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Changes in the Making

BY JON HINDMAN

When Vista-based DDH Enterprise, Inc., a contract manufacturer of cable, harness and mechanical assemblies, started up its operations in 1988, the North County manufacturing climate wasn’t quite what it is today.

According to Chuck Rabel, vice president and general manager of DDH, back then “the advantages (of manufacturing in North County) were great in that we were in the middle of the largest electronic manufacturing region in the world, encompassing Orange County, L.A. and San Diego.”

Then, about 10 years ago, the company had to evolve because the business base started to incorporate more chemical manufacturers. Today, almost all of the work that DDH does is in the chemical manufacturing realm and business is good.

The company’s revenue grew by about 20 percent in 2004 (from $19 million in 2003 to $23.2 million last year) and its employee count (145) is on par with what it was in 2000.

These are impressive numbers given the fact that, according to the California Employment Development Department, between May 2004 and May 2005, manufacturing was the only non-farm industry in San Diego County to record a year-over-year job loss. The industry was down 900 jobs in computer and electronic product manufacturing, nondurable goods manufacturing, and miscellaneous manufacturing.

Employee cuts aren’t the only shortfall affecting manufacturers in North County, either. Up until the mid- to late ’90s, North County was often perceived as a “bedroom community” for more thriving business communities farther south. But companies were wooed to North County, generally considered the area encompassing the coast from Del Mar to Oceanside and inland from Poway to Fallbrook, by inexpensive, highly available land.

In 1998, biotech manufacturer Invitrogen Corp. moved to Carlsbad from Sorrento Valley to cost effectively open a 30-acre campus.

Even as late as 2003, K2 Inc., which makes sports equipment and accessories, chose to move its headquarters from Los Angeles to Carlsbad because of regional benefits. According to K2’s senior vice president of finance and chief financial officer, Dudley Mendenhall, land availability and the plethora of creative and talented workers spurred the relocation.

These major manufacturers would help fuel North County’s growth, but along with that came increased business costs and lofty cost-of-living increases.

Currently, land is becoming scarcer in the region, as well as more expensive, and residential real estate has followed suit.

Gary Knight, the president and chief executive officer of the San Diego North Economic Development Council, a coalition of the private and public sectors working to grow the economic base of North County, offers some disturbing statistics.

“According to Sandag (San Diego Association of Governments), North County has a 20 percent deficit in the number of homes available,” said Knight. “So if 100 people are looking for a house, only 80 people could find one. And of that 80 percent, only 9 percent could afford it.”

The housing dilemma, in particular, has posed some problems for Invitrogen.

The company’s senior vice president of global operations, Nicolas Barthelemy, said, “Sometimes attracting people is a challenge because, for people that are coming from cheaper parts of the country or the world, we just can’t compensate them accordingly for the increased cost of living.”

Barthelemy and Rabel also cite labor laws, electricity costs and higher salaries as other tough hurdles to overcome, but these factors are affecting manufacturers throughout California, not only on a local level.

If there were only negatives associated with the North County region, however, Invitrogen, DDH and other manufacturers would be looking to relocate, but for now, that’s not the case.

Invitrogen , which provides products and services to academic and government research institutions, as well as pharmaceutical and biotechnology companies may have trouble attracting out-of-state talent, but there’s a strong labor pool in San Diego County.

“A lot of our products are highly technical and you need a pretty skillful work force,” Barthelemy said, adding that higher education throughout San Diego is churning out students with the skills and savvy to enter both the biotech and high-tech fields in manufacturing and research and development.

The fact that there’s a huge biotech presence in San Diego County also is a major advantage. Not only does Barthelemy say that Invitrogen gets more recognition as a result, but it also has opened up many business opportunities.

He says that about 40 percent of the company’s revenue, which has been steadily growing at about 20 percent a year to hit $1.02 billion in 2004, comes from the North County manufacturing facility. Invitrogen, which was founded in 1987, employs more than 4,500 people worldwide, including 1,017 in Carlsbad.

Local business is one major reason DDH remains in North County. Rabel estimates that 80 percent of the company’s jobs are from customers based in San Diego County.

Total employment in North County grew by about 8 percent from 412,644 to 444,373 from 2000 to ’04, and the region is the golf equipment manufacturing capital of the world, employing more than 6,500 people, according to the San Diego North EDC’s Web site.

Carlsbad-based Callaway Golf Co., which manufactures golf clubs and balls, had 1,630 local employees as of Jan. 1, 2004. Poway-based Aldila, Inc., which makes graphite shafts used in golf clubs, had 130 local workers at the start of 2004, according to the San Diego Business Journal’s 2005 Book of Lists.

Rabel is upbeat about being in North County because of the incredible resources available to manufacturing companies.

“One thing the region does have is the infrastructure for people to get things developed in a hurry,” he said. “We have quality sheet metal people, plastics people, operations people, whatever.”

DDH, unlike Invitrogen, hasn’t really had any hiring obstacles, at least not yet.

Work-force issues may begin to be a thorn in DDH’s side in the future and it’s likely that attracting talent will still plague Invitrogen.

For DDH, this is because the pool of qualified workers in light manufacturing is shrinking because there isn’t as big of a need. Due to globalization, much of the actual manufacturing is now being done in China, and this trend is expected to continue. DDH already has operations in China, albeit small for now, but it may need to utilize the country’s low-cost work force more in the future.

While the colleges and universities should continue to pump out talent into the biotech sector, Invitrogen will be faced with having to offer increasingly high wages to compete with the ever-growing biotech and life sciences hub in San Diego County. And, if housing prices keep skyrocketing, attracting outside talent will only become more difficult.

Invitrogen and DDH say they expect to be in the county for a long time, but some manufacturing companies are almost certain to say goodbye to North County and California if the cost of doing business doesn’t start to decrease.


Jon Hindman is a freelance writer living in Poway.

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