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Brighter Outlook

MANUFACTURING: Employment Declines, But Clean Energy Creates Jobs

By Mike Allen

As it has for many years, San Diego’s manufacturing base shed jobs last year. However, there were some pockets of growth sprouting.

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The region has made a name for itself as a center for solar panel production in recent years, with several major companies launching production lines.

In June, Kyocera Solar, a unit of Japan-based Kyocera Group, began producing solar panels, hiring about 70 workers for a three-shift cycle at its Kearny Mesa plant for a planned level of 30 megawatts of power during the year.

Tom Dyer, Kyocera Solar senior vice president, says the decision to make panels locally was driven by the fact that the fastest-growing market for solar is California, and by a requirement for certain public works projects funded from federal stimulus money to source materials in the United States.

“California remains the largest user of solar products in the country, and makes up about 65-70 percent of the total U.S. market,” Dyer said.

At full capacity, the local plant will make more than 130,000 solar modules annually, he says.

Solar Energy Hub

Kyocera, which makes its solar panels at four other plants around the world, is one of five larger solar manufacturers to set up operations in San Diego in recent years. The others are Concentrix Solar, Energy Innovations Inc., Siliken Renewable Energy, and Vaillant Solar Systems Inc.

Holly Lepre, executive vice president of CleanTech San Diego, says most new jobs being created in the clean energy space were by companies involved in solar and wind energy. The nonprofit advocacy group counts 750 businesses engaged in some type of green industry locally, including some 200 companies in solar energy space.

“There are challenges to doing business in California, but it also represents one of the world’s largest markets,” Lepre said.

A study by the California Employment Development Department estimated that there are 37,000 jobs in the local green industry, third most of any region in the state.

Labor-Intensive Work Departs

Kelly Cunningham, an economist with National University System Institute for Policy Research, says that while there will be some job gains from clean-tech companies, the nature of the manufacturing processes means any labor-intensive production will likely be done elsewhere, not in higher cost regions like San Diego.

He says the region still has a nice core of value-added type of manufacturing, the kind that can’t be done in Asia. He cites companies such as Sapphire Energy Inc., which is developing processes to convert algae to biodiesel fuel, and ViaSat Inc., which makes satellite communications equipment.

The latter company is producing its devices for both government and commercial customers, and has some 2,000 employees worldwide, about half of them working locally.

On the other hand, formerly robust manufacturing segments such as the golf industry have been moving pieces to lower cost countries for most of the past decade, says Michele Nash-Hoff, an independent manufacturing services representative who tracks the ongoing decline of local manufacturing.

According to the latest state report, released Dec. 17, San Diego County lost 1,900 manufacturing jobs in a 12-month span ending in November.

Although the numbers of lost jobs aren’t near the devastating levels that were seen in the mid-1990s recession, the losses have been continual, and affect all types of manufacturers, not just defense and aerospace, which was the case then.

“It’s really been across the board in the last 10 years,” said Nash-Hoff, president of ElectroFab Sales. “There have been a lot of small companies that have shrunk by as much as 50 percent, and I’ve run across companies that have gone from 50 to five people.”

She cites a wholesale relocation of golf club assembly jobs at several North County manufacturers in recent years. In July, Callaway Golf Co. announced that it was moving its golf club assembly operations to Monterrey, Mexico, as well as contracting out for its distribution of its products. While the company didn’t disclose how many jobs would be affected from the restructuring, about half of its 2,300 employees are based in Carlsbad.

Vital Sector

The importance of retaining as much of the local manufacturing base goes to the multiplier effect associated with such jobs which usually pay 25 percent to 50 percent above the average earnings for all jobs, and create at least two to three other jobs, Nash-Hoff says.

In a bit of man bites dog news last month, a local manufacturer said it was moving some of its production back to the U.S. from Tijuana. McCain Inc. leased a new 100,000-square-foot building about a mile from its headquarters in Vista to produce street traffic and control equipment that had been made in Mexico.

The privately held firm, which has about 430 employees, including 120 in Vista, cannot qualify as a contractor for federal stimulus-funded public infrastructure projects unless the products are made in the U.S.

Once the new plant is fitted and automated equipment installed, the company plans to hire 50 to 100 people to work on metal fabrication, assembly injection molding, final assembly and testing of the traffic equipment.

“We are definitely swimming upstream with this move, but private businesses need to step up to the plate and prove that with the right equipment,” said founder and Chief Executive Officer Jeffrey McCain, “we can still manufacture products in the U.S. and be competitive.”

Are we there yet?

Our desired economic destination is a nice place with low unemployment, an abundance of jobs, an agreeable tax structure, and a good lending climate.

