Posts Tagged ‘manufacturing’

« Older Entries
Newer Entries »

San Diego is a Hotbed of Innovation

Tuesday, December 16th, 2014

On Thursday, December 4th, CONNECT held its 27th Annual Most Innovative New Product (MIP) Award dinner to honor San Diego companies that had launched innovative new products within the last year. There were more than 700 attendees at the event held at the Hyatt Regency La Jolla at Aventine, led by Mistress of Ceremonies Maureen Cavanaugh of the Midday Edition of KPBS. There were 102 nominations that were narrowed down to 24 finalists by 100 judges, culminating in eight new MIP winners. The 2014 MIP Award winners selected were:

Aerospace & Security Technologies

CyberFlow Analytics for FlowScape – The “platform enables Advanced Threat Protection through a sophisticated Anomaly Detection system and has been designed in a modular fashion in alignment with cloud computing principles and runs entirely in the context of virtual machines…the system involves a series of connected multi-model ‘analytics engines’ that contain hundreds of mathematical predictors that can machine learn network communication transmissions and identify odd anomalous behavior across an entire network…[It} is scalable to handle big data network and application flows through cloud-ready virtualized analytics engines.”

The other finalists were: Cubic Defense Applications for Halo Array, 3D Robotics for IRIS, Space Micro, Inc. for IPC7000, Image Processing Computer.

Communications & IT

Cubic Transportation Systems for NextBus Fleet Management Application – The “application is a modular, mobile gateway for connecting passengers and public transport operators to valuable real-time travel and operations information. For passengers, this means knowing exactly where their next bus is so they know how long their wait time is. For operators, it is a cost-effective, high-quality and reliable application to keep buses on schedule and drive efficiencies in their services.”

This award shows that long-established company can still develop an innovative new product. Cubic Transportation System is “the leading provider of revenue collection management systems and services worldwide” and is one of three business segments of parent company, Cubic Corporation. Walter J. Zable founded Cubic Corporation as a small electronics company in San Diego in 1951, and he remained involved in the management of the company as CEO until his death in 2012 at the age of 97.

The other two segments are:

Mission Support Services is “an industry leader in providing comprehensive support services for all echelons of national militaries and security forces in the U.S. and allied nations.”

Cubic Defense Applications is “the leading provider of live air and ground combat training systems worldwide, a key supplier of virtual and immersive training systems, communications and electronics products, and an emerging provider of cyber technologies and global tracking solutions for commercial and national military customers.”

I started working at Cubic Defense when I was 19 years old for the Chief Scientist, Chief Physicist, and a Staff Engineer in the Marketing Department. The latter had previously developed the geodetic SECOR satellite surveying system, the first of its kind to produce a direct coast-to-coast measurement of the United States long before the Global Positioning System was developed. He was on the fast track for advancement and was promoted to Marketing Manager three years later, and I moved up with him as his assistant at age 22. When I started my own manufacturers’ sales rep agency in 1985, both Cubic Transportation and Cubic Defense became customers for companies that I have represented over the years.

The other finalists were: DVEO division of Computer Modules, Inc. for Ad+EAS Serter™ and Tricopian, LLC for FuelRod.

Diagnostics & Research Tools

Organovo, Inc. for 3D Human Liver Model – “Organovo’s Bioprinted Human Tissue Models are multi-cellular, dynamic, and functional 3D human tissue models for preclinical testing and drug discovery research. Created using proprietary 3D bioprinting process, the tissues remain viable and dynamic for extended time in vitro and exhibit key architectural and functional features that mimic key aspects of the natural 3D tissue environment. Biochemical, genomic, proteomic and unique histologic endpoints can be assessed over time.”

In addition to the MIP award, the life science magazine The Scientist’s selected Organovo’s ex Vive 3D human liver tissue for the seventh place spot of the top 10 innovations for 2014.

The other finalists were: bioTheranostics, Inc for Breast Cancer Index (BCI) and Edico Genome for DRAGEN Bio-IT Processor.

Mobile Apps

Rock My World, Inc. for RockMyRun – this is a mobile app that takes biometric data from smart phones and fitness wearable devices “to adjust the tempo of the music you’re listening to in order to match your pace or motivate you to push just a little harder.”

The other finalists were: GreatCall for Urgent Care and Visual Mobility Inc. for SEENiX.

Pharmaceutical Drugs and Medical Devices

Topera, Inc. for Topera’s 3D Mapping System – the system “consists of the FDA cleared and CE marked RhythmView™ Workstation and FIRMap™ Catheter, which are used in combination for the identification and localization of the sustaining mechanisms of cardiac arrhythmias such as atrial fibrillation, atrial flutter, atrial tachycardia, and ventricular tachycardia.”

On October 30, 2014, the Chicago-based healthcare company, Abbott announced it would acquire Topera “with all outstanding equity for $250 million upfront with potential future payments tied to performance milestones.”

The other finalists were: Bioness for Vector Gait and Safety System and Diazyme for 25-OH Vitamin D Assay for Clinical Chemistry Analyzers.

Software

CloudBeds for CloudBeds – It is an operating system for hotels to “provide the hotel with an automated website, booking engine, Facebook presence, revenue management platform, distribution channels, rate and package manager, and light-weight property management system. The system “automates many of these functions so that an hotelier can focus on its guests instead of managing its property and selling its rooms.” Their “goal is to continue to help streamline connectivity between small hotels and their customers using the latest innovations in software — improving their operational and communication efficiencies.” Their focus is on “the large developing world marketplace.”

The other finalists were: Intific for NeuroBridge 2.0 and Raken, Inc. for Raken.

Sport & Active Lifestyle Technologies

Electrozyme LLC for ProFit SE Real-Time Sweat Electrolyte Sensor – this is world’s first wearable personal hydration monitor that can asses assess fluid and electrolyte loss in a real-time non-invasive way to determine if it’s time to rehydrate, what to rehydrate with, and how much to rehydrate.

The other finalists were: Bast Surf for Bast and Cardiff Skate Co. for Cardiff Skates.

Sustainability

Solatube International for Solatube SkyVault Series – the patented technologies of the Sky Vault series combines breakthrough optics with progressive engineering to enhance light capture, focus light over greater distances, or spread light evenly throughout a space.

I wrote about Solatube in the second edition of my book because they “reshored” by returning manufacturing from China to their plant in Vista at the end of 2011, partially because of the risk of intellectual property theft of their proprietary technologies, in addition to increasing costs and difficulty in managing their offshore manufacturing.

The other finalists were: Blue Wave International, Inc. for ClearWaveAir and Measurabl for Measurabl.

Two other awards were given at the event: CONNECT’s Distinguished Contribution Award for Life Sciences Innovation was awarded to philanthropist T. Denny Sanford received, and the Distinguished Contribution Award for Technology Innovation was awarded to Dr. Robert S. Sullivan, Dean of the Rady School of Management, University of California, San Diego.

From inventors being educated and mentored through the San Diego Inventors Forum to entrepreneurial teams developing technology based products being assisted and mentored through CONNECT’s Springboard program, San Diego is a hotbed of innovation. “Since the inception of the program in 1993, more than 3000 scientific and technological breakthroughs have been guided through the process of innovation to commercialization. Together, these companies have raised over $ 1.4 Billion in capital.” To me, this makes San Diego the “Silicon Beach” of California.

Tags:, , ,
Posted in Innovation, National security, Reshoring, Technology | No Comments »

Decline in Capital Investment is Threat to American Innovation

Tuesday, October 22nd, 2013

In early October, the Information Technology and Innovation Foundation released a report titled “Restoring America’s Lagging Investment in Capital Goods,” by Luke A. Steward and Robert D. Atkinson. The report analyzes trends in private sector investment in capital goods over the last three decades, investigates the causes of the current decline, and proposes policy reforms designed to spur increased investment growth. The authors warn that this serious decline in capital investment over the last decade is a key threat to economic growth.

The authors state, “Private capital investment is the primary means through which innovation, the key driver of economic growth, diffuses throughout the economy.” Business investment in equipment, software and structures grew by only 0.5 percent from 2000 and 2011 compared to an average of 2.7 percent between 1980 and 1989 and 5.2 percent per year between 1990 and 1999.

The authors make a strong case about why capital investment matters in developed, knowledge-based economies like the United States. While innovation powers long-run economic growth, the mere act of innovating is not sufficient to grow an economy. Innovation must diffuse through the economy by being adopted by other companies that seek to improve productivity or the quality of products or services. It is the purchase of machinery, equipment, and software by companies that is capital investment that spreads the innovation throughout the economy.

“Capital investment acts as a diffuser of innovation because innovation is embedded in new investment”  Industrial equipment such as engines, metalworking machinery, and materials handling equipment; transportation equipment like trucks and aircraft; construction machinery, agricultural or mining equipment are now “infused with highly advanced technologies, and each new generation is better than the last.”

After a comparison of neoclassical economies and neo-Keynesian economies with innovation economies such as the United States, they conclude that innovation economies require high rates of capital investment in order to be utilized. This innovation economy is also referred to as “the new growth theory, in which investment in new machinery, equipment and software spreads innovation. By high rates of investment, they do not mean a high amount of equipment, software and structures. They “mean that the capital stock is refreshed and replaced with newer and more productive machinery, equipment and software.” They write, “The value of investment is not in acquiring more machinery and equipment; it is in acquiring newer and more productive equipment… A high rate of investment enables innovations to swiftly spread through the economy, bestowing their economic benefits upon their users.”

The authors show that a second reason why “capital investment matters is that it has substantial ‘spillover’ benefits—that is, benefits not just for the firm making the investment, but also for the rest of society…Many economists acknowledge that investments in the production of innovation (such as R&D) have spillovers, and that this is why policies like the R&D tax credit are important. But fewer recognize that investments in new machines, equipment and software also have spillovers.”

The report continues with an analysis of capital investment trends, focusing on information processing equipment and software (IPES). While IPES assets grew at the very rapid rate of 681 percent compared to the next highest, transportation, at 69 percent from 1980 to 2011, the growth rate of even IPES stagnated in the decade of the 2000s.

The authors conclude: “This stagnation means that business investment rates are actually falling relative to the size of the economy…As a share of GDP, fixed investment was higher in the early 1980s—around 13 percent of GDP—than in any subsequent year. In 2011, fixed investment accounted for less than 10 percent of GDP. Given that it is investment that drives productivity growth, these statistics are sobering. Out of all the fundamental components of GDP—consumption, investment, government, and net exports—a fall in the relative magnitude of investment is the most worrying in terms of future economic performance.”

