On July 1, the San Diego North Economic Development Council (SDNEDC) hosted a North County Manufacturing Executive Roundtable at the City of Vista Civic Center. Over 100 professionals were welcomed by County Supervisor Dave Roberts and Lee Morrison of Bank of America. Bank of America and The Eastridge Group of Staffing Companies sponsored the roundtable.
Prior to the event, KPBS Morning Edition anchor Deb Welsh interviewed Carl Morgan, CEO of the San Diego North Economic Development Council. Morgan said, “Manufacturing is alive and well in San Diego’s North County.” He said the manufacturing executive roundtable would discuss why companies chose to locate and stay in the region. Morgan asked him what North County’s six key industry clusters are, and he responded that “the sports and active lifestyle, clean technology, biotechnology and medical and informational technology “are doing very, very well” besides the craft and brew industry.
Reo Carr, executive editor of the San Diego Business Journal, moderated the panel, which discussed such topics as reshoring of manufacturing, environmental concerns, filling the gap between education and manufacturers' need for skilled labor, sufficient, accessible transportation, and the economic incentives that are and should be available.
The six panelists were: Clark Crawford, vice president, Sales and Business Development, Soitec Solar, which manufacturers concentrated photovoltaic (“CPV”) solar modules; Christine Jensen, special programs coordinator at Mira Costa College, which offers classes in biotechnology, engineering and machining; Jeffrey McCain, CEO, McCain, Inc, a pioneer of advanced traffic control equipment as well as a contract manufacturer; Michele Nash-Hoff, president, ElectroFab Sales and chair, California Chapter of the Coalition for a Prosperous America; Chris Roth, vice president, Lee & Associates, the nation's largest broker-owned commercial real estate services firm; and Martin Wood, CEO, Delkin Devices, the largest U.S. memory card manufacturer.
Crawford said that when his company (Soitec Solar Industries headquarted in Grenoble, France) decided to set up another manufacturing plant in the U.S., they were wooed to come to many states, including Texas, but they chose to move to California because California’s GO-Biz worked with them to identify possible site locations around the state and to define all statewide incentives that could be available to their company. GO-Biz participated in several rounds of site selection tours that helped to qualify the final locations, out of which they chose San Diego. They were able to get the former Sony building in Rancho Bernardo before it went on the open market. When fully operational, Soitec will directly employ 450 and indirectly support 1,000 jobs.
The other reason they chose California is that it is the largest market for solar energy, and California offers good financial incentives for residents and business to convert to solar energy.
Crawford mentioned that GO-Biz also worked with the California Employment Training Panel (ETP) staff to help qualify Soitec for training funds to help their company train and prepare employees for the high-skilled jobs at their new factory in San Diego. In a phone interview, Crawford told me they were awarded $300,000 in training funds by the California ETP, and they provided over 15,000 training hours to their San Diego employees. They completed the training in early April 2014.
Why Stay in California?
When asked why his company stays in California instead of moving to another state, McCain said, “California is currently the eighth largest economy in the world. A tremendous amount of our business, current and future, will come from this economy. Even though it is still difficult to find qualified employees, it is my experience that California is rich in qualified workforce, compared to other states.”
He added, “Our success depends greatly on the advantages of our workforce in Mexico. However, over the last 20 years, I have come to realize the culture in Mexico makes it difficult to do manufacturing that requires ingenuity and innovation. We will typically do our first articles and fixturing and any automation-type manufacturing in the U.S. When it comes to labor intense, higher volume products, we can turn it over to the plant in Mexico where they can be very successful producing quality products. That allows the company to compete successfully, not only in the U.S. but also against offshore companies. The operation in Mexico, just over the last two years, has allowed us to grow our U.S. side, which has nearly 200 employees."
In contrast, Martin Wood, stated, “We are solicited often by other states to move our manufacturing facility and jobs to Nevada, Texas, Florida, Arizona and others. While it would be disruptive, in all cases, it would be like handing employees and the company a raise. Lower or zero state taxes is a big incentive to move.”
“While previous offers were less appealing, they are becoming more and more sophisticated involving real estate and grants, development and hiring help, and of course, no taxes for an extended period or permanently. Any business that is truly run for profit above all would be foolish to not at least consider these offers. We try not to let it consume us, and only entertain them on an annual basis. Right now, California edges out other states in our analysis, based on a number of support, service availability and quality of life issues, but the gap is narrowing.”
