Made in the North Bay

Tourism and agriculture, which have long been the harbingers of our economic health, have made steady gains over the past 12 months. These two industries naturally garner most of the attention when we put the spotlight on the local economy, but there’s a third leg on our fiscal tripod that is also gaining strength: manufacturing.

Today, more than 11 percent of the nonfarm workforce in the North Bay is employed in the manufacturing sector. This is above both the state average (8.5 percent) and the national average (9 percent).

People don’t usually think of the North Bay as a manufacturing hub, says Dr. William Silver, dean of the School of Business and Economics at Sonoma State University. “We’re generally aware of a handful of companies, such as Agilent and Medtronic, but in reality that’s just the tip of the iceberg, to use an analogy. Underneath is a much larger ecosystem of companies in a variety of clusters: medical technology, food, niche agriculture, solar and clean energy to name a few. These sectors are growing, but it’s happening very quietly and most people aren’t aware of it.”

Dr. Michael P. Newell, executive director of the North Bay Innovation Hub (iHub)—one of 12 regional economic collaborations formed in 2010 under the state’s program to modernize its approach to fostering innovation and entrepreneurship—agrees with Silver. “People only see about 10 percent of what’s going on locally [in the manufacturing industry] and the human subconscious assumes that’s all there is. Our objective is to expose and highlight more of the 90 percent of the iceberg that stays below the surface.”

So exactly what is flying under the radar in Wine Country?

Dick Herman, president of 101Mfg, a Petaluma-based private alliance of manufacturing executives throughout Northern California, notes that NASA satellites sent into space carry onboard “thin-film” optical and electromagnetic spectrum sensors, technology that was developed by North Bay companies including JDS Uniphase (JDSU), Sonoma Photonics and Deposition Sciences.

“Every Wii game controller has tiny devices inside that measure the earth’s magnetic field in three directions,” he continues. “They’re called accelerometers, and they’re made by PNI Sensor Corporation in Santa Rosa.”

Special glasses used to watch 3-D movies are manufactured in the North Bay using thin film technology developed by JDSU and plastics produced by Wright Engineered Plastics, both based in Santa Rosa. JDSU also makes the security ink found on the new $20 bill.

“When you see a cell phone tower, satellite ground station, radar facility or high-tech communications or testing equipment, the ‘critical’ connections are made by high-frequency coaxial cables; often, these are made by SRC Cables of Santa Rosa,” says Herman, “and every Boeing 737 jet has landing gear wiring, which is mission-critical, made by Icore International in Santa Rosa.” (Icore International and sister companies in Mexico and Canada make up Interconnect Systems America, headquartered in Santa Rosa, a business unit of Zodiac Aerospace.)

Herman also notes that one of the world’s most successful smart weapons systems and many key “mechatronics” technologies used in aerospace are made by a North Bay company he’s not allowed to disclose, and “the most advanced and best electronic test and measurement equipment that’s not permitted to be exported outside the United States is made exclusively here at Agilent Technologies’ Santa Rosa advanced manufacturing facility,” he says.

And remember two years ago when the world watched British Petroleum’s ghastly oil spill in the Gulf of Mexico ad nauseum on the 24-hour news broadcasts? The technology that enabled us to watch was produced by X2nSat (formerly Advanced Projects International) in Petaluma.

Another Petaluma-based company, Labcon, produces “earth friendly” laboratory supplies (centrifuge tubes, pipet tips, microbiology disposables and so forth) that help minimize hazardous wastes. The company is one of the few to have won the President’s “E” [Export] Award, which for the past 50 years has recognized significant contributions that companies and organizations have made to increasing American exports. “The ‘E’ Award is even harder to get than the Malcolm Baldridge Award [the nation’s highest honor for quality, innovation and performance excellence].” says Herman. “Labcon produces about 8 percent of the world’s supply of medical disposables.”

And then there’s a little company called Pocket Radar in Santa Rosa. Its handheld K-Band Doppler speed radar gun, designed for use by coaches, athletes, sports fans and the occasional neighborhood watch volunteer, is about the size of a credit card and sells for roughly $200. On its own, it’s opened up a whole new category for speed radar devices.

“These are all very interesting companies and people don’t even know they’re here,’ says Newell. “Once people find out what’s really happening in the North Bay, the usual reaction is, ‘Wow!’”

A helping hand

The effort to attract new—and retain existing—manufacturing jobs has gained momentum in recent years with the formation of nonprofit groups, including 101Mfg, North Bay iHub and a Santa Rosa Chamber of Commerce program called Sonoma County BEST (Building Economic Success Together), among others (See “Generating Jobs,” Sept. 2012).

“There’s nothing like a crisis to spur innovation,” says Carolyn Stark, executive director of Sonoma County BEST, which is focused on increasing jobs in the region by working for business success and growth. “California has always been the place everyone wanted to be, so the state never had to be overly organized or actively provide incentives for economic development. But that’s all changed.