While equipment investment is far more important than investment in structures (buildings), in 2011, “the number of new manufacturing structures is no longer keeping pace with the depreciation of existing manufacturing structures, which, in turn, means that the real quantity of manufacturing facilities in the United States is shrinking…Between 2001 and 2011, the net stock of manufacturing structures fell by more than nine percent, a fall which, given investment’s continued decline, will also undoubtedly continue.”

A decline in value of manufacturing structures in the United States is only a symptom, not a driver, of a decline in the international competitiveness of the U.S. manufacturing sector. The decline of “investment equipment and software investment is more of a driver of competitiveness, and thus its decline is far more ominous.”

Total business investment in equipment and software grew in the 1980s, boomed in the 1990s, and then stagnated in the 2000s. Between 1980 and 1991, equipment and software investment increased by 37 percent compared to just 2 percent between 2000 and 2011. This means that investment in equipment and software is falling relative to the size of the economy just like total investment.

The picture looks even worse when the IPES assets are removed from total equipment assets, leaving only assets such as industrial machinery and transportation equipment. “Instead of merely stagnant growth, non-IPES investment has declined over eight percent since 2000.”

The next section of the report compares investment in equipment and software by industry, showing that “the composition of investment went from being spread over a broad base of sectors, especially in the 1990s, to being concentrated in a few select sectors in the 2000s.” Industries such as trade and transportation, health, and management and professional services expanded slightly. “Manufacturing led in the 1980s and 1990s but was displaced in the 2000s by finance and real estate, much of that made in the ramp up to the financial collapse of 2008.”

Not only did business investment stagnate in the 2000s, but investment is “now much more concentrated in a few select domestic-serving services industries, and industries that once powered U.S. investment growth and global competitiveness are now falling behind,” such as computers and chemical products.

The investment trends in the computer and electronic products industry are even worse than other manufacturing sectors:  “a 36 percent decline in equipment and software investment since 2000.”

The authors propose two possible reasons for the causes of investment stagnation:

  1. Decline in the competiveness of U.S. traded-sector businesses on the global market that has been occurring, particularly over at least the past decade
  2. “Short-termism”—the obsession with the upcoming financial report rather than long-range planning—that pervades publicly traded businesses facing stockholder pressures

Numerous other reports have described the U.S. competitive decline over the past decade so this report just summarizes a few of the key points that have been made in other reports and previous articles I have written. The end result is that the United States has lost its attractiveness as a production location for manufacturing, and when those businesses move offshore to other countries, they take their investment along with them. In addition, fewer foreign firms are making investments here in the United States. Thus, investment declines in one industry sector after another.

With regard to “short-termism,” the authors mean “the pressure on companies by Wall Street to achieve short-term profits has all too often come at the expense of long-term investment.” In other words, executives are willing to “delay new investment projects in order to meet short-term earnings targets, even if it meant sacrifices in value creation.”

Atkinson and Steward urge policymakers to put in place new policies to encourage the private sector to restore investment rates and stem the decline and stimulate new investment and productivity growth. They recognize that the first step to addressing market short-termism is for Congress and the Obama administration to acknowledge and take the problem seriously, and the next step is to begin a detailed analysis of the problem. They recommend the following actions:

Establish a Task Force to Study Market Short-Termism and Recommend Policies to Ameliorate It ?  The White House should establish a task force, led by the National Economic Council, bringing together members of the Council of Economic Advisers and the Treasury Department, to study the causes and nature of short-termism and draft a set of recommendations to ameliorate it. “The task force should analyze all potential options for reigning in market short-termism, ranging from changes to tax law to corporate governance solutions to encouraging changes in the U.S. corporate cultures within business schools, corporate boardrooms and ‘Wall Street.’”

Establish a Tax Credit for Investing in Equipment and Software ?  Congress should enact an investment tax credit (ITC) to provide a 35 percent credit on all capital expenditures made above 75 percent of a base amount. The ITC would be modeled on the Alternative Simplified Research and Experimentation Tax Credit (ASC).

This report proves that as investment declines, economic growth declines, and as economic growth declines, the capital available for investment and demand for new investment declines. If this trend continues, innovation will slow, competitiveness will continue to decline, and productivity growth will weaken. I agree with the authors that “it is essential that policymakers make challenging this problem a top priority. The authors’ policy recommendations may not be the only solutions to the problem, but “many countries have similar policies in place already—they will at least put the United States on a more equal f

Tags:, , ,
Posted in Innovation, National security, Taxes/Regulations | 2 Comments »

Fall Trade Shows Provide Nearsourcing and Reshoring Opportunities

Tuesday, October 1st, 2013

Since there is no IMTS show being held in the United States this fall, and FABTECH, to be held November 18-21, 2013 at McCormick Place in Chicago, IL is a long way from southern California, the best opportunities to attend a manufacturing trade show for southern Californians are:

Design-2-Part Show – October 9-10, 2013 – Pasadena Convention Center

WESTEC – October 15-17, 2013 – Los Angeles Convention Center

The Southern California Design-2-Part Show attracts thousands of design engineers, manufacturing engineers, managers, and buyers to meet local and national job shops and contract manufacturers to source custom parts, components, and services. With over 175 exhibiting companies, this year’s show will be D2P’s largest show ever in Pasadena.
The show in Pasadena is one of eleven Design-2-Part Shows owned by the Job Shop Company that either have or will take place in 2013 in major manufacturing hubs within the United States. The show policy since inception over 38 years ago has been to exclusively feature job shops and contract manufacturers with manufacturing operations in the United States. Companies that do not have facilities in the U.S. are not permitted to exhibit.
I will be presenting a seminar titled “Returning Manufacturing to America Using Total Cost Analysis,” on October 10, 2013 at 11:30 am at the show. The one-hour session is free to all show attendees of the Southern California Design-2-Part Show.

The Job Shop Company’s press release states:  “Ms. Nash-Hoff’s presentation will cover how supply chain dynamics, labor costs and fuel costs are changing the status quo. She will present a true understanding of the “Total Cost of Ownership” (TCO) concept including what most executives miss when analyzing TCO. The highlight of the presentation will be several real case success stories of companies that have returned work to the U.S. from offshore suppliers and the lessons that are learned from these real world practitioners.”

“Having Michele Nash-Hoff speak at our design and contract manufacturing show is a perfect fit,” said Jerry Schmidt, President of the Design-2-Part Shows. “Attendees can hear Michele justify bringing work back to the states and then they can walk the show floor and find the high-quality U.S. suppliers they need to solve their challenges.”

“Michele Nash-Hoff is President of ElectroFab Sales, a manufacturers rep agency, and author of Can American Manufacturing Be Saved—Why We Should and How We Can. Her blog articles appear on the Huffington Post and Industry Week magazine’s blog.” For the past two years, “Ms. Nash-Hoff has been speaking on behalf of The Reshoring Initiative, a nonprofit, industry-led organization dedicated to bringing work back to the U.S. from overseas. The Initiative is achieving its goals by helping manufacturers recognize that local production or sourcing may actually reduce their TCO (Total Cost of Ownership) of purchased parts and tooling. The Reshoring Initiative was founded by Mr. Harry Moser who was named to Industry Week magazine’s Manufacturing Hall of Fame in 2010 for this work.

Admission to the Southern California Design-2-Part Show is free to qualified industry professionals. For more information or to register for the show, visit www.D2P.com.

If you don’t live in southern California, don’t miss one of the other regional Design-2 Part shows still coming up. The rest of the fall schedule is:

Marlborough, MA            October 30-31

Covington, KY                November 20-21

WESTEC 2013 – October 15-17, 2013 – Los Angeles Convention Center

WESTEC is produced by SME (formerly the Society of Manufacturing Engineering.) Now, SME connects all those who are passionate about making things that improve our world. As a nonprofit organization, SME has served practitioners, companies, educators, government and communities across the manufacturing spectrum for more than 80 years. Through its strategic areas of events, media, membership, training and development, and the SME Education Foundation, SME shares knowledge to advance manufacturing. SME works together to make the future through exciting, interactive face-to-face events such as tradeshows and conferences, SME events serve as the manufacturing industry’s vital conduit. SME creates opportunities for people to showcase innovation, share knowledge, grow their businesses and build relationships

WESTEC has always been the West Coast’s “can’t miss” event, a technology showcase that helped generations of manufacturers grow their businesses. WESTEC is the region’s definitive manufacturing event and returns to the Los Angeles Convention Center Fall 2013 redefined and with renewed commitment to area industry.

The show is a true manufacturer’s think tank where creativity, vision, and strategy join forces to spotlight the promise of groundbreaking products for vital global markets. This is where you can meet experts who can help apply cutting-edge equipment, make sense of lean methods, and manufacture with composites, titanium, or other advanced materials.

WESTEC is where collaboration starts – a place to network, form relationships, and build partnerships. It is where technology takes center-stage, putting new developments, integration, and solutions right into your hands.

WESTEC is a showcase for the latest innovations from the leaders in manufacturing and where you can experience the people, technology and innovation that are redefining the future of manufacturing. Many technology breakthroughs of recent decades were unveiled at WESTEC.

The very latest technologies – from software, cutting tools to multi-tasking machines will be on display from top international equipment manufacturers. Plan to participate in WESTEC by registering at westeconline.com.

Another opportunity for manufacturers in the San Diego region to find local vendors is provided by CONNECT’s Nearsourcing Initiative, which focuses on assisting San Diego companies in need of outsourcing to take a closer look at our region’s local outsourcing cluster. The program includes workshops that educate our region’s innovation entrepreneurs on the benefits of contracting with local manufacturers, including reduced time to market, increased innovation and reduced risk and costs; and to assist San Diego innovation companies in need of outsourcing to Innovate Locally, Grow Globally – to connect and contract with qualified San Diego production resources.

The program ensures that business is not offshored unless necessary and keeps economic growth and job creation in our local region—which can be found in these case studies. The program also includes initiatives to market San Diego’s production capabilities and help local supply chains network, innovate and compete internationally. You can find more details on the program as well as access to the San Diego outsourcing community through The Connectory and the CONNECT Resource Guide.

The CONNECT Nearsourcing Initiative is led by a Steering Committee of Production Cluster leaders including Sharp HealthCare, D&K Engineering, Althea Technologies, Pharmatek Laboratories, Invetech, DD Studio, Leardon Solutions, BioLaurus, Solekai Systems, Clarity Design, the East County Economic Development Council, which owns and operates the Connectory – a database of 5,600 local production companies, the San Diego Regional Economic Development Corporation and intellectual property experts from Sheppard Mullin and Sughrue Mion.

