LIVERMORE -- There's no better way to work up a good fury than to start in on a conversation about American jobs being shipped overseas.
The rant is almost always framed as an either/or. Either my iPad is made in United States or it's made somewhere else. Any job over there means one lost over here. But in a global economy, products are not necessarily made in one country or another. Some iPad parts, for instance, are made in the U.S. while the must-have tablets are assembled in China. And some companies hiring in Asia are expanding in the United States, as well.
"Manufacturing is global," says Dick Herman, president of 101MFG, a consultancy that works to improve the operations of Northern California manufacturers. "Two thirds of the world is going through their consumer boom. The outlook is that the overall pie is growing."
Consider Integrated Manufacturing Group, an East Bay contract manufacturer that builds specialized industrial parts for Boeing, Applied Materials, the military and companies in the gas and oil business. The company recently decided to start manufacturing in China and Singapore. But it was not part of a strategy to move jobs overseas. On the contrary, at the same time the company is expanding globally, it is hiring machinists and engineers at its plant in Livermore to fill new contracts the company is landing in North America.
"Immediately, we have five open positions, today," CEO Kam Pasha said when I first visited with him in the spring. "And we'll need more." The 64-person company has hired eight people since Pasha and I first talked, and he said by email last week that he was still looking for machinists, engineers and quality control inspectors.
IMG's hiring push is a positive aspect of the Bay Area manufacturing story that this newspaper has been telling in an ongoing series, Made in the Bay Area.
Manufacturing accounts for a significant portion of the region's jobs and the number of manufacturing jobs is growing, particularly in Silicon Valley, where relatively small operations are churning out complicated and early-iteration electronic products. This latest installment examines how, in a global economy, manufacturing in the United States can lead to jobs overseas without resulting in downsizing here.
We've already seen that decisions about where to manufacture are far more complicated than simply looking at costs. With wages rising in China, some manufacturers of specialized electronics have decided it's worth paying a little more to locate manufacturing near key designers at headquarters in the United States. Conversely, companies such as IMG, which collaborates on design with its customers, have decided to do manufacturing work close to their customers whether those customers are here or overseas.
The new complexities of manufacturing were evident again last week as Apple (AAPL) announced it was moving the manufacturing of some Macs to the United States. Apple won't say why it's making the move, but the company could be testing a model that brings its production closer to U.S. consumers.
IMG's decision to work with Singapore's Onn Wah Precision Engineering and put about 50 people to work building its sophisticated parts in Asia had nothing to do with cutting costs, Pasha said. "Singapore is not a cheap place," he said, explaining that the vast majority of the new work will be done in that country. "The reason that we're going there is because our customers are asking us to be close to them in the field."
In fact, Pasha, a former New York venture capitalist, is bullish on manufacturing in the United States. Not the old-school, massive factories that churned out huge numbers of the same widget. But highly automated plants, like IMG, that make relatively small batches of custom products. The U.S. strength in sophisticated, computer-driven manufacturing should prove to be a big advantage over global competitors, he says, particularly if policymakers work to keep the pipeline filled with highly skilled workers.
"That means," Pasha said, "having the right kind of tax incentives and benefits from the government to go out and train people and hire people." Schools, he added, also need "to gear their programs to meet our needs."
But, Pasha added, whatever the advantages of U.S. know-how, opportunities in Asia are simply too good to pass up.
Gas and oil exploration is booming in the Pacific region, he said, meaning orders from energy companies for the massive parts IMG makes for drills and other equipment are likely to spike. And one of IMG's biggest and oldest customers, Applied Materials, a semiconductor equipment firm that relies on machine parts from IMG, also has a significant presence in Singapore. The energy companies operating in Asia and Applied wanted a faster turnaround on the tools and machine parts that IMG makes for them. Rather than ask an Asian manufacturer to start from scratch, those customers were looking for IMG to transfer its expertise to Asia.
"It improves on deliveries, timing, collaboration," Pasha said of the move into Asia. "We can also cross-pollinate the best methods from here to there and from there to here."
IMG illustrates the complicated mix of factors that companies consider when locating factories in a world that is growing smaller every day. In a global economy there really is no one-size-fits-all strategy. There is offshoring, onshoring, nearshoring and what you might call "both-shoring."
"The bottom line is: If you're a multinational company and you have the ability to operate in many countries and you have customers in many countries, then it's an entirely legitimate strategy to hire people in the local area you serve," says Andy Tsay, a Santa Clara University business professor who has studied manufacturing. "From a supply-chain perspective and an operations perspective, that actually makes the most sense."
Because IMG makes custom parts in small quantities, the work requires precision and the ability to retool quickly to build something new or to make a change to an existing design.
"Our IP in this business" Pasha said of IMG's intellectual property, "is the programs that we write, the business processes that we develop and retain in a library." That intellectual property allows the company to replicate the work it does in Livermore anywhere in the world.
Advanced manufacturing is indeed an intellectual property-laden business these days. Take a look inside IMG's 70,000-square-foot Livermore factory. The cavernous plant, with 32-foot-high ceilings, relies on some of the sector's most sophisticated equipment. Forget about small lathes or mills. Instead, the plant's spotless floor is lined with hulking machines, some looking like space capsules, others like giant MRI machines. The company relies on only about 50 workers to run the machines, which operate with hundreds of automatically interchangeable tools capable of boring holes one-12,000th of an inch in diameter in metal parts with nearly no margin for error.
"Dead nuts on," is how Pasha put it. "We're talking tolerances that are less than the thickness of your hair."
He points to one long $5 million machine stretching about the length of a basketball court in the middle of the factory. A team of robots runs on the outer rails of the contraption picking up raw aluminum and feeding it into a series of chambers.
"Once the part is done, the robot goes and picks up the finished part and brings it back to this staging area," Pasha said of the semiconductor manufacturing equipment the machine is working on. "So this is a fully lights-out, very expensive piece of equipment."
Lights out: It's a manufacturing term for a production process that allows machines to run for hours on end with no human operators. None.
Still, someone needs to tell the machines what to do. Pasha has five computer programmers working in offices off the factory floor and he's looking for more to help the business grow. IMG has annual sales of about $20 million, but Pasha said he's expecting the company's revenues to be at $60 million in two years.
He needs workers in the East Bay because just like his customers in Asia, his customers in Silicon Valley and the rest of North America want their contract manufacturer on the same side of the world as their enterprises.
"We're at a very good point in this country, when it comes to highly customized, flexible manufacturing," Pasha said. "I certainly see the United States being on the leading edge in flexible manufacturing, customized manufacturing, specialized manufacturing."
In fact, he's betting the company on it.
Contact Mike Cassidy at firstname.lastname@example.org or 408-920-5536. Follow him at Twitter.com/mikecassidy.
What: Integrated Manufacturing Group
Annual revenue: $20 million*
Products: Customized parts for aerospace, defense, semiconductor equipment manufacturers, gas and oil industry
* 2012 projection