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Executive roundtable

Manufacturing's future in San Diego a topic for debate

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The manufacturing scene in San Diego -- like much of the United States -- is facing an identity crisis: With the surge of off-shoring abating and companies slowly trickling back to manufacture on home turf, questions about the benefit of bringing these types of jobs back -- if they should be brought back at all -- are on the minds of those in the industry.

Some of San Diego’s leading experts in the manufacturing and production field met at a recent Daily Transcript roundtable to hash out some of the issues on their immediate horizon and start a higher-level conversation about whether manufacturing is something the region should be actively pursuing at all.

As for some of the top-of-mind concerns at present, lack of suitable employees is a big one.

Jim Berg, president of Advanced Test Equipment, said he simply cannot find American engineers capable of -- and willing to do -- the type of work his company requires.

He said he’s not interested in using highly skilled foreign workers via visa programs -- he said he wants to hire U.S. citizens, which is proving increasingly difficult.

“Engineers are impossible for us to find,” Berg said. “Our biggest problem is to find qualified staff. Capital is not a problem -- there’s more money out there than we know what to do with -- we can’t utilize the funds because we can’t find the staff.”

Vipul Doshi, vice president of Nortek, said his company is facing a similar challenge, even after going to great lengths to give opportunities to local students.

“Last year we were hiring 35 engineers and having a hard time finding engineers, so we went to San Diego State University and said, ‘Give me your whole senior class -- we’ll hire all of them as interns,’” Doshi said. “We hired 60 of them for the entire summer, and said at least we can get 10 out of those. Only one came back. Only one out of 60.”

Roundtable participants postulated a variety of reasons for why this might be -- everything from the high cost of living in San Diego, to the work ethic of this younger generation, to a desire to hit it big fast at a startup, and the decision to work for bigger-name companies such as Google (Nasdaq: GOOG) and Apple (Nasdaq: AAPL).

Many of the participants agreed that one key aspect of any solution to this issue is more collaboration between manufacturers and schools to properly train students -- both high-level engineers and technically trained workers -- in skills needed for careers in manufacturing.

“How do we work with the schools?” asked Joseph Mignone, president of JFM Global Associates and an active member of the Riverside County Manufacturers and Exports Association. “Because the schools are interested in [science, technology, engineering and math], but manufacturers are interested in what? Technical people, who can run a CNC machine or a 3-D printer. But what are the schools turning out? That’s why we have the skill gap, too.”

Keith Easler, program manager at Lumedyne Technologies, added that his degree at SDSU was in manufacturing engineering, a program that is no longer available there.

Issues surrounding the cost of renting or buying space to manufacture in San Diego also surfaced, but no one said they viewed Tijuana as a viable alternative to keep their production facility close to headquarters.

Susan Long, president and CEO of Diving Unlimited International, said because Tijuana is a border town, the wages would be too high to make it a cost-effective site, and companies would have to go deeper into Mexico to achieve that. She was concerned about Mexican labor laws, saying her “understanding is once you have an employee, you have them forever.”

Long also said she had quality concerns because the diving suits and equipment her company manufactures require extreme precision, a level of quality she’s not sure she could accomplish south of the border.

Doshi said that Nortek does not have any facilities in Tijuana either, though it does have a factory in Tecate and recently bought about 100 acres in Monterrey to relocate its Missouri and Oklahoma sites.

A divergence of opinion surfaced when talk came up of San Diego potentially increasing the minimum wage and implementing a state requirement for employers to give employees three paid sick days.

Long said if these regulations pass, she’ll likely be forced to cut one of her employees’ two vacation weeks to accommodate for the sick leave since her margins are too thin to absorb that cost, and raising the price of the products is out of the question in this global marketplace.

The minimum wage issue also touched a nerve for Berg.

“Well if everybody is guaranteed that, then what’s the motivation for someone to go to school and get a high-level engineering degree if I’m going to make what an engineer makes anyway?” Berg said. “So by the government t becoming involved with the details and minutia of it, they demotivate people to go and advance and make themselves more attractive to bring more value to the value proposition.”

Bryan Pate, co-founder and co-president of ElliptiGo, which is headquartered in San Diego but manufactures its elliptical bikes in Asia, disagreed.

“My employees aren’t that motivated around salary -- it’s a lot of passion for what we’re doing,” Pate said.

“I don’t think engineers are going to stop going to become engineers because the minimum wage goes up to $15, let’s call it,” he said. “I’d still go to school to get a better job than $15 an hour. So I think, in my opinion, it’s not all going to hell in a handbasket.”

If an increase in the minimum wage, a lack of suitable employees or unduly burdensome regulations does make manufacturing in San Diego too cost-prohibitive, what is it that the region would be missing out on?

“Manufacturing is the backbone of the country,” Mignone said. “We bring up the middle-class people --we make stuff. And making stuff produces what? Revenue.”

Long echoed his concerns that cutting out manufacturing as a segment of the economy would lead to a class polarization, with high-level engineers and people working at burger joints and nothing in between.

Not everyone was so convinced.

“If you think about the hierarchy of value-add, where does wealth come from?” Pate asked. “We either take it from the ground … we work for it by moving something or building a house for example, or we create an idea that is a better way of doing things.

“It seems to me for the U.S., the only one of those that’s saleable is innovation. And so maybe it’s not a bad thing that we have very little manufacturing in San Diego because the companies here -- there are still companies here -- are living off of a more scalable value, which is innovation. The issue comes back to the gap between the innovation economy and the noninnovators of the world. And what do we do with people who aren’t engineers who aren’t able to play in the innovation economy?”

Mignone said that perhaps it’s time to develop a different paradigm for manufacturing here.

Easler suggested constructing a manufacturing zone of sorts, where companies could pool their individual funds to create a production site capable of making a variety of products, that is then the party responsible for hiring and providing its employees’ benefits, as opposed to the company placing the orders having to account for that as well.

“Do we really want to push for old-school-high production -- we’re going to put wheels on cars -- is that really where we want to go?” Berg said. “Is that the expectation? And Southern California, the U.S., we need to come up with that. Is this what we want to do? Do we want to bring that kind of manufacturing to San Diego?”

If the roundtable participants are any indication, it seems the jury is still out on that.

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Roundtable Participants

Chris Bao, Regulatory Compliance Manager, Barney & Barney (sponsor)

Jim Berg, President, Advanced Test Equipment

Vipul Doshi, Vice President, Nortek

Keith Easler, Program Manager, Lumedyne Technologies Inc.

Susan Long, President and CEO, Diving Unlimited International

Joseph F. Mignone, President, JFM Global Associates

Drew Miller, Plant Operations Manager, Kyocera America

Cassandra Mougin, Attorney, Pettit Kohn Ingrassia & Lutz (sponsor)

Bryan Pate, Co-Founder and Co-President, ElliptiGO Inc.

Rick Timm, President, Seabotix

Trevor Walker, Client Executive, Barney & Barney (sponsor)

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