There will be a Nearsourcing trade show in conjunction with the Connect with CONNECT networking event on October 30, 2013 from 3:00 pm – 5:00 pm at the offices of Knobbe Martens Olsen & Bear, 12790 El Camino Real, San Diego, CA 92130. You may register at http://connect.org/events/

I urge you to take the time to attend one of these events this fall if you are in the San Diego/southern California region. Now is the time to get on the bandwagon early to find local sources to “nearsource” or “reshore” by bringing back manufacturing to America. Hope to see many of you at one of these events!

Tags:, , , , , ,
Posted in Innovation, Manufacturing, Reshoring | 1 Comment »

Second Annual Manufacturing Day Celebrates American Knowhow

Tuesday, September 24th, 2013

The mission of Manufacturing Day 2013 on Friday, October 4th is to highlight the importance of manufacturing to the nation’s economy, address common misperceptions about manufacturing by giving manufacturers an opportunity to open their doors, and show what manufacturing is — and what it isn’t.

Manufacturing Day has become an annual national event after its inaugural year in 2012 that is executed at the local level supporting hundreds of manufacturers across the nation that host students, teachers, parents, job seekers and other local community members at open houses designed to showcase modern manufacturing technology and careers.

In its first year, more than 240 events were held in manufacturing facilities in 37 states and more than 7,000 people participated. This year’s celebration will feature open houses, public tours, career workshops and other activities to increase public awareness of modern manufacturing. Events also will introduce manufacturers to business improvement resources and services delivered through the MEP’s network of hundreds of affiliated centers across the country.

By working together during and after Manufacturing Day, manufacturers will begin to address the skilled labor shortage they face, connect with future generations, take charge of the public image of manufacturing, draw attention to the many rewarding high-skill jobs available in manufacturing fields, and ensure the ongoing prosperity of the whole industry.

This year’s Manufacturing Day is being co-produced by the Fabricators & Manufacturers Association, International (FMA), the National Association of Manufacturers (NAM), the National Institute of Standards and Technology’s (NIST) Hollings Manufacturing Extension Partnership (MEP), Industrial Strength Marketing which is a leading industrial B2B marketing agency, and the Manufacturing Institute. The national media partner for the event is the Science Channel.

“Manufacturing Day is a great opportunity to shift Americans’ perception that it is not our grandfather’s manufacturing anymore and to showcase the tremendous career opportunities manufacturing has to offer,” said NAM President and CEO Jay Timmons. “This day is an engaging way to attract young people and get them excited about pursuing a career in a technology-driven, innovative environment that will also provide a good-paying job. We encourage all manufacturers and manufacturing associations to get involved and share what we already know—manufacturing makes us strong.”

A long list of trade associations and private companies have joined the effort as sponsors that includes Shell and the Alliance for American Manufacturing at the Gold level, The Association of Manufacturing Excellence, Precision Metalforming Association, SME Education Foundation, Association for Manufacturing Excellence, the Plastics Industry Trade Association, and IHS GlobalSpec at the Silver level, as well as many others at the Bronze level. The long list of endorsers on the website includes my own www.savingusmanufacturing.com organization.

“We’re honored to be a part of Manufacturing Day this year and look forward to helping make it a success,” said Scott Paul, president of AAM. “An innovative and growing manufacturing base is vital to America’s economic and national security, as well as to providing good jobs for future generations.”

“The co-producers could not be more pleased that these organizations and companies, which work on such an integral level with all sectors of the manufacturing industry, are putting their full support behind Manufacturing Day,” said Ed Youdell, president and CEO of the Fabricators & Manufacturers Association. “Their reputation and their reach to professionals in the industry, as well as educators and students, will help generate participation in Manufacturing Day events across the nation.”

The SME Education Foundation sees this is an opportunity for educators and parents to visit local employers with children, particularly those in middle school, to get them excited about the career opportunities available for those who have critically important STEM (science, technology, engineering and mathematics) skills.

“The SME Education Foundation is dedicated to opening multiple pathways for young people to find fulfilling, high paying careers in manufacturing.  Manufacturing Day is an opportunity to highlight manufacturing as vital to our economy and a career path that helps to growing wealth for the individual and for our nation,” said Bart A. Aslin, CEO, SME Education Foundation.  “Positive national media attention can help to dispel misconceptions about industries that provide safe, clean work environments while manufacturing products that improve standards of living in our global economy.”

Supported by this group of co-producers and industry sponsors, Manufacturing Day is designed to amplify the voice of individual manufacturers and coordinate a collective chorus of manufacturers with common concerns and challenges. The rallying point for a growing mass movement, Manufacturing Day empowers manufacturers to come together to address their collective challenges so they can help their communities and future generations thrive.

From now until Manufacturing Day, October 4th, enter the Manufacturing Day Sweepstakes to win a trip for two to a 2014 race of your choice, courtesy of Shell Lubricants. Eligible races include any of the Sprint Cup Series or Nationwide Series races during the 2014 season. The winner will be selected on October 7, 2013 and will be contacted shortly thereafter to claim their prize. Click here to enter today!

According to the 2012 Public Perception of Manufacturing report by the nonprofit Manufacturing Institute, 80 percent of Americans believe manufacturing is important to our economic prosperity, standard of living and national security. Yet, only 30 percent would encourage their children to go into manufacturing as a career. The hope is that by providing media, educators, parents, and kids with an inside look at the high-tech world of manufacturing this percentage will begin to grow.

With the gap growing each year between the skills students learn in school and those they will need on the job, it is increasingly difficult for manufacturers to find and hire qualified employees. By promoting Manufacturing Day, manufacturing associations and other organizations led by NIST MEP centers and the FMA said they want to remove some of the myths surrounding manufacturing. For example, manufacturing is a solid, long-term career choice for qualified candidates—including the young people who will form the workforce of tomorrow.

Here is a summary of a few reasons why we should acknowledge the importance of manufacturing by observing October 4th as Manufacturing Day that are outlined in greater detail in the chapter on “Why we should save American Manufacturing” from my book Can American Manufacturing be Saved? Why we should and how we can:

  • Manufacturing is the foundation of the American economy, and high-paying manufacturing jobs spurred a robust and growing economy and improved our quality of life. Manufacturing jobs were responsible for the lower working class rising into the middle class the last century.
  • Manufacturing is critical to our national defense because American manufacturers supply the military with the essential needed to defend our country. Without a strong manufacturing industry, America could lose future wars.
  • Manufacturing wages and benefits are 25-50 percent higher than non-manufacturing jobs. Only 16 percent of today’s workers earn the $20/hour ? down 60 percent since 1979.
  • United States is the world’s third largest exporter after China & Germany. Manufactured goods make up more than 60percent of U. S. exports, and high-tech products are largest export sector – four times as much as agriculture.
  • Manufacturing supports states’ economies through the taxes they pay. Manufacturing is the largest sector in 10 states, second largest in 9 states, and third largest in 21 states. Losing the critical mass of manufacturing will result in larger state and federal budget deficits. Over 90 percent of all manufacturers are small businesses of less than 100 people.

In my home town of San Diego, Manufacturing Day is being promoted by the California Governor’s Office of Business and Economic Development, the County of San Diego, the City of San Diego, the San Diego Regional Economic Development Corporation, the East County EDC, the San Diego North County EDC, CONNECT, California Manufacturing Technology Consulting (CMTC), the Tijuana EDC, and D&K Engineering. The day starts off with:

8 a.m.  Breakfast and Networking
8:30 – 10 a.m. Program
San Diego City College, Corporate Ed Center
1551 C Street, San Diego, CA 92101

Moderator: Mark Cafferty, President & CEO, San Diego Regional EDC

Panelists joining the conversation are:
Stephan Aarstol, Founder & CEO, Tower Paddle Boards
Alex Kunczynski, President, D&K Engineering

Rick Urban, COO/CFO, Quality Controlled Manufacturing Inc.

Chris Wellons, Vice President of Manufacturing, Taylor Guitars

Unfortunately, this event is already sold out, but you can add your name to the wait list at www.october4mfgday.eventbrite.com.

Tours:  Following this Kick-off breakfast, you are invited to tour various local manufacturers who have agreed to open their doors to the community. Further information and registration to attend the tours can be found at www.MFGDay.com. Click on “Attend an Event” to find a tour near you.

To learn more about Manufacturing Day or to sign up to host or participate in one of the events, log on to www.mfgday. Organizations that wish to become involved as official sponsors of this program may email info@mfgday.com.

Tags:, , ,
Posted in Economy, Education, Jobs, Manufacturing, National security, Training | No Comments »

Reshoring is Answer to Corporations Cutting U. S. Jobs and Adding Jobs Offshore

Tuesday, August 20th, 2013

As originally reported in a Wall Street Journal article in April 2011, U. S. Department of Commerce data shows that major U. S. corporations cut their work forces in the U. S. by 2.9 million jobs during the 2000s while increasing their employment overseas by 2.4 million.

This trend continues according to data revealed by Trade Assistance Adjustment (TAA) filings made to the U. D. Department of Labor in a recent article in Manufacturing & Technology News. TAA provides benefits and training to workers displaced by trade and sifting manufacturing offshore. The article lists 50 companies that laid off workers in the first three weeks of July, about 80% of which were manufacturing jobs. Other types of jobs displaced were customer service, technical support, information technology, data processing, and even engineering design. TPA assistance is like putting a bandage on after your arm was cut off.

While over 25 companies were shifting manufacturing offshore to China or India, it was surprising to see that Mexico was the next highest location to which manufacturing was being shifted. The reason for this is that new data produced by the Bank of America shows that labor rates in Mexico could be lower than China by as much as 20%, quite a change from 10 years ago when Mexican labor rates were 188 percent higher than China.

Other reasons for this switch to Mexico are lower transportation costs, faster delivery, higher productivity from automation, more reliable quality, and better payment terms than from China. As a resident of the border region of California and Mexico, I have seen this first hand. “Nearsourcing” to Mexico is occurring when reshoring to the U. S. is not economically justifiable at the present time.