“People in city, county and state government should be aware this poaching is going on, and try to find a way to bring advantages to manufacturers in California and incentivize them to stay. We know we bring high paying employment wherever we go, and our customers are based worldwide. I see no reason these offers will not continue and expect them to get more and more appealing. Don’t get me wrong, I love California and my family is firmly entrenched here, but to truly own and manage a manufacturing business, you must make hard decisions and be right most of the time.”
Roth stated ‘the quality of life here in Southern California is a great incentive for companies to continue operating here even though [manufacturing companies] are not receiving the same type of incentives from the local and state governments.” This was one of the major points made in explaining why manufacturers tend to stay in California, despite the sometimes harsh business environment. Roth also stated that a key decision factor in contemplating company relocation is the difficulty entailed in moving employees and their families.
I commented that a company is more than a product; it is also the people who formed and comprise the existing company, and many times, employees aren’t willing to relocate to another state, and the company loses people key to its success. This is often what happens when an out-of-state company buys a San Diego regional company. Key employees don’t move with the company, and the acquisition becomes “buying a product” rather than “buying a company.” In addition, I pointed out that over 90% of California’s manufacturers are less than 100 people, and their customers are mostly local, obtained through word of mouth and referrals. If they decide to move the company, it would be as if they started a new company from scratch.
Outsourcing is Waning
When Reo Carr asked the question about reshoring, I explained that it started because of quality issues and expanded because of increases in wages in China over the last few years. I mentioned that China and other Asian nations don't honor U.S. patent laws, which leads to intellectual property theft, hurting U.S. companies in the long run. The other panelists added their opinions as to why outsourcing manufacturing to China is becoming a thing of the past (increasing wages, quality control, and logistics problems and problem-resolution) and why America is benefiting from the shift to returning manufacturing to the U.S.
McCain confirmed that the contract manufacturing division of his business is benefitting from regional companies returning manufacturing to America.
In answer to the question about the impact of environmental and other regulations, I pointed out that we have been outsourcing our pollution to China and other Asian countries to escape the costs of regulation here. The consequences of industrialization with inadequate environmental regulations have been horrific for China and India, which I described in one of the chapters in my book (Can American Manufacturing be Saved? Why we should and how we can) When asked about the environmental regulations that apply to his plant in Mexico, McCain said that Mexico is quickly catching up with the U.S.
A question from the audience about the shortage of local, trained machinists led into a discussion about two connected issues: workforce training and mass transit. Jensen shared that colleges are shifting the programs they are now offering in an effort to meet the needs of employers. Mira Costa, for example, has both certificate and associate degree courses in biotechnology, engineering, and manufacturing skills such as machining. She encouraged the companies to check with their local community colleges to inquire about the various programs available. I shared that there are now four high schools that provide up to two years of training to be a machinist and that for years and years, the San Diego Community College District has provided machining and welding training, as well as other manufacturing skills.
Wood said, "It is hard to find people to fill the positions they need, because most of [the blue collar laborers] live further south, in South County." Crawford seconded that comment, saying that workers are coming from points south, as well...even from Mexico. McCain added mass transportation needs to improve to deal with the issue of where employees are traveling from to accommodate the job availability.
I pointed out that San Diego doesn’t have a “hub” center of manufacturing where everyone is going to work. The industrial business parks are scattered around the county (mainly in 13 of the 18 cities in San Diego County). Mass transit doesn’t work well for this type of region, and I don’t know how feasible it would ever be for mass transit to get workers coming from across the border to these scattered business parks.
In conclusion, the panelists shared that for the time being, the advantages of doing business in California outweighed the disadvantages. The biggest draw is still the quality of life the region offers, as well as the great weather. I shared that the successful company that stays in San Diego has a high-dollar, high-value, low- to mid-volume product, which has proprietary technology and lower labor content. When this type of company does a Total Cost Analysis of doing business in San Diego/California, it pencils out positively. Crawford agreed that doing this kind of analysis is what enabled them to make the decision to locate Soitec in San Diego.
While it is hard to compete against the incentives and low or no taxes of some other states, we may have fewer companies making the decision to move out of California if more companies did this type of analysis. Of course, it would be even better if the governor and legislature actually proposed and passed legislation that would benefit manufacturers instead of adding to their costs of doing business in California.