However, like last year, 2011 may be more about travel, and less about finally arriving.

San Diego is still sorting things out after the Great Recession.

As 2011 begins, the worst of the recession appears to be over.

However, we’re not in the ideal climate for lending. Uncertainty about the future will temper businesses’ impulse to seek loans. Bankers, for their part, may not be disposed to lend — or to lend as freely as they might have several years ago. Lenders may also feel the need to continue consolidating, some say.

In real estate, conditions will generally favor tenants. As they did in 2010, big real estate investment trusts may dominate the buying of office buildings. Retail is a slightly different story. Rents may even rise on relatively scarce retail space. Much depends on consumer sentiment in 2011, as a rise in consumer spending will stimulate industrial real estate such as manufacturing, warehousing and distribution centers, says Don Ankeny, president and chief executive officer of San Diego-based Westcore Properties.

Uncle Sam has stimulated the construction sector by replacing aging buildings and putting new construction at military bases throughout the area and in nearby desert locations.

Consumers and Jobs

But back to the consumer, who has emerged as the giant in the U.S. economy. Stimulating consumer sentiment will require jobs, economists say.

While the recovery has not yet produced jobs en masse, it has created some jobs.

Consider, for example, the small, notable gain in jobs manufacturing the panels used to generate solar energy. Two-thirds of the domestic market for solar panels lies in the Golden State, says Tom Dyer, senior vice president for Kyocera Solar, a unit of Japan-based Kyocera Group. This, as well as other job gains, can be traced to stimulus legislation that mandates products be put together in the United States.

While many manufacturers have decided San Diego is too pricey for them, some stay. One reason is national security. This year will continue to see big-ticket items such as U.S. Navy cargo ships and drone aircraft put together in San Diego, as well as a variety of electronics for military, aviation and space.

Another place where employment is expanding, albeit modestly, is health care, notes Lynn Reaser, an economist with Point Loma Nazarene University.

Of course, the San Diego economy can rely on an old and reliable factor: the region’s status as a travel destination. People who watch the sector expect tourism to rebuild slowly, but it is indeed rebuilding. The San Diego Convention Center Corp. reports 72 conventions booked at the region’s waterfront convention venue in 2011, up from 63 in 2010.

With such a talented work force possessing deep technical knowledge, it’s a good bet San Diego will continue to keep its hand in complex engineered products.

Officials with Connect, an organization that helps nascent technology businesses, note the presence of local innovative industry “clusters” such as wireless communications, biofuels, genomics and energy storage. A nucleus of specialized talent is one building block for such clusters.

Technology has helped San Diego before. During the recession of the 1990s, when bad times threatened to stay, biotech and high-tech electronics rode to the rescue, says Marney Cox, chief economist with Sandag.

“Can you replicate the same miracle?” Cox asked, adding that the current recession is deeper than the recession of the 1990s.

So, are we there yet? San Diego may have to wait far later than next Jan. 3 to reach its preferred destination.

But it just might get there.

Healthy Amount of Funding

New technologies are growing, changing and coming into their own. San Diego still has biotechnology and wireless. It has robotics, cybersecurity and clean technology.

The latter encompasses energy, water, recycling, transportation, materials manufacturing and agriculture. In the last five years, San Diego has attracted $445 million in venture capital for clean technology alone, according to a report from The San Diego Foundation. The National Venture Capital Association estimates that each $100 million in venture capital funding helps create 2,700 jobs.

Connect reports San Diego received more than $900 million in grant funding from the National Institutes of Health and the National Science Foundation during the first three quarters of 2010.

Growing side by side, new disciplines are expected to cross-pollinate, creating hybrids such as wireless health care.

Wireless Care

Wireless monitoring may be the thing that helps the United States take care of its aging, baby boom generation, some observers say. Research is already under way. Wireless technology company Qualcomm Inc. is involved in an experiment in the northern part of Japan, monitoring the health of 300 elderly patients using wireless devices.

Qualcomm reported net income for fiscal year 2010 was $3.25 billion, up 104 percent from 2009. Revenues in 2011 could hit $13 billion, compared with $10.99 billion in 2010.

Health care is not only converging with wireless, says Rory Moore, CEO of CommNexus San Diego. Health care is converging with information technology and silicon chips.

Joe Panetta, CEO of Biocom, the regional life sciences association, says he’s watched the area’s life sciences industry grow for 35 years.

The wireless health care, medical device and software communities work well in partnership with the life sciences sector, says Panetta.

“I know we didn’t do this by design,” he said, speaking of the way San Diego’s industries have grown up. “It’s worked out very well for us.”

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