Our major regional organization, CONNECT, has a Nearsourcing Initiative focused on matching San Diego companies in need of outsourcing with the region’s local manufacturers. “The program includes workshops that educate the region’s innovation entrepreneurs on the benefits of contracting with local manufacturers, including reduced time to market, increased innovation and reduced risk and costs; and a matchmaking program that helps San Diego innovation companies in need of outsourcing to Innovate Locally, Grow Globally – to connect and contract with qualified San Diego production resources.” Educational workshops and networking meetings have been held over the past two years, and manufacturers are encouraged to seek local vendors or even be matched with regional vendors by using the www.connectory.com database of primary industries, developed by the East County Economic Development Council, and the CONNECT Resource Guide.

CONNECT’s SME (Small-Medium Enterprises) Operations Roundtable group has also taken the lead in educating San Diego’s regional manufacturers on how to use the Total Cost of Ownership EstimatorTM developed by Harry Moser of the Reshoring Initiative, by means of a presentation I gave with a local contract manufacturer in February as an authorized speaker on behalf of the Reshoring Initiative.

It is crucial for American companies that do not have offshore plants to be trained on how to do a true Total Cost of Ownership Analysis using the TCO Estimator as a counter to the continuing trend of offshoring manufacturing jobs by multinational corporations that have facilities all over the world. For multinational corporations, the U. S. market represents a smaller piece of a bigger whole in the global economy. While offshoring may no longer be a relentless search for the lowest wages, many corporations go to Brazil, to China, to India, and other countries because that is where their customers are located.

I believe that training people performing two particular job functions is one of the keys to facilitating more reshoring ? supply chain personnel and Chief Financial Officers (CFOs). I have had the pleasure in the past year of speaking to three regional APICS’ chapters and a four-state regional conference last weekend. APICS is composed of supply chain/logistics people. I learned that in the 13th edition of APICS’ dictionary, the definition of Total Cost of Ownership is:  “In supply chain management, the total cost of ownership of the supply delivery system is the sum of all the costs associated with every activity of the supply stream.” This is a good definition, not as complete as mine, but good. If supply chain personnel had utilized this definition in the past decade, a great deal of offshoring would never have occurred.

My question to conference attendees was what prevented the utilization of this good definition. One answer was:  We were not allowed to consider anything but the piece price and sometimes transportation costs in making the decision to select domestic vs. offshore vendors. Another answer was:  We were being mandated by upper management to outsource to China to save money. Others thought that their managers were doing what everyone else was doing; i.e., going to China to save money. In other words, they were following the “herd mentality” like buffalo were driven off a cliff by American Indians in our past history.

Another problem mentioned was that in the cost accounting systems used by most corporations,  transportation costs, travel costs to vendors, rework costs of defective parts, cost of inventory, etc. are in separate accounting categories and there wasn’t any software available to do a true Total Cost of Ownership analysis until Harry Moser developed his TCO estimator. This is why I believe that CFOs are critical in turning the tide towards reshoring vs. offshoring.

 

Yes, I believe that as wages continue to rise offshore, especially in China, transportation costs continue to increase, and risk factors such as political instability, intellectual property theft, and counterfeit parts take their toll, more and more companies will see the economic advantage and wisdom of reshoring.

 

However, we can accelerate reshoring if we can expand the reach of our education and training on understanding and using a true Total Cost of Ownership analysis to CFOs and other C level management. Harry Moser and I are no longer the only persons singing the “reshoring” tune. Consultants at the Manufacturing Extension Programs nationwide, such as California Manufacturing Technology Consulting (CMTC) and Manex are being trained in how to use the Reshoring Initiative’s Total Cost of Ownership EstimatorTM. I have even met former “offshoring” consultants who are rebranding themselves to be reshoring consultants. I urge everyone to do what you can to promote reshoring if you want to help create jobs and save American manufacturing.

 

Tags:, , ,
Posted in Jobs, Manufacturing, Outsourcing, Reshoring | 1 Comment »

What are the Obstacles to More Companies Reshoring?

Tuesday, July 30th, 2013

While there is still a debate about how much reshoring is actually taking place, there is no doubt it is happening, especially in the seven tipping-point industries that the Boston Consulting Group predicted would reshore:  transportation goods, appliances and electrical equipment, furniture, plastic and rubber products, machinery, fabricated metal products, and computers and electronics.

For example, we’ve read about General Electric reshoring appliances such as water heaters, washing machines, and refrigerators to a factory in Kentucky, and Caterpillar is opening a new factory in Texas to make excavators. And, yes, even furniture manufacturing is coming back. At the High Point Furniture Show in April 2012, where the Made in America Pavilion housed 50 U.S. manufacturers, Ashley Furniture announced that it was building a new factory in North Carolina. Lincolnton Furniture also announced they had broken ground on a new furniture factory.

Earlier this year, Apple’s CEO Tim Cook said the company would invest $100 to build a factory in Texas to assemble Macintosh computers, which would include components made in Illinois and Florida, and rely on equipment produced in Kentucky and Michigan.

The results of February 2012 survey from the Boston Consulting Group (BCG),  showed that 37 percent of U.S. manufacturers with sales above $1?billion said they were considering shifting some production from China to the United States, and of the very biggest firms, with sales above $10 billion, 48% were considering reshoring. The factors they pointed to were not only that wages and benefits were rising in China, but the country is also enacting stricter labor laws and experiencing more frequent labor disputes and strikes.

According to BCG, pay and benefits for the average Chinese factory worker rose by 10% a year between 2000 and 2005 and speeded up to 19% a year between 2005 and 2010. Wages have been predicted to rise by 60% this year alone after additional strikes.

So, we might ask, “Why aren’t more companies reshoring? There are three main reasons:

  1. Most companies don’t conduct a Total Cost of Ownership Analysis when making a decision to outsource manufacturing.
  2. The United States has a high overall cost of manufacturing.
  3. There are still tax incentives to offshore manufacturing.

Total Cost of Ownership Analysis

In spite of the fact that I have spoken to hundreds and hundreds of people about the importance of doing a Total Cost of Ownership Analysis since my book came out in 2009, and Harry Moser, founder of the Reshoring Initiative, has spoken to thousands and thousands of people since releasing his free Total Cost of Ownership Estimator™ in 2010, we have only reached a small portion of the people making the decisions about outsourcing.

Most manufacturing companies that have sourced and are still sourcing parts and products offshore don’t do a Total Cost of Ownership (TCO) analysis. They base their decisions largely on low pieces that are based on cheaper foreign-labor rates and government subsidies by the governments of foreign countries to their manufacturers as part of their country’s predatory mercantilist practices.

If a company chooses not to practice TCO, it will impact their success or failure in the long run. It would be better if more companies would move forward by utilizing the freely available TCO spreadsheets, such as the one developed by Harry Moser that will allow you to quantity even the hidden costs and risk factors of doing business offshore.

After doing a thorough TCO analysis on all of outsourced parts for your products, the next step is to build an integrated team will periodically refine and refresh the analysis. You can even expand the definition of TCO to include the physical length of the entire supply chain and the lead times associated with the entire process.

American manufacturers need to embrace the New Industrial Revolution recently written about in the June 11, 2013 Wall Street Journal by columnist John Koten. He wrote, “Welcome to the New Industrial Revolution – a weave of technologies and ideas that are creating a computer-driven manufacturing environment that bears little resemblance to the gritty and grimy shop floors of the past. The revolution threatens to shatter long-standing business models, upend global trade patterns and revive American industry.”

Koten quotes Michael Idelchik, head of advanced technologies at GE’s global research lab, who said, “The future is not going to be about stretched-out global supply chains connected to a web of distant giant factories. It’s about small, nimble manufacturing operations using highly sophisticated new tools and new materials.”

High Cost of Manufacturing in America

While the difference in labor rates between the U. S. and Asia is diminishing, the U. S. has the highest corporate tax rates now after Japan reduced their corporate tax rate last year. In addition, the U. S. has high health care costs that are getting worse instead of better under the Affordable Care Act, and the U. S. has the most stringent environment regulations in the world.

In his November 2011 column in Industry Week, Stephen Gold, president and CEO of the Manufacturers Alliance/MAPI, wrote, “While manufacturers face a host of challenges, the data demonstrate that domestically imposed costs ? by commission or omission of government ? further undermine our ability to compete by adding at 20% to the cost of making stuff in the country…The single most significant drag on manufacturing competitiveness is the United States’ high corporate tax rate ?an average federal-state statutory rate of 40% that has not changed in decades.”

According to the second quarter 2013 survey of 317 manufacturers by the National Association of Manufacturers (NAM)/Industry Week, concerns over health care and insurance costs caused by the Affordable Care Act are mounting. Key survey findings include the following:  82.2 percent of manufacturers identified rising health care and insurance costs as their top challenge, an increase from 74.0 percent in the previous survey and 66.9 percent identified the unfavorable business climate due to taxes and regulation as an important challenge.

Other pressures for American manufacturers are revealed by the results of a joint survey conducted by MSC Industrial Supply Company and Industry Week Custom Research, nearly half (49.3%) of the manufacturing executives polled listed “raw material costs as one of the top market pressures, followed by “attracting and retaining talent” at 36.6%, “competition from countries offering lower costs” at 31.5%, and “expansion into new markets” at 31.0%. To help them be as competitive as possible in the global marketplace, 46% have implemented lean practices, and 26.5% have plans underway to implement lean.

Tax Incentives for Offshoring

According to an article in the Houston Chronicle, the U.S. tax code provides the following deductions, offsets, tax credits and incentives to corporations to “offshore” their profits overseas:

Tax Havens ? “The Organization for Economic Cooperation and Development (OECD) defines a tax haven country as one that imposes no or low taxes, does not exchange information about economic activity and lacks economic transparency.” Tax havens are used by a majority of the largest American corporations.

Offshore Deferral ? U.S. citizens and corporations are supposed  to pay tax on income earned abroad, but  “multinational corporations are allowed to “defer” paying income tax on profits made overseas until — or if ever — those profits are repatriated back to the United States.” U.S. corporations take advantage of this offshore deferral rule by setting up subsidiaries in lower tax countries. Subsidiaries, even when they are wholly owned by a U.S. parent company, are not subject to U.S. taxation. The deferral clause has been in the tax code for more than half a century and has outlasted numerous reform efforts. A USA Today article states that in April 1961, President Kennedy asked Congress to rewrite tax provisions that “consistently favor United States private investment abroad compared with investment in our own economy.”

Profit Shifting ? A U.S. corporation can also avoid paying taxes on its income by shifting its income to its foreign subsidiary in a practice called profit shifting. “Profit shifting involves an accounting practice of transferring assets, such as intellectual property rights and patents, to subsidiaries in tax haven countries. All royalty income earned from these assets is booked by the foreign subsidiary and so is not subject to U.S. taxation.” This practice is particularly prevalent in the pharmaceutical and computer industries; for example, pharmaceutical company Merck made more than $9 billion in profits in 2010 but paid no U.S. taxes.

