Posted on 03/02/2004 4:44:30 PM PST by Willie Green
For education and discussion only. Not for commercial use.
The premise for this story was simple: In the midst of reports of the death of California manufacturing, find Bay Area manufacturers alive and kicking.
So, there was the 19-year-old family-owned company in Livermore making motorized scooters.
Oops!
"We were run off," said Steve Patmont, founder and CEO of Patmont Motor Werks. Last fall, his manufacturing operation packed up and moved to Nevada.
There was a skateboard maker springing up in Oakland.
Oops! After a cost analysis, the founders decided it didn't make sense to make their boards here.
Then there were those biotech instruments being made in Tracy ... which are now being manufactured in Singapore.
Guess what? California manufacturing's obituary is being written faster than we think.
But just as surely as the old manufacturers die, so a reincarnated manufacturing segment will emerge. Though hard to imagine in the midst of the three-year job slump, the East Bay should see a rise in manufacturing jobs this decade. The state forecasts that Alameda County manufacturing employment between 2001 and 2008 will go up
7 percent to 102,600 jobs and Contra Costa employment will jump 13 percent, to 28,800 manufacturing jobs by 2008.
While some established manufacturers, such as oil refiners and Fremont automaker New United Motor Manufacturing Inc., are surviving and perhaps flourishing in the Bay Area, manufacturing growth will not come from older industries. Instead, growth hinges on those well-known pillars of the Bay Area's innovation-based economy - the universities, entrepreneurs and venture capital. Those forces will sustain specialized production and manufacturing of young products that require close integration of product development and process design. Don't expect more than that.
"Nobody would come from North Dakota and say, 'I'm putting my facility in Pleasanton.' Forget it," said Abaxis Inc. CEO Clint Severson. Four years ago, the firm moved from a 30,000-square-foot Sunnyvale space to a facility three times larger in Union City to make its blood testing devices.
Abaxis is producing 2.2 million of its devices per year in a facility that can handle 20 million per year. At its current growth rate of 40 percent per year, it will outgrow the Union City plant in roughly seven years.
When the company reaches capacity, Severson said, "we'd probably build our next facility outside the Bay Area. You certainly could take it to Arizona or Nevada."
Ah, yes. Nevada. More than 40 California companies have responded to The Battle Born State's latest anti-California marketing campaign aimed at luring exhausted Golden State businesses across the Sierra. Last year, at least two dozen California businesses moved to Nevada.
That includes Patmont Motor Werks. The maker of motorized scooters has kept its administrative headquarters and product development in Livermore but it couldn't afford to keep its manufacturing in California, CEO Patmont said.
The movement of manufacturing out-of- state is not necessarily bad, said UCLA Anderson Forecast Senior Economist Chris Thornberg, who follows the East Bay economy. He said the loss of lower-paying manufacturing jobs is even beneficial if companies keep their high-paid white-collar jobs - administration, research and marketing, for example - in California.
It's well known that the cost of manufacturing in other states and countries is dramatically lower than it is in the Bay Area - where land is expensive, the cost of living is high, and health care and workers' compensation costs aren't helping.
"The trend is that in the Bay Area there won't be much manufacturing left," said Carl Banks, president of Tracy contract manufacturer Production Technologies Inc. "The high-volume work is basically gone, and we've conceded that."
Banks' business has been transformed, starting with a move a few years ago from Fremont to Tracy. Just four years ago, 60 percent of his business was manufacturing. Today, 10 percent is manufacturing and 90 percent is supply chain services, including handling reverse logistics on product returns.
"I'm no longer a high-volume manufacturer," he said. "The key is there is good news, and the good news is there is a lot of opportunity."
Banks said his business is growing by being creative and adapting to a post-manufacturing environment.
Banks' company saw a dramatic change a few years ago. It was a contract manufacturer for Applied BioSystems Corp., making instruments used in the human genome sequencing race. It was "cranking out" equipment for Applied BioSystems, Banks said. But once the human genome was mapped, Applied BioSystems mapped a new strategy, opening a facility in Dallas. And another in Singapore.
A year ago, Production Technologies approached a young company that designed a decorative shower blind. Banks partnered with the firm knowing there would be no revenue from the deal initially. Now, however, the product is moving into commercial production and he expects to reap the financial benefits of getting in on the ground floor.
He expects his experience with the company to be a model for future contract manufacturing arrangements with startups looking to outsource specialized manufacturing needs early in the product evolutionary cycle. He said he has not considered moving his operation out-of-state because he has a loyal work force in Tracy.
The pool of talent and the lifestyle benefits of the Bay Area are common factors that business executives mention for staying.
"Definitely we do have challenges. I think we can do a much better job. The workers' comp thing is out of control. But let's not throw the baby out with the bath water," said Dan Shugar, president of PowerLight Corp., a solar panel maker in Berkeley. "We have a tremendous pool of uniquely talented people on the intellectual capital side. True, we could lower our direct labor costs by moving someplace else or offshore, but where the business is right now, it's still worthwhile for us to keep our headquarters at this location."
The company produces its photovoltaic roof tiles in Berkeley. Competitors are overseas and in the Midwest, where costs are much lower. So it has automated production, created modular designs and marketed quality differences that Shugar said allows it to command a premium.
"Basically, we have a lot of smart people here," he said.
It is the pool of smart people flowing from Bay Area universities and venture capital flowing into startups that will feed the next generation of Bay Area manufacturing.
CEO Severson said that even though Abaxis' next facility might be out of the area, he expects to keep some operations here.
"We felt we're always going to do some manufacturing here," he said, explaining that new products will likely be made here, close to R&D operations, and high-volume commercial production will be done in low-cost areas.
Severson said that's the pattern for the future: initial manufacturing being done close to home, where UC-Berkeley and Stanford grads are designing products and production processes, and venture capitalists are funding those ideas.
"What's going to drive manufacturing in the Bay Area is the formation of new companies," he said.
Economist Thornberg agreed, explaining that the typical product cycle involves innovation, production close to home, followed by the shift of mass production to low-cost locations: "Bay Area companies create new technologies; they don't build old ones."
All the recent fretting over the loss of manufacturing jobs is because the next wave of innovation has not kicked in to create new jobs in the Bay Area, Thornberg said.
"The jobs will come back. We just have to be patient," he said. "Our labor markets are getting hit because we don't have the new wave of innovation."
Reach Cole at jcole@bizjournals.com or 925-598-1414.
Wow! UCLA "professors" get ALL the good drugs!
?
I hear a big gushing sound of stupid, illiterate, illegal third world types flowing north. What dope is the author on?
Hahaha! "Not helping".
Funny the author didn't mention TAXES. No, not funny - - incredible.
Power is a good 30% less down there, it's cheaper and easier to build, and its booming like a mutha down there. I can't blame CA companies for bailing.
Wow. Why in God's name would a company deliberately try to establish a business or expand to California? Sounds like your company wasted a couple hundred thou that a little research or a little newspaper reading could have saved.
A successful manufacturer I know in Reno told me that he moved his business from Connecticut 20 years ago to cut costs. He said that due to gambling and related drinking, among employees, in retrospect, he could have grown his business much faster had he stayed in Connecticut. Sure labor and other costs are cheaper in Nevada, but cheaper is not always a bargain. There is an undercurrent of sleaze in Nevada that takes a toll.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.