.”

Maggie said, “The FDA just issued a recall of some of the equipment used to clean reusable scopes in hospitals, so there will be a big incentive to use disposable devices. Our OneScope is disposable. Maggie added, “About 25 million intubations occur in the U.S. each year and 50 million globally.”

Adam Casson said, “We’ve done more than 650 customer discovery interviews and more than 300 interviews with clinicians, including design feedback from more than 50 paramedics and Emergency Physicians. Our second generation device will also integrate a wireless video camera which will allow physicians to view the placement on a nearby screen.”

After returning home, I found out that the Vogt Award wasn’t the first award that Inscope Medical won. In February 2015, they won the Brown-Forman Cardinal Challenge and “received a ‘launch in Louisville’ package that is valued at $100,000. The package, provided by EnterpriseCorp includes services from various Louisville businesses as well as $15,000.”

“The Brown-Forman Cardinal Challenge brings top teams of graduate students to Louisville, where they compete for the prize and an invitation to the Global Venture Labs Investment Competition in Austin, Texas, in May,” said Van Clouse, the Cobb Family professor of entrepreneurship at U of L.

According to an article in the Louisville Business Journal, Inscope Medical participated in the Global Venture Labs Investment Competition and won another competition, on Saturday, May 9, 2015. “Among the prizes, Inscope Medical won $75,000, an invitation to close the NASDAQ OMX Stock Market, and a $25,000 incubator package….” The same article mentioned that Inscope Medical’s entrepreneurial “team had a second-place victory at the Rice Business Plan Competition in Houstonin April 2015, where it won $133,000. Prior to that, Inscope Medical took home third place and $4,000 at the Oregon New Venture Championshipin Portland, Ore.”

The number of awards won by Inscope Medical’s entrepreneurial team is impressive. As a director of the San Diego Inventors Forum (SDIF), I know of many startup companies in San Diego that would be very envious of Inscope Medical’s success in obtaining this amount of funding without having to dilute their ownership. Our 2015 SDIF Invention contest awarded cash prizes of $1,000, $500, and $250 to the top three winners in August. How nice it would be to have a multi-million dollar endowment to award ten times the amount we awarded!

As an alumnus of San Diego State University, I have attended the annual Venture Challenge Competition conducted by the Lavin Entrepreneurship Center at SDSU, which is the only other formal entrepreneurial contest of which I am aware in the San Diego region. The SDSU competition has showcased next generation companies for more than 20 years and provided students from around the world an opportunity to seek investment for their business ideas. Four years ago, the Venture Challenge transformed into the LeanModel™ Competition. “This new “business model” based competition focuses much more attention to testing a company’s assumptions and getting customer feedback in the early days of the startup.”

The 2016 LeanModel™ Competition will be on Friday, March 4^th, and Saturday, March 5th, 2016 on the SDSU campus.” The LeanModel™ Competition is not a traditional business plan competition, it is designed to assist and reward student based start-ups that utilize both a solid business model and customer testing mentality.

“Teams will be competing for prizes totaling $20,000 in cash and inkind services. The top three teams in the competition will be awarded prize money. In addition, the small pitch event winners will also be awarded prize money. In the 2015 Competition, the top three teams won $7500, $4500, and $2500 in cash prizes respectively. The top three small pitch event winners took home cash prizes ranging from $500 to $1500.”

The companies competing in the Demo Day are examples of American inventiveness, but the most difficult challenge for any startup company is to raise enough money to get their product to market. The Vogt Invention and Innovation Awards set a standard that should be emulated by other regions of our country to enable more companies to succeed, grow, and create more manufacturing jobs in the United States.

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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.

Tags:American manufacturing, innovation, Lean training, taxes, training, workforce development
Posted in Economic Development, Education, Innovation, Lean, Manufacturing, Reshoring, Taxes/Regulations, Workforce Development | No Comments »

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