Earnings Stripping ? Earnings stripping is a practice in which a U.S. parent corporation undergoes a corporate inversion so that its foreign subsidiary in a tax haven country becomes the parent company and the U.S. corporation becomes the subsidiary. This “paper inversion” allows all of the corporation’s global income to be booked by its new foreign parent. In addition, the new foreign parent can “loan” money to its U.S. subsidiary. Because it is a debt of the subsidiary, the money is not taxable. What’s more, the interest on the “loan” that the subsidiary pays to the foreign parent is tax deductible in the United States for the subsidiary.

The same USA Today article states, “Corporate lobbyists say that any move to eliminate deferral would have to be packaged with a significant cut in the 35% corporate tax rate…Otherwise, the largest companies, facing an effective tax increase, would have an incentive to switch their legal residence to another country.” Obviously, no one would want large American corporations to move totally out of the U. S. so the only way to address this problem is to eliminate these tax loopholes while significantly reducing the corporate tax rates. We are long overdue for comprehensive tax reform for both personal and corporate taxes.

At the “Manufacturing in California – Making California Thrive” economic summit that was held on February 14th in San Diego, attendees voted regulatory reform and a national manufacturing strategy as the top two critical issues to be addressed. A national manufacturing strategy would encompass such issues as corporate taxes, intellectual property protection, trade reform, and other factors adding to the high cost of manufacturing in the U. S. If you have a strategy that supports manufacturing, it will alleviate these other issues. A Manufacturing Task Force was formed after the summit, of which I became chair. We have been visiting the elected representatives in our region to provide them with our Task Force report and make them more aware of the needs of American manufacturers. Now our Task Force is evolving into the California chapter of the Coalition for a Prosperous (CPA) which had facilitated the summit. CPA has established state chapters in Ohio, Pennsylvania, and Colorado and is developing chapters in Florida, Michigan, and New York. If you would like to support our work in California, please contact me at michele@savingusmanufacturing.com or contact CPA at sara@prosperousamerica.org for involvement in other states.

Tags:, ,
Posted in Manufacturing, Reshoring, Taxes/Regulations, Trade Policy | No Comments »

What is the Importance of Unmanned Vehicles to our Economy?

Tuesday, July 16th, 2013

We’ve heard a great deal about “drones” or unmanned vehicles over the last decade of the “war on terror” in Iraq and Afghanistan. While these terms are used interchangeably in the news media, the members of the Association for Unmanned Vehicle Systems International (AUVSI) are quick to point out that the term “drone” was originally coined to refer to pilotless aircraft used for “target” practice by the military while an unmanned vehicle includes the technology on the ground, often with a human at the controls.

The mission of AUVSI is to advance the unmanned systems and robotics community internationally through education, advocacy and leadership. AUVSI represents more than 7,000 individual members and more than 600 corporate members from 60+ allied countries involved in the fields of government, industry and academia. AUVSI members work in the defense, civil and commercial markets.

In March 2013, AUVSI released a report, titled “The Economic Impact of Unmanned Aircraft Systems Integration in the United States” to document the economic benefits to the  U.S. once Unmanned Aircraft Systems (UAS) are integrated into in the National Airspace System (NAS) after the federal government tasked the Federal Aviation Ad­ministration (FAA) to determine how to integrate UAS into the NAS in 2012. This report estimates the economic impact of this integration and estimates the jobs and financial opportunity lost to the economy if there is a delay in enacting the regulations needed to do the integration.

The report states that “the main inhibitor of U.S. commer­cial and civil development of the UAS is the lack of a regulatory structure.” Non-defense use of UAS has been ex­tremely limited because of current airspace restrictions.

The combination of greater flexibility, lower capital and lower operating costs could allow unmanned vehicles to transform fields as diverse as urban infrastructure management, farming, and oil and gas exploration to name a few. The use of UAS in the future could be” a more responsible approach to certain airspace operations from an environmental, ecological and human risk perspective.”

Present-day unmanned vehicles have longer operational duration and require less maintenance than earlier models and are more fuel-efficient. These aircraft can be deployed in a number of different terrains and may not require prepared runways.

The Executive Summary states, “While there are multiple uses for UAS in the NAS, this research con­cludes that precision agriculture and public safety are the most prom­ising commercial and civil markets. These two markets are thought to comprise approximately 90% of the known potential markets for UAS.”

UAS are already being used in a variety of applications, and many more areas will benefit by their use, such as:

  • Wildfire mapping
  • Agricultural monitoring
  • Disaster management
  • Thermal infrared power line surveys
  • Law enforcement
  • Telecommunication
  • Weather monitoring
  • Aerial imaging/mapping
  • Television news coverage, sporting events, moviemaking
  • Environmental monitoring
  • Oil and gas exploration
  • Freight transport

While there are a number of different markets in which UAS can be used, the report concentrates on the two markets, commercial and civil, with the largest potential. A third category (Other) summarizes all other markets: Precision agriculture, Public safety, and Other.

“Precision agriculture refers to two seg­ments of the farm market: remote sens­ing and precision application. A vari­ety of remote sensors are being used to scan plants for health problems, record growth rates and hydration, and locate disease outbreaks. Such sensors can be attached to ground vehicles, aerial vehicles and even aerospace satellites. Precision application, a practice especially useful for crop farmers and horticulturists, uti­lizes effective and efficient spray techniques to more selectively cover plants and fields. This allows farmers to provide only the needed pes­ticide or nutrient to each plant, reducing the total amount sprayed, and thus saving money and reducing environmental impacts.”

Public safety officials include police officers and professional firefighters in the U.S., as well as a variety of profes­sional and volunteer emergency medical service providers who protect the public from events that pose significant danger, including natural disasters, man-made disasters and crimes.”

If sensible regulations are put in place, authors Darryl Jenkins and Dr. Bijan Visagh foresee few limitations to rapid growth in these industries because these products use off-the-shelf technology and thus impose few problems to rapidly ramping up pro­duction. The parts comprising these unmanned systems can be purchased from more than 100 different suppliers so prices will be stable and competitive. They can all be purchased within the U.S. or imported from any number of foreign countries without the need of an import license. For this report, they assume necessary airspace integration in 2015, which is on par with current legislation.

UAS have a durable life span of approximately 11 years and are relatively easy to maintain. The manufacture of these products requires technical skills equivalent to a college degree so there will always be a plentiful market of job applicants willing to enter this market. “The average price of the UAS is a frac­tion of the cost of a manned aircraft, such as a helicopter or crop duster, without any of the safety hazards. For public safety, the price of the product is approximately the price of a police squad car equipped with standard gear. It is also operated at a fraction of the cost of a manned aircraft, such as a helicopter, reducing the strain on agency budgets as well as the risk of bodily harm to the users in many difficult and dangerous situations. Therefore, the cost-benefit ratios of using UAS can be easily understood.”

The authors estimate enormous economic benefits to our country. To calculate the benefits, they forecast the number of sales in the three market categories. Next, they forecast the supplies needed to manufac­ture these products. Then, they forecast the number of direct jobs created using estimated costs for labor. Finally, using these factors, they forecast the tax revenue to the states.

In addition to direct jobs created by the manufacturing process, the authors state that there would be additional economic benefit by the new jobs created and income generated spread to local communities. “As new jobs are created, additional money is spent at the local level, creat­ing additional demand for local services which, in turn, creates even more jobs (i.e., grocery clerks, barbers, school teachers, home build­ers, etc.). These indirect and induced jobs are forecast and included in the total jobs created.”

The economic benefits to individual states will not be evenly dis­tributed. Ten states are predicted to see the most gains in terms of job creation and additional revenue as production of UAS increase, totaling more than $82 billion in economic impact from 2015-2025. In rank order they are:

  • California
  • Washington
  • Texas
  • Florida
  • Arizona
  • Connecticut
  • Kansas
  • Virginia
  • New York
  • Pennsylvania

“The economic projections contained in this report are based on the current airspace activity and infrastructure in a given state. As a result, states with an already thriving aerospace industry are projected to reap the most economic gains. However, a variety of factors—state laws, tax incentives, regulations, the establishment of test sites and the adoption of UAS technology by end users—will ultimately determine where jobs flow.”

The authors conclude:

1. The economic impact of the integration of UAS into the NAS will total more than $13.6 billion in the first three years of in­tegration and will grow sustainably for the foreseeable future, cumu­lating to more than $82.1 billion between 2015 and 2025.

2. Integration into the NAS will create more than 34,000 manufac­turing jobs and more than 70,000 new jobs in the first three years.

3. By 2025, total job creation is estimated at 103,776.

4. The manufacturing jobs created will be high paying ($40,000) and require technical baccalaureate degrees.

5. Tax revenue to the states will total more than $482 million in the first 11 years following integration (2015-2025).

6. Every year that integration is delayed, the United States loses more than $10 billion in potential economic impact. This translates to a loss of $27.6 million per day that UAS are not integrated into the NAS.”

They base the 2025 state economic projections on current aerospace employment in the states and presume that none of the states have enacted restric­tive legislation or regulations that would limit the expansion of the technology. Future state laws and regulations could also cause some states to lose jobs while others stand to gain jobs. States that create favorable regulatory and business environments for the industry and the technology will likely siphon jobs away from states that do not.

In conclusion, the study “demonstrates the significant contribution of UAS development and integration in the nation’s airspace to the economic growth and job creation in the aerospace industry and to the social and economic progress of the citizens in the U.S.

As the top ranked state and home to UAS manufacturers General Atomics and Northrop Grumman, California has active chapters of AUVSI, and the San Diego region chapter is AUVSI San Diego Lindbergh. Since both General Atomics and Northrop UAS plants are located in San Diego’s north county, in 2012, the North San Diego Chamber of Commerce commissioned the National University System Institute for Policy Research to conduct an economic assessment of the industry’s impact on San Diego’s defense economy. The report is titled, “Unmanned Aerial Vehicles:  An Assessment of Their Impact on San Diego’s Defense Economy. The report states, “Unmanned aerial vehicle (UAV) production neared $1.3 billion in San Diego during 2011, according to analysis of federal government Depart of Defense (DoD) contract spending. UAV spending has grown significantly in San Diego over the past five years, nearly doubling since 2008. This growth parallels the increasing role played by UAVs in the U.S. military and the leadership position San Diego companies occupy in the UAV industry.”

