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Public-Private Partnership Outlines Strategic Plan to Help California Compete Worldwide

SAN FRANCISCO - 03/02/05 - California manufacturers could save up to one million jobs if both they and the state government take concerted action, according to a new report released by the Bay Area Economic Forum.

"One million jobs are up for grabs unless we act now," said Sean Randolph, president and CEO of the Bay Area Economic Forum (BAEF). "How California addresses the challenges to its manufacturing base is critical to the state's economic future."
 
So far, an estimated 200,000 manufacturing jobs have been lost in California due to economic conditions and improved productivity, while 90,000 have been lost due to falling exports and 20,000 due to jobs moving to other states.

In addition, it said, the state "is at risk of losing many more as manufacturers seeking lower taxes, cheaper energy and less restrictive labor laws consider moving jobs overseas and to other states."
 
But many companies tend to overrate the benefits of off-shoring and would be much more likely to remain in California if regulatory burdens were reduced, according to the report, which was conducted by McKinsey & Company and co-sponsored by the California Manufacturers and Technology Association, the Silicon Valley Manufacturing Group, and the Semiconductor Industry Association.
 
"We are under tremendous pressure to become more price competitive," said Kelley McKenzie, chief counsel of New United Motor Manufacturing (NUMMI), a Toyota and GM vehicle manufacturing plant with about 5,500 employees in Fremont, California. "The reforms listed in this report would certainly go a long way to help companies like NUMMI retain well-paying, high quality manufacturing jobs in California."
 
California has 1.5 million manufacturing jobs, far more than any state -a full 70% more jobs than runner-up Texas - and the industry directly supports an additional three million jobs statewide contributing $150 billion annually to the state's economy.
 
Because the sector is of critical importance to California, Randolph said, the BAEF - a public-private partnership of business, government, university, labor and community leaders - has proposed a partnership between government and manufacturers, including a pragmatic action plan and timetable, in an effort to preserve jobs and sustain a dynamic manufacturing base in the state.
 
The report recommends three primary actions that state government must take to save California's manufacturing sector from further erosion - first, the improvement of regulations and laws to make California manufacturers more competitive.
 
California, it said, "has the nation's highest workers' compensation rates, its energy costs are 61% above the national average and the state's tax rate is higher than all other states except Pennsylvania. California also imposes far more regulations than other states.

For instance, it determines overtime by an eight-hour workday standard, so employers cannot use four 10-hour shifts as other states do.

Second, the creation of a smarter workforce - "one that can meet the changing needs of manufacturers" - that emulates other states "that are actively working with manufacturers to ensure curricula in schools mesh with local needs and that training programs enjoy sufficient funding."

 And third, the crafting of a campaign "to highlight the importance of manufacturing to California, the benefits of manufacturing in the state and the commitment of both state government and private sector leaders to create an environment that is supportive of manufacturing."

Many companies that assess the real costs and benefits of off-shoring will find it's not a panacea, the report said, adding that manufacturers can best succeed if they focus on delivering customer value.

"Customers care about more than cost," it said. "They also want rapid delivery, customization and reliable quality assurance."
 
California-based companies, the report said, "must also accurately measure total landed costs by assessing labor savings within the context of their own cost and revenue structures."

Moving offshore for cheaper labor "has little impact when labor is a small fraction of a company's costs," it said.

Companies must also actively implement "world-class manufacturing techniques that can minimize the impact that wage rate differentials have on overall cost structures" and "shorten lead and cycle times to be more responsive to customer needs."

"We urge the California legislature and Governor Schwarzenegger to tackle the issues outlined in this report," said Jack Stewart, president of the California Manufacturers and Technology Association. "Manufacturing has an enormous impact on California's prosperity and offers good paying jobs that are worth saving."

"Manufacturing in California should be a 'live' issue," added Robert Sternfels, a partner with McKinsey & Company, an international management consulting firm. "Government and business have just a narrow window in time to create the right climate for long-term manufacturing."

The full report can be found at www.bayeconfor.org.

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