“We used to rely on natural business cycles to bring recovery,” she continues. But after the recession free fall, “California is now leveraging best practices from other successful regions in the country to focus on thoughful business growth,” Stark says. Stellar examples include Austin, Tex., and Richmond, Va.
While each organization addresses a specific need of the North Bay manufacturing community (iHub works to leverage assets, promote innovation and technology, link with research institutions and assist early stage entrepreneurs; 101Mfg provides a network for manufacturing executives to share best practices and cross-pollinate ideas; and Sonoma County BEST focuses on business retention and expansion, while also promoting the county to new companies and those looking to relocate their operations from other areas), all three of the groups collaborate for maximum impact. “We bring all the pieces together,” says Newell. “In the end, we’re all focused on creating jobs and innovation in the North Bay.”

While things are definitely looking up, the support groups cite two issues that will ultimately impact just how much the North Bay will be able to attract new manufacturers and keep the ones it already has: a trained and available workforce and the ability to retain a pro-innovation, business-friendly environment that attracts the future investment and expansion of some of the world’s leading technology developers as well as the hundreds of smaller businesses that support them.

Manufacturing jobs: myth vs. reality

The types of manufacturing jobs that will boost the North Bay economy are referred to as “advanced manufacturing.” These are higher-paid, technical positions that require specialized training. According to the experts, there are preconceived notions and stereotypes about manufacturing that need to be overcome to encourage more high school and college students to consider manufacturing careers, which is critical to growing the workforce to support the burgeoning industries.

When many people think of manufacturing, “the problem is that it’s a big umbrella under which a lot of things fit,” says Silver. “People associate it with the Midwest and think of big companies like automobile manufacturers.

 “The fact is, nothing could be further from the truth,” says Silver. “Those were good jobs in their day,” but the new generation of advanced manufacturing jobs, “though fewer in number, are more professional and offer outstanding opportunities. Today’s jobs require higher-level skills and pay better than old-fashioned manufacturing jobs, because they require a much more educated workforce.”

“People think of manufacturing as dark, dirty and dangerous, with no future,” adds Herman. “But the truth is, today’s manufacturers are highly automated and, especially in California, their workforces are well-educated, well-trained and highly qualified. These businesses emphasize safe and healthy workplaces, because that’s what creates a productive workforce.”

A 2011 study commissioned by the Sonoma County Economic Development Board (EDB) reported that manufacturing—not only in California, but throughout the United States—has turned from a labor-intensive into a knowledge industry. The biggest challenge is to encourage students to pursue engineering degrees (college-level) or technical training (post-high school). Only 5 percent of first-year college freshmen in the United States choose to become an engineer. In Asia, the number is 20 percent. In addition, a study by the Parisian Programme for International Student Assessment (PISA) revealed that U.S. students in 10th grade score below average and below their major competitors (Finland, Japan, Canada, Germany and Hungary) in math as well as science.

“Only two out of five high school sophomores actually complete a college degree,” Herman says. “So what do the rest of them do? They can’t all go to culinary school or massage school. Manufacturing represents some very high-paid job opportunities, most of which require post-high school formal training at a junior college or technical school, but many manufacturers are also investing in on-the-job training.”

101Mfg’s vision is to have the Highway 101 corridor become California’s “next great manufacturing center,” according to Herman. One of its major concerns is finding the next generation of manufacturing workers. Last year, it sponsored a program called “100 in 100.”

“We exposed 100 high school juniors and seniors to 100 local manufacturers through job shadows. As a result, many of these kids were actually invited to become paid summer interns for the companies,” Herman says. “Kids are turned off of engineering because they never see it. They don’t see the neat stuff that goes behind making the device. What goes on in these companies is astounding. When the kids finally see it, their eyes get as big as saucers. They become interested in doing it themselves—and that’s the name of the game.”

“One big challenge sometimes in the North Bay is finding the right employee,” Newell says. “It’s not so much that they aren’t here, it’s just that the pool isn’t as dense as it is in Silicon Valley and San Francsico. We also have problems with connectivity. Often, the talent is here in the North Bay, but we don’t have the connectedness. That’s where the iHub can play a major role—so companies can leverage talents in the workforce.”

Newell notes that many employees of Agilent and the various telecom companies that were dominant in the North Bay in the 1990s chose to stay in the area even after the companies laid off upward of 6,000 North Bay employees between 2000 and 2005. “These people are highly skilled and very talented,” he says.

Nonetheless, good jobs go wanting. Robin Stephani, director of business development for Sonoma County BEST, says local manufacturers are “desperately seeking candidates” for key manufacturing positions, but there’s also demand for people who “can fix the machines.”

“We also need skilled labor—people who’ve been trained in welding, electronics and other areas. No matter what you make, you still need someone who can fix the trucks that move stuff around,” she explains.

What price is paradise?

When companies outside the Bay Area and California take a look at the North Bay as a home base for their operations and manufacturing, they often cite the high cost of living, particularly land and housing costs. A 2011 survey conducted by the EDB showed that manufacturing company executives, when queried about Sonoma County as a potential site for establishing their businesses, found high negatives to the cost of land (55 percent said it was a deterrent), housing (61 percent) and overall living expenses (69 percent). But few questioned the quality of life in the North Bay (78 percent saw it as a major advantage) with its solid reputation for wine and food, not to mention its proximity to San Francisco and the Northern California coastline. And since that report was conducted, “our housing and land costs have dropped,” says Ben Stone, executive director of the EDB. “Moody’s says we’re at 95 on its business costs index—that means we’re 5 percent below market average for business costs.”