While San Diego is still struggling to emerge from the 2008 national economic downturn, “the bright spot in the San Diego economy in recent years has been defense-related spending. Local defense expenditures grew substantially the past decade while military base operations and payrolls expanded. “Many economic observers, including the National University System Institute for Policy Research (NUSIPR), conclude that absent San Diego’s prowess in defense manufacturing and its role in hosting major military facilities, the local unemployment rate would have been significantly higher.”

At the peak of the recession, civilian unemployment in the county climbed to nearly 11 percent, and todaystill hovers around 9 percent. Companies have shed more than 50,000 jobs in the region. Local wages have fallen the past two years, while per capita income remains well below pre-recession peaks.

The important role of UAVs to the San Diego economy is emphasized by the fact that “UAV contracting activities in 2011 supported 7,135 direct and indirect jobs throughout San Diego County,” and “UAVs now comprise the largest segment of San Diego’s defense manufacturing sector. UAV production comprises more than 12 percent of all DoD contracting activities in San Diego County.” While DoD contracting in San Diego started to decrease in the past three years, UAV activity continued to expand.

“Since 2004, San Diego’s aerospace employment, now primarily focused on unmanned aircraft systems, has increased by 1,200 jobs. Just since early 2010, the sector has added 600 jobs. The two major UAV firms locally, Northrop Grumman and General Atomics Aeronautical Systems, each conduct billions of dollars in UAV unclassified contract work in San Diego County. According to Northrop Grumman Vice President Jim Zortman, ‘The center of the unmanned business for aerial vehicles is right here in San Diego.’”

The report states, “Production of UAVs is forecast to double by the end of the decade. Several forecasting firms have predicted the global demand for UAVs will reach $12 billion by 2019, even in the face of significant reductions in U.S. military spending.” There is every reason to believe San Diego is positioned to benefit from this trend given the leadership of Northrop Grumman and General Atomics Aviation in UAV technology.

However, several other states and regions are actively working to attract UAV researchers and manufacturers, and their efforts include the development of specialized educational programs and the preservation of airspace assets. Many states are setting aside dedicated airspace to support the UAV industry. Before the end of this year, the FAA will designate six areas around the country as UAS test sites.

In April of this year, the AUVSI San Diego Lindbergh Chapter joined the San Diego Regional Economic Development Council (EDC), the San Diego Military Advisory Council (SDMAC), the Imperial County EDC, County of Imperial, Holtville Airport, Indian Wells Valley Airport District (IWVAD), and defense contractors including General Atomics, Cubic Corporation, and Epsilon Systems Solutions, Inc. to respond to the Federal Aviation Administration’s (FAA) Screening for Information Request (SIR) and develop an Unmanned Aerial Systems (UAS) Test Range in a partnership with civil and military government agencies, academia, and industry. This coalition has joined an already established entity called the California Unmanned Systems Portal (Cal UAS Portal), which is based in Indian Wells, to create a proposed UAV Test Site that would extend from the NAS China Lake/Edwards Air Force Area, West to the Pacific Ocean, South to the Mexican border, and East to the Arizona border.

If San Diego wants to continue as a leading region for unmanned vehicles, it will be necessary for leaders in the private and public sectors to determine how best to support this industry and influence policymakers to address the high cost of doing business in California that is creating cost pressures on UAS manufacturers’ competitiveness in the worldwide UAS industry. As the report concludes, “Complacency could cause the region [and our country] to lose its leadership position and miss an opportunity to support an industry posed for growth.”

Tags:, ,
Posted in Economy, Jobs, Manufacturing, National security | No Comments »

Is India a Better Place for Manufacturing than China?

Tuesday, June 4th, 2013

You would think that because India was formerly part of the British Empire and became an independent democracy, there would be less pollution and better working conditions than in China. Well, you would be wrong.

You wouldn’t find it any healthier to live in many of the industrial cities of India than the industrial cities in China. India is developing more slowly, but its growth is already taking a toll on the health of its people. India’s population has more than tripled since independence in 1947, from 350 million people to 1.2 billion, severely straining the country’s environment, infrastructure, and natural resources.

In my last article, I mentioned that four cities in India were listed in the Blacksmith Institute’s “Dirty 30” of the 2007 report, “The World’s Worst Polluted Places.” Consider Vapi, at the southern end of India’s “Golden Corridor,” a 400 km belt of industrial estates in the state of Gujarat. There are more than 50 industrial estates in the region, containing over 1,000 industries and extending over more than 1,000 acres. Many estates are chemical manufacturing centers, producing petrochemicals, pesticides, pharmaceuticals, textiles, dyes, fertilizers, leather products, paint, and chlor-alkali. Waste products discharged from these industries contain heavy metals (copper, chromium, cadmium, zinc, nickel, lead, and iron), cyanides, pesticides, aromatic compounds like PCBs (polychlorinated biphenyls), and other toxins.

The Indian Medical Association reports that most local drinking water is contaminated because of the absence of a proper system for disposing of industrial waste. Industrial waste instead drains directly into the Damaganga and Kolak rivers. Vapi’s groundwater has levels of mercury 96 times higher than World Health Organization standards. Approximately 71,000 people have no choice but to drink contaminated well water, as clean water sources are more than a mile away. The water is so discolored by contaminants it looks like a bottle of orange soda. Local produce contains heavy metals up to 60 times the safe standard. There is a high incidence of respiratory diseases, chemical dermatitis, and skin, lung, and throat cancers. Women in the area report high incidences of spontaneous abortions, abnormal fetuses, and infertility. Children’s ailments include respiratory and skin diseases and retarded growth.

It isn’t any better in Sukinda, in the state of Orissa, where 97 percent of India’s chromite ore deposits are located. Twelve mines operate without any environmental management plans, and more than 30 million tons of waste rock is spread over the surrounding area and the banks of the Brahmani River. The mines discharge untreated water directly into the river. Approximately 70 percent of the surface water, and 60 percent of the drinking water, contains hexavalent chromium at more than double national and international standards. The polluted Brahmani River is the only water source for 2,600,000 people. Health problems include gastrointestinal bleeding, tuberculosis, asthma, infertility, birth defects, and stillbirths.

The Indian economy is growing rapidly, but pollution is quickly spiraling out of control and rivers are dying by the dozens. Fully 80 percent of urban waste, including industrial waste, winds up in the country’s rivers. Much of this comes from untreated sewage. The Ganges River has levels of fecal coliform, a dangerous bacterium that comes from untreated sewage, 3,000 percent higher than what is considered safe for bathing. More than three billion liters of waste are pumped into Delhi’s Yamuna River each day. “The river is dead, it just has not been officially cremated,” said Sunita Narain, director of the New Delhi-based Centre for Science and Environment, one of India’s top environmental watchdog groups, to Spiegel-Online.com in reference to the Yamuna.

Air pollution is also a growing problem. There are four main sources: vehicles, power plants, industry, and refineries. India’s air pollution is exacerbated by its heavy reliance on coal for power generation. Coal supplies more than half the country’s energy needs and nearly three-quarters of its electricity. Reliance on coal has led to a 900 percent increase in carbon emissions over the past 40 years. India’s coal plants are old and not outfitted with modern pollution controls. Also, Indian coal has a high ash content, which creates smog. Vehicle emissions are responsible for 70 percent of the country’s air pollution. Exhaust from vehicles has increased 800 percent, and industrial pollution 400 percent, in the past 20 years.

Although the Constitution of India guarantees free and compulsory education to children between the age of 6 to 14 and prohibits employment of children younger than 14 in any hazardous environment, child labour is rampant. According to an article, “The Hidden Factory: Child Labour in India,” in The South Asian, May 7, 2005, many consumer goods  are “the products of a hidden factory of countless children, many as young as five years old, toiling for tireless hours, under harsh, hazardous, exploitative, often life threatening conditions for extremely low wages.” The article states “India has the largest number of working children in the world.” Credible estimates range from 12 to 15 million child laborers. What is even more horrible is that a large percentage of these children are de facto slaves, bonded to their jobs, with no means of escape or freedom until they can repay their parents’ loans. The major industries using child labor are:

Carpets – An estimated 50,000 to 1,050,000 children, as young as six, are often chained to carpet looms in confined, dimly lit workshops, making the thousands of tiny wool knots that become expensive hand-knotted carpets for export. Recruiters or organized gangs pay landless peasants cash advances to “bond” their children to their jobs. The children suffer from spinal deformities, retarded growth, respiratory illnesses, and poor eyesight.

Brassware – An estimated 40,000 to 45,000 children, as young as six, are involved in brassware production, including jobs like removing molten metal from molds and furnaces, electroplating, polishing, and applying chemicals. If they survive being injured from molten metal and exposure to furnaces operating as high as 2,000 degrees Fahrenheit, they often suffer from tuberculosis and other respiratory diseases due to inhalation of fumes from the furnaces and metal dust.

Leather – As many as 25,000 children, from 10 to 15, are involved in the manufacture of shoes. They suffer from respiratory problems, lung diseases, and skin infections from continuous skin contact with industrial adhesives and breathing the vapors from glues.

Gemstones – Children are commonly engaged as “apprentices” in the gem polishing industry. The learning process takes five to seven years and they work an average of 10 hours a day. Major health issues include tuberculosis and respiratory diseases.

Glass – This industry employs an estimated 8,000 to 50,000 children as young as eight. They work in an inferno due to the intense heat of glass furnaces (1,400-1,600o C) and suffer from skin burns, tuberculosis, respiratory diseases, mental retardation, and genetic cell damage.

Silk – An estimated 5,000 children, mostly girls from five to 16, are employed in silk manufacturing, which includes sericulture, dyeing, and weaving the silk. Chemicals and boiling water in the dyeing process are common health hazards; skin burns from the boiling water and respiratory diseases from the chemicals often result.

Agriculture –Parents pledge children as young as six to landlords as bonded laborers. The number of bonded laborers is not categorized by adults and children, but the total is estimated to range from 2.6 to 15 million. Children are involved in all types of agriculture and are completely controlled by their masters, receiving a bare minimum of food and lodging. More than 90 percent of bonded laborers in India, many of whom became bonded as children, never had the opportunity to go to school.

Mining – A 2006 report, “Our Mining Children,” prepared by a team of non-profit organizations, described the condition of hundreds of thousands of migrant workers in the mining industry.

