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Manufacturers expect exports to increase

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Government regulation, workforce training and the economy are the hot-button issues affecting the local manufacturing industry, members said during a recent Daily Transcript Executive Roundtable.

Though manufacturing businesses are attracted by the region’s mild weather and skilled workforce, regulations in the state are a deterrent. Regulatory compliance recently delayed an expansion by power delivery product manufacturer, Maxwell Technologies by two years, said Kevin Royal, chief financial officer of the company.

Navigating the maze of regulations is often the biggest challenge for businesses entering California. In June, Kyocera America Inc. established its first manufacturing facility in the region. The company was able to fast track the plant and become operational in four months, however the process was long and complicated, said Dave Hester, vice president of quality assurance and supply chain management for Kyocera America.

Cities that want to encourage manufacturers to locate in their areas should establish a service to help companies navigate regulations, Hester said.

Relaxing the sales tax regulations would also help manufacturers. The California Manufacturers and Technology Association is supporting a state assembly bill that would eliminate the sales-tax on purchases of capital equipment for manufacturers. Manufacturers already pay property tax on equipment and should not have to pay sales tax as well, said Roy Paulson, owner of Paulson Manufacturing.

California’s environmental regulations are five to 10 years ahead of the rest of the nation, said Fred Harris, president of San Diego-based shipbuilder, NASSCO.

“No state has more difficult environmental regulations than California,” Harris said.

A good strategy for manufacturers is staying ahead of regulation. NASSCO recently installed the largest blast and paint facility in the United States. By painting ships indoors, rather than outdoors the company nearly eliminates paint-related emissions. The company was not required to build the facility, but did so to stay ahead, Harris said.

The company also participated in a San Diego Gas & Electric program, in which it replaced lighting, for an expected payback of $1.5 million within a year and a half, Harris said.

Companies like NASSCO are also instilling sustainability in the company culture with recycling programs. Plenums + saw support from employees when it implemented a recycling program, said CEO Steve Copp. In 2009, the company diverted 85 percent of its waste from the landfill.

The initiative also helped garner support from customers interested in purchasing green products, and willing to pay a premium to do so, Copp said.

Outsource Manufacturing reduced its workweek to four-days, to allow employees to save gasoline. The step also reduces the company’s carbon emissions, said Ted Fogliani, CEO of Outsource Manufacturing.

Though companies based in California are often forced to embrace sustainability by both regulation and employees’ attitudes, the workforce is a major attractant for manufacturers.

Workers in the region are hardworking and dedicated, Harris said.

“There is no workforce in the world today that is any better than the workforce that is located in San Diego today, period,” Harris said.

However, California needs to ramp up training programs for skilled trades, Harris said. He sits on a panel with Gov. Arnold Schwarzenegger that advocates for more workforce training programs the high school and community college level.

In the past two years, NASSCO spent more than 800,000 hours training employees in skilled trades because the company could not find experienced workers, Harris said.

Experiencing the same phenomenon, Outsource Manufacturing has removed the experience requirement from the company’s job advertisements because they receive no applications, Fogliani said.

Instead the company looks for intelligent, hardworking employees and provides them with the necessary training.

“The one good thing that’s happened is, they now do it the way we want them to do it,” Fogliani said.

Rather than seeking experience, manufacturing companies are looking for workers with good computer skills and an interest in industrial equipment, Hester said. The nature of manufacturing work in the solar industry is shifting from manually oriented tasks to automated ones, and the company needs technicians that can operate increasingly sophisticated equipment, Hester said.

Though recession has tightened lending to manufacturing businesses, many banks are beginning to shift their focus from residential real estate to commercial and industrial, which bodes well for manufacturers, said Dan Finster, regional vice president of Union Bank.

Manufactures are optimistic about the coming year, which is expected to be similar to two years ago, said Patrick Billman, general manager of Cryoquip.

Oil and other commodity prices, which serve as leading indicators for the manufacturing industry, are also up, said Billman.

“New investment tends to come in more with higher commodity prices than lower commodity prices,” Billman said.

Paulson Manufacturing’s volume was up 20 percent in the first quarter this year, over the previous year, Paulson said. The coming year will be a good one for manufacturers because with reduced buying over the past couple of years, has created critical needs, Paulson said.

With such encouraging indications of a recovering market, Paulson and other manufacturers have signed onto an initiative to double manufacturing output in the U.S. and add 2 million jobs, he said.

“Demand is coming back, especially in Brazil,” Paulson said. “With the euro going down we also expect to ship more to Europe.”

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