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Forging Alliances Here and ‘There’

To keep prices down as they compete globally, many San Diego County manufacturers are forced to forge alliances with companies outside the U.S. Five of San Diego’s manufacturers took some time to discuss the choices they made to build a profitable company.

Tower Paddle Boards founder and CEO Stephan Aarstol said his business has become successful by using workers here and abroad.

“We have our boards and paddles contract manufactured in China, but in the middle of last year we built out a U.S. paddle board factory in Miramar and started building high-end boards here in the U.S.,” Aarstol said “Our operation is low-volume here in the U.S. at this point, but we plan to ramp up as we get comfortable with it. Additionally, we contract manufacture some additional boards here in the U.S. with a company in Carlsbad.”

Founded in 2010, Tower has offices and a showroom in Pacific Beach. Making surf and paddle boards doesn’t require a great deal of skilled labor, Aarstol said. The company had roughly $3.1 million in revenue last year. This year, it is on target to exceed $5 million.

“Last year we made and sold about 4,000 units, and this year we’ll do about 7,500,” he said.

While Tower ships to about 30 countries around the world, its international trade remains a small fraction of its business. Aarstol said exports eventually will assume a more prominent role.

Contracting Out Work

In today’s economy, it’s very difficult for manufacturers to make all products in the U.S., said Carl Thomas, CEO of San Diego-based X-1 Audio Inc., which makes endurance and athletic headphones.

“Even high-end brands that are steeped in Americanism have been forced to manufacture overseas, because their competitors do,” he said.

Thomas’ company works with manufacturers in Southern China and Taiwan. It owns no manufacturing facilities. Its overseas production amounts to “hundreds of thousands of units per year.”

Founded in 2002 and inspired by San Diego’s sun-and-surf culture, privately held X-1 Audio makes a line of products that are waterproof.

“It’s a good athletic community,” he said. “We do a lot of products that are triathlon-friendly. It just made sense for us to stay here. We historically have had full-time employees in engineering and design here.”

Thomas estimates that 85 percent of the company’s revenue comes from U.S. sales and the rest from exports. The company creates more than 20 products, and Thomas said the future looks bright.

“We certainly don’t see health, fitness and well-being doing anything but continuing to

expand,” he said.

Partnering With Europe

Bruce McFarland, president and founder of American Wave Machines, a company headquartered in Solana Beach, engineers, manufactures and develops surf pools, wave systems and surf parks. His products replicate ocean waves.

“For every surfer who can go to the ocean, there are probably 100 who would do it if they had access,” McFarland said.

While the products largely are designed and engineered here, most of the production work is outsourced. The components for wave machines are made by a variety of manufacturers throughout the U.S. and Europe.

“The labor pool numbers in the tens of thousands,” McFarland said. “We purchase components — sometimes custom made — from best-in-class manufacturers.”

Because the company is privately held,

McFarland said he keeps financial information confidential.

“We are a growth business,” he said. “We opened the first surf park in the U.S. in New Hampshire in December. Two more surf parks in North America will open before the end of the year.”

About 75 percent of the company’s products are exported outside the U.S., McFarland said.

One target client base is theme parks, while American Wave Machines also is pioneering surf parks in which it maintains an interest as suppliers.

“It is a quasi-franchise arrangement,”

McFarland said. “We are providers of not only systems, but we know business planning, marketing and best practices.”

Embracing Mexico

Watkins Manufacturing Corp., a hot tub manufacturer based in Vista, divides its production between a plant in Vista and two facilities in Mexico. Watkins expanded its manufacturing operation to Mexico in 1996 to address a labor shortage in North San Diego County. One of the Mexican facilities is leased and the other is owned. Watkins manages both.

Watkins, which began in North County in 1977, manufactures 50,000 to 60,000 hot tubs per year. About 25 percent of the products are exported to about 70 countries. The largest overseas market is Western Europe. The company, which also makes hot tub covers, is a wholly owned subsidiary of Masco Corp., a Michigan-based company.

“Our total employee population is around 1,300, of which close to 1,100 are direct production employees or supervisors,” Watkins President Steve Hammock said.

The company trains workers internally.

“Largely, they come in unskilled,” Hammock said. “The average tenure in our production facilities is 10 years or so.”

Focusing on American Labor

While manufacturers increasingly are turning to foreign countries for their labor needs, there are exceptions.

Oceanside-based Federal Heath Sign Company LLC — which specializes in manufacturing and installing electrical signs for the financial, retail, hospitality, casino, petroleum and automotive industries — has four manufacturing plants around the country, President and CEO Kevin Stotmeister said.

“One is here in Oceanside, the smallest of the four,” he said. “We have two in Texas and one plant on Delaware, Ohio.”

The company also makes neon for architectural effects, performs sign maintenance and creates interior advertising displays, Stotmeister said. And it holds general contractor licenses in 38 states.

Federal Heath has annual revenue of $125 million to $150 million, of which, only 2 to 3 percent comes from exports. Founded in 1901, it has been continuously operating in San Diego County since the late 1980s, Stotmeister said.

Overall, the company has about 550 employees, he said, with about 65 in San Diego County.

“These days we tend to hire at a very base level,” he said. “We are looking for good work skills: show up on time and work hard.”

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