Karnataka, for example, is a state with vast mineral resources, of which the Bellary district has the most extensive range. Minerals mined include iron ore, manganese, quartz, gold, copper, granite, and decorative stones. India is the fourth-largest iron-ore producer in the world. As a result of new government economic policies, a shift to privatization, an open market economy, and wide-open markets in China, South Korea, and Australia, mining companies have bought up thousands of acres of land in the district since 2000.

All of the mines visited by government teams had child laborers, some as young as five. It is estimated that as many as 200,000, or 50 percent, of the workers are children. The mining economy is only profitable because of large-scale child labor and the flouting of social and environmental laws. The mine owners say they only employ the adults, but as the families live at the mine site, the children join in the work. The parents force their children to work because they say they cannot survive otherwise.

As you can see, India is not any better than China for products to be made ? the pollution is just as bad, working conditions are as bad or worse, and child labor is rampant. Make the better choice ? Made in USA!

Tags:, , , , ,
Posted in Manufacturing, Outsourcing | No Comments »

How we could Create Jobs while Reducing the Trade Deficit and National Debt

Tuesday, March 26th, 2013

There are numerous ideas and recommendations on how we could create jobs but most job creation programs proposed involve either increased government spending or reductions in income or employment taxes at a time of soaring budget deficits and decreased government revenue. Other recommendations would require legislation to change policies on taxation, regulation, or trade that may be difficult to accomplish. The recommendations in this article focus on what could be done the fastest and most economically to create the most jobs while reducing our trade deficit and national debt.

Manufacturing is the foundation of the U. S. economy and the engine of economic growth. It has a higher multiplier effect than service jobs. Each manufacturing job creates an average of three to four other supporting jobs. So, if we focus on creating manufacturing jobs, we would be able to reduce the trade deficit and national debt at the same time.

The combined effects of an increasing trade deficit with China and other countries, as well as American manufacturers choosing to “offshore” manufacturing, has resulted in the loss of 5.7 million manufacturing jobs since the year 2000. If we calculate the multiplier effect, we have actually lost upwards of 17 to 22 million jobs, meaning that we have fewer taxpayers and more consumers of tax revenue in the form of unemployment benefits, food stamps, and Medicaid.

In 2012, the U.S. trade deficit with China reached a new record of $315 billion. According to a recent study by the Economic Policy Institute (EPI), the trade deficit with China cost 2.7 million U.S. jobs from 2001-2011. The Department of Commerce estimates that each $1 billion in trade deficit translates to about 13,000 lost jobs, so the $738 billion trade deficit in goods for 2012 cost upwards of 9,599,200 jobs.

What Congress Could Do

First, Congress should enact legislation that addresses China’s currency manipulation. Most economists believe that China’s currency is undervalued by 30-40% so their products may be cheaper than American products on that basis alone. To address China’s currency manipulation and provide a means for American companies to petition for countervailing duties, the Senate passed S. 1619 in 2011, but GOP leadership prevented the corresponding bill in the House, H. R. 639, from being brought up for a vote, even though it had bi-partisan support with 231 co-sponsors. On March 20, 2013, Sander Levin (D-MI), Tim Murphy (R-PA), Tim Ryan (D-OH), and Mo Brooks (R-AL) introduced the Currency Reform for Fair Trade Act in the House and a corresponding bill will be introduced in the Senate.

Second, Congress should strengthen and tighten procurement regulations to enforce “buying American” for all government agencies and not just the Department of Defense. All federal spending should have “buy America” provisions giving American workers and businesses the first opportunity at procurement contracts. New federal loan guarantees for energy projects should require the utilization of domestic supply chains for construction. No federal, state, or local government dollars should be spent buying materials, equipment, supplies, and workers from China.

My other recommendations for creating jobs are based on improving the competitiveness of American companies by improving the business climate of the United States so that there is less incentive for American manufacturing companies to outsource manufacturing offshore or build plants in foreign countries. The following proposed legislation would also prevent corporations from avoiding paying corporate income taxes:

  • Reduce corporate taxes to 25 percent
  • Make capital gains tax of 15 percent permanent
  • Increase and make permanent the R&D tax credit
  • Eliminate the estate tax (also called the Death Tax)
  • Improve intellectual property rights protection and increase criminal prosecution
  • Prevent sale of strategic U.S.-owned companies to foreign-owned companies
  • Enact legislation to prevent corporations from avoiding the U.S. income tax by reincorporating in a foreign country

It is also critical that we not approve any new Free Trade Agreements, such as the Trans-Pacific Partnership and Trans-Atlantic Partnership that are currently proposed. The U.S. has a trade deficit with every one of its trading partners from NAFTA forward, so Free Trade Agreements have hurt more than helped the U.S. economy.

What States and Regions Could Do

State and local government can work in partnership with economic development agencies, universities, trade associations, and non-profit organizations to facilitate the growth and success of startup manufacturing companies in a variety of means:

Improve the Business Climate – Each state should take an honest look at the business climate they provide businesses, but especially manufacturers since they provide more jobs than any other economic sector. The goal should be to facilitate the startup and success of manufacturers to create more jobs. I recommend the following actions:

  • Reduce corporate and individual taxes to as low a rate as possible
  • Increase R&D tax credit generosity and make the R&D tax credit permanent
  • Institute an investment tax credit on purchases of new capital equipment and software
  • Eliminate burdensome or onerous statutory and environmental regulations

Establish or Support Existing Business Incubation Programs, such as those provided by the members of the National Business Incubation Alliance. Business incubators provide a positive sharing-type environment for creative entrepreneurship, often offering counseling and peer review services, as well as shared office or laboratory facilities, and a generally strong bias toward growth and innovation.

Facilitate Returning Manufacturing to America – The Reshoring Initiative,  founded by Harry Moser in 2010, has a  mission to bring good, well-paying manufacturing jobs back to the United States by assisting companies to more accurately assess their total cost of offshoring, and shift collective thinking from “offshoring is cheaper” to “local reduces the total cost of ownership.” The top reasons for U. S. to reshore are:

  • Brings jobs back to the U.S.
  • Helps balance U.S., state and local budgets
  • Motivates recruits to enter the skilled manufacturing workforce
  • Strengthens the defense industrial base

According to Mr. Moser, the Initiative has documented case studies of companies reshoring showing that “about 220 to 250 organizations have brought manufacturing back to the U.S….with the heaviest migration from China. This represents about 50,000 jobs, which is 10% of job growth in manufacturing since January 2010.”

State and/or local government could facilitate “reshoring” for manufacturers in their region by conducting Reshoring Initiative conferences to teach participants the concept of Total Cost of Ownership, how to use Mr. Moser’s free Total Cost of Ownership Estimator™, and help them connect with local suppliers.

Establish Enterprise Zones and/or Free Trade Zones: Enterprise Zones provide special advantages or benefits to companies in these zones, such as:

  • Hiring Credits – Firms can earn state tax credits for each qualified employee hired (California’s is $37,440)
  • Up to 100% Net Operating Loss (NOL) carry-forward for up to 15 years under most circumstances.
  • Sales tax credits on purchases of up to $20 million per year of qualified machinery and machinery parts;
  • Up-front expensing of certain depreciable property
  • Apply unused tax credits to future tax years
  • Companies can earn preference points on state contracts.

States located on international borders could also establish Foreign Trade Zones (FTZs), which are sites in or near a U.S. Customs port of entry where foreign and domestic goods are considered to be in international trade. Goods can be brought into the zones without formal Customs entry or without incurring Customs duties/excise taxes until they are imported into the U. S. FTZs are intended to promote U.S. participation in trade and commerce by eliminating or reducing the unintended costs associated with U.S. trade laws

What Individuals Could Do

There are many things we could do as individuals to create jobs and reduce our trade deficits and national debt. You may feel that there is nothing you can do as an individual, but it’s not true! American activist and author, Sonia Johnson said, “We must remember that one determined person can make a significant difference, and that a small group of determined people can change the course of history.”

If you are an inventor ready to get a patent or license agreement for your product, select American companies to make parts and assemblies for your product as much as possible. There are some electronic components that are no longer made in the U. S., so it may not be possible to source all of the component parts with American companies. There are many hidden costs to doing business offshore, so in the long run, you may not save as much money as you expect by sourcing your product offshore. The cost savings is not worth the danger of having your Intellectual Property stolen by a foreign company that will use it to make a copycat or counterfeit product sold at a lower price.

If you are an entrepreneur starting a company, find a niche product for which customers will be willing to pay more for a “Made in USA” product. Plan to sell your product on the basis of its “distinct competitive advantage” rather than on the basis of lowest price. Select your suppliers from American companies as this will create jobs for other Americans.

If you are the owner of an existing manufacturing company, then conduct a Total Cost of Ownership analysis for your bill of materials to see if you could “reshore” some or all of the items to be made in the United States. You can use the free TCO worksheet estimator to conduct your analysis available from the Reshoring Initiative at www.reshorenow.org. Also, you could choose to keep R&D in the United States or bring it back to the United States if you have sourced it offshore.

If enough manufacturing is “reshored” from China, we would drastically reduce our over $700 billion trade deficit in goods. We could create as many as three million manufacturing jobs, which would, in turn, create 9 – 12 million total jobs, bringing our unemployment down to 4 percent.

You may not realize it, but you have tremendous power as a consumer. Even large corporations pay attention to trends in consumer buying, and there is beginning to be a trend to buy ‘Made in USA” products. As a result, on January 15, 2013, Walmart and Sam’s Club announced they will buy an additional $50 billion in U.S. products over the next 10 years.

U.S. voters supported Buy America policies by a 12-to-1 margin according to a survey of 1,200 likely general election voters conducted between June 28 and July 2, 2012 by the Mellman Group and North Star Opinion Research. The overwhelming support has grown since prior iterations of the same poll – Buy America received an 11-to-1 margin of support in 2011 and a 5-to-1 margin in 2010. A survey by Perception Services International of 1400 consumers in July 2012, found that 76% were more likely to buy a U.S. product and 57% were less likely to buy a Chinese product.

As a consumer, you should pay attention to the country of origin labels when they shop and buy “Made in USA” products whenever possible. Be willing to step out of your comfort zone and ask the store owner or manager to carry more “Made in USA” products. If you buy products online, there are now a plethora of online sources dedicated to selling only “Made in USA” products. Each time you choose to buy an American-made product, you help save or create an American job.

In his book, Buying America Back:  A Real-Deal Blueprint for Restoring American Prosperity, Alan Uke, recommends Country of Origin labeling for all manufactured products that “puts control in the hands of American consumers to make powerful buying choices to boost our economy and create jobs,” as well as reduce our trade deficit. The labels would be similar to the labels on autos, listing the percent of content by country of all of the major components of the product. This Country of Origin labeling would enable American consumers to make the decision to buy products that have most of their content “made in USA.”