“Since the economy tanked, housing is much more affordable,” notes Silver. “In general, the cost of living throughout California is higher than other states, but within California, the North Bay is really pretty competitive. Look at the Peninsula, San Francisco and the East Bay—they’re all more expensive than here. There are locations that are less expensive in other parts of the country—but then you have to live there.”

Traditional Medicinals currently employs 120 people, with about 60 in manufacturing. It was founded in 1974 and has always been in Sonoma County. “I’ve heard for a long time that companies move for the bottom line and employees move for the quality of life. It’s hard to find a better intersection of that than here,” Kellison says. “This is paradise. We’re an organic, fair trade manufacturer. The county embodies our values, and we’re able to attract like-minded people to our business.”

Kellison believes Sonoma County has a readily available workforce, with qualified people “from hourly workers to those with MBAs. It’s a skilled workforce we can tap into. And we have longevity with our employees—some of our workers are now multi-generational,” he explains.

Kellison notes that Traditional Medicinals “pays competitive wages that account for Sonoma County’s cost of living.” And as far as housing is concerned, he admits it used to be “too expensive,” but now it isn’t. “When the economic downturn hit, [housing] prices dropped 30 percent. It was like a reset on housing prices from 10 years ago. In reality, the North Bay is much more affordable than it’s ever been.”
The key to operating a successful manufacturing business in the North Bay is “being smart and efficient,” Kellison says. Traditional Medicinals believes in continually investing in information technology, capital equipment and in finding smarter, better ways to accomplish every aspect of its operation. “You can’t come here and run an inefficient operation. If you’re going to do that, you’re better off doing it in another location,” he says.

“We’re looking for every avenue to pay employees more, but only if we can get more productivity from them. We’re not expecting them to run faster down the aisles,” he says, “we’re finding new ways for them to work smarter and be more productive. As our model has seen over the last few years, when productivity increases, wages increase but labor as a percent of our cost of goods goes down. Recessions and downturns create opportunities to become more efficient and productive, and this is good for our employees because productivity gains let them do more and let us pay them more.”

Growing the supply chain

When a job is created in the manufacturing sector, it has an average direct multiplier effect of 3.19, meaning that one job in manufacturing supports 2.19 additional jobs in other sectors in California. Meanwhile, a job in the retail sector only supports 0.63 additional jobs in the state.

Sonoma County BEST has a goal of generating 4,100 new jobs just in Sonoma County over the next five years. And while going out and beating the drum about working and living in paradise is an option, the reality is that “80 percent of the job growth will come from existing businesses, but only if they’re nurtured and supported so they can stay here,” Stark says. “Ultimately, what will work best is to use our existing businesses and go after their supply chains to attract new businesses to Sonoma County.”

If a company can both source and manufacture in Sonoma County or the North Bay, then “the money and the jobs stay in the region,” Stark says. “After all, job leakage and flow of money are the two most important parts of the equation.”

For example, many companies in the North Bay engaged in advanced manufacturing have to buy expensive, custom-made components from overseas, Stephani explains. “If they break en route during shipping or when they’re installed, the manufacturer has to wait until they can reorder the part. If the components were made here, it would be much easier and more efficient.”

Not to mention the economic benefit of having the parts made here. “The dollar volume of manufacturing swamps what we do in wine, food and agriculture,” Herman says. “A single, small electronic part can sell for as much as $600, $800 or even more. You’d have to sell a lot of wine to add up to what that one part costs!”

Jobs are coming back!

In his hit song, “My Hometown,” rocker Bruce Springsteen lamented, “These jobs are going boys, and they ain’t coming back.”

It’s true that the jobs the North Bay (and America overall) lost to overseas manufacturing during the last 20 years are gone. But vibes are good for the future.

“Manufacturing has been the strong sector in the weak recovery we’ve had so far,” Herman says. “North Bay companies like Enphase Energy have tripled their employment. Almost every machine shop I know of is at capacity and, to continue, they’ll have to add machines and employees. We’re making parts for everything in the North Bay. We have an energy boom and new product development for high-tech devices. We can’t completely stop new product development just because of the economy.

“Jobs are coming back,” Herman continues, “and don’t forget that nearly a third of the manufacturing workforce in this country is nearing retirement age. Even if didn’t grow at all for the next 25 years, we’re still going to have to replace a third of our workforce. And that means jobs for engineers, quality control experts, machine operators, shop foremen, programmers, product managers and so forth.”

The good news, Herman says, is that a survey of 300 North Bay manufacturers indicates that more than half are planning for 25 percent growth over the next five years based on current orders and customers.

“And there’s growing controversy in offshore manufacturing regarding labor rates,” Herman says. “In China, labor rates have been going up 20 percent per year for the last three years. The gap is closing and I see work returning from China and Canada. A lot of jobs we won’t get back. But what really matters is advanced manufacturing—and that’s exactly what we do here in the North Bay.”

And when it comes to that, the North Bay is poised to deliver the goods.