If every American would make the decision to buy American products and avoid imports as much as possible, we could make a real difference in our nation’s economy. For example, if 200 million Americans bought $20 worth of American products instead of Chinese, it would reduce our trade imbalance with China by four billion dollars. During the ABC World News series called “Made in America,” Diane Sawyer has repeatedly said, “If every American spent an extra $3.33 on U. S.-made goods, it would create almost 10,000 new jobs in this country.”

In conclusion, if we want to create more jobs, reduce our trade deficit and national debt, we must support our manufacturing industry so that it could once again be the economic engine for economic growth. Following the suggestions in this article could make the “Great American Job Engine” roar once again.

Tags:, , , , ,
Posted in Economy, General, Manufacturing, Reshoring, Taxes/Regulations, Trade Policy | No Comments »

Could California Manufacturing Thrive Again?

Wednesday, February 20th, 2013

On February 14, about 135 business, civic, academic, and labor leaders met at the conference facilities of AMN Healthcare for the “Manufacturing in California – Making California Thrive” economic summit. Comments to welcome attendees were made in turn by San Diego City Councilman Mark Kersey, Assembly member Marie Waldron, Dale Bankhead from Assembly member Toni Atkins office, and Senator Mark Wyland.

Then, Michael Stumo, president of the Coalition for a Prosperous America, provided an overview of the schedule for the day that included an overview of manufacturing in California, a panel of local manufacturers, a panel of national presenters, and breakout sessions after lunch.

I provided the overview of California manufacturing in which I briefly discussed the history of manufacturing in California that I wrote about in a previous blog and pointed out that even though California is perceived as bad for manufacturing, it is the 8th largest market in world and ranks first in manufacturing for both jobs and output. Manufacturing in California accounts for 11.7% of Gross State Product and 9% of workforce. California leads the nation in monies spent on R&D, and California companies received over 50% of all Venture Capital dollars invested in the U. S. in 2011. California high-tech exports also ranked first nationwide, totaling $48 billion in 2011.

The major manufacturing industries are shown by the following chart:

Besides the great weather, California also has world-famous research institutions and research universities, a skilled, educated workforce, a large pool of inventors/entrepreneurs, and strong networks of “angel” investors and venture capitalists. California inventors and entrepreneurs are supported by more than 20 business incubators throughout the state, including two incubator facilities in San Diego – EvoNexus and the San Diego Technology Incubator, as well as the incubator-without-walls, CONNECT’s Springboard program.

In addition, California has 40 Enterprise Zones throughout the state, two of which are in San Diego’s south county. Enterprise Zone companies are eligible for substantial tax credits:

  • Hiring Credits – Firms can earn $37,440 or more in state tax credits for each qualified employee hired
  • Up to 100% Net Operating Loss (NOL) carry-forward for up to 15 years under most circumstances.
  • Sales tax credits on purchases of up to $20 million per year of qualified machinery and machinery parts;
  • Up-front expensing of certain depreciable property
  • Unused tax credits can be applied to future tax years
  • Enterprise Zone companies can earn preference points on state contracts.

There are also 17 Foreign Trade Zones (FTZs) in California that are sites in or near a U.S. Customs port of entry where foreign and domestic goods are considered to be in international trade. Goods can be brought into zone without formal Customs entry or without incurring Customs duties/excise taxes until they are imported into the U. S. FTZs are intended to promote U.S. participation in trade and commerce by eliminating or reducing the unintended costs associated with U.S. trade laws

Of course, no overview would be complete without mentioning the disadvantages of manufacturing in California. In the Small Business Entrepreneur Council Survival Index of 2011, California ranks 46th for its business climate because of the following:

  • Highest personal income & capital gains taxes
  • Highest corporate income & capital gains taxes
  • Highest gas and diesel taxes
  • High state minimum wage
  • High electric utility costs
  • High workers’ compensation costs
  • More stringent Cal OSHA & Cal EPA regulations
  • Stringent Air Quality Monitoring District rules
  • Large number of health insurance mandates

As a result, California has lost over 500,000 manufacturing jobs since the year 2001 as shown by the chart below.

No state, county, or city agency keeps track of the number of manufacturing companies leaving California, but there are frequent anecdotal stories in the news. Of course, everyone had seen or heard one of the ads by Texas Governor Rick Perry to woo California companies to relocate to Texas, as well as the fact that he was in California that very week to meet with some California companies.

I then moderated a panel of the following local manufacturers, who gave their viewpoints of the challenges of doing business in California:

  • Karl Friedrich Haarburger – VP, Solar Energy Industrial Operations, SOITEC
  • Neal Nordstrom – COO, PureForge
  • Rick Urban – COO, Quality Controlled Manufacturing, Inc.
  • Paul Brown – CFO, The Wheat Group
  • Craig Anderson – EHS Director, Solar Turbines, Inc.

Their comments provided examples of most of the above-cited disadvantages of doing business in California with particular emphasis on the problems of raising taxes retroactively in the last election by the passage of Proposition 30. Neal Nordstrom said, “It isn’t just the increase in income taxes and sales taxes, it’s the cumulative effect of all of the taxes and the uncertainty of what is happening next.” Businesses need to be able to have some certainty in their planning, so passing retroactive taxes makes planning for the future difficult and hurts their profitability greatly.

Mr. Anderson commented that there biggest problem was caused by the passage of AB 32. He stated, “The technology to comply with AB 32 does not currently exist, so there is great uncertainty as to whether Solar Turbines will be able to comply with the law by the deadline for compliance.”

Greg Autry, School of Business and Economics, Chapman University, led off the national panel with the topic of Trade Policy. The U. S. had a trade deficit $559.8 billion in 2011, of which over half ($295.4 billion) was with China. Every trade agreement signed in the past 20 years has resulted in an increase trade deficit with our trading partners. The U. S. already has an increased trade deficit with Korea and Columbia from the recently signed trade agreements. He said, “States need to stop trying to “poach” companies from other states and work together against our common adversary, China. States cannot compete against another country where the government is subsidizing manufacturing companies to take control of markets.” Mr. Autry showed a video he had taped during a visit to China in which an employee of Foxconn stated that the Chinese government had provided the land and built the facility where the iPads and iPhone are being manufactured without cost to Foxconn, as well as covering all of the expenses for running the facility for three years. He also showed a video interview with an executive of CODA Automotive Inc. that has opened its HQ in Los Angeles and claims to be making their electric car in the U. S. when, in fact, they are importing the “glider” (a car without the drive train) from China. Miles Automotive partnered with China-based Hafei Saibao Electric Motor Car and Qingyuan Electric Vehicle Co. to establish Coda Automotive as an affiliate company. Mr. Autry opined that federal tax rebates should not be going to purchase an electric car for essentially a Chinese import to the detriment of American car manufacturers like General Motors.

Pat Choate – Economist; Author, Saving Capitalism: Keeping America Strong, covered the importance of the protection of Intellectual Property to the future of American manufacturing. He said that the U. S. is the most innovative country in the world and issues more patents than any other country. However, the recent passage of the America Invents Act converting the U. S. from a “first-to-invent” to “first-to-file” is hurting our innovation. Most growth comes from “disruptive” technology developed by inventors/entrepreneurs of small companies, and the “first-to-file favors large companies that can file a challenge against these small companies in the hopes of bankrupting them to avoid disruptive technology from harming their business. The length of time for the Patent Office to issue a patent has increased from an average of 18 months to 36 months, which is hurting startup companies. The share of patents granted to U. S. residents and small entities has dropped several percentage points since 2007.1988.  He concluded by saying that the constitutionality of the America Invents Act is being challenged, and he hopes that it will be deemed unconstitutional.

Michael Stumo – CEO, Coalition for a Prosperous America, described the math about how a consumption tax could reduce the domestic tax burden, include imports in our tax base, and narrow the trade deficit, increase U.S. production, and fund reductions in the income tax while maintaining progressivity. He explained that our national Gross Domestic Product (GDP) equals of Consumption plus Investment plus Government Procurement plus Net Exports (Total exports minus Total Imports). Every one of our trading partners (150 countries) has a form of consumption tax, including value added taxes (VATs), with an average 17% level. These countries rebate these taxes on their exports, while the U. S. does not add a tax on its imports. The taxes are “border adjustable” because they act as a tariff on our goods sent to them and charged the VAT. This has created our more than $500 billion trade deficit with our trading partners, $298 billion with China alone. CPA advocates changes in U. S. trade policy to address this unfairness which tremendously distorts trade flows.

Thea Lee – Deputy Chief of Staff, President’s Office at AFL-CIO spoke passionately on the need to have a national manufacturing strategy that will create good paying jobs for American workers. Key points that she made were: We need to have a longer-term goal of what kind of country we want to be and how to achieve it. It will require some strategic investment in infrastructure. We need to figure out what kind of trade we want and what other countries are doing. Having an ideological position that free trade is good when other countries are pursuing mercantilism is harmful. We need to be responsive to what other countries are doing. We need to have a competitive trade policy. The ultimate goal is not to have more free trade but more prosperity at home. We need to get back into a job creation policy. We haven’t done trade policy very well, and we need to rethink our trade policies. We don’t need more dopey free trade agreements (taken from notes but not verbatim quotes.)

After lunch, the attendees were split into three groups for the breakout session, in which five issues were discussed and voted against each other, one pair at a time, to determine the top two issues. The five issues were:

  • Trade Reform
  • Tax Reform
  • Intellectual Property
  • Regulatory Reform
  • Manufacturing Strategy

After voting, the groups reconvened to share the outcome of their voting. The top two issues voted as most critical to be addressed were:  Regulatory Reform and Manufacturing Strategy. Regulatory Reform was chosen as the top issue by all three groups because they felt manufacturers needed to have their immediate “pain” alleviated before other issues could be considered. A manufacturing strategy was deemed the second most important issue because if you have a strategy that supports manufacturing, it will encompass intellectual property protection and trade reform. Attendees were invited to sign up to participate in a Task Force to be formed. I will be chairing the Task Force, so please contact me at michele@savingusmanufacturing.com if you would like to participate.

If our elected representatives will work with business, civic, academic, and labor leaders, I believe we can make manufacturing in California thrive again and once more be the “Golden State” of opportunity.

Tags:, , , , ,
Posted in Economy, Innovation, Manufacturing, Trade Policy | No Comments »

« Older Entries
Newer Entries »