ADVANCED MANUFACTURING WORKFORCE TRAINING FOR THE 21 st CENTURY

Transcription

1 ADVANCED MANUFACTURING WORKFORCE TRAINING FOR THE 21 st CENTURY A Study for the Workforce Development Program, California Community Colleges, Applied Competitive Technologies Marshall Gartenlaub, Ph.D., Director By Gus Koehler, Ph.D. Victoria Koehler-Jones, ones, Ph.D. Time Structures 1545 University Ave, Sacramento Ca Spring,

2 Table of Contents Executive Summary 3 Manufacturing in California: Evolving, Not Dying 10 Technology Convergence for California: Unique Future Materials and Productivity Advantage 12 Converging Technologies Advanced Manufacturing Integrating Advanced Manufacturing with New Nanotechnology and MEMS Materials Produces Competitive Advantage Manufacturing in California Today 17 California s Manufacturing Competitiveness Compared with Other States Increased Manufacturing Productivity Globally and Loss of Market Share have Hurt California Manufacturing Firms and Lost Jobs Small and Start-up Manufacturing Firms Account for Most Job Growth A California Strength is her Small and Medium Sized Manufacturing Firm s Connections with Global Supply Chains Increased Numbers of Minority Owned California High Tech Start-ups with International Ties is a Competitive Advantage The Growing Number of Minority Owned Manufacturing Firms is Increasing California s Future Potential to Establish new Global supply Chains and Markets Latino Manufacturers Mexico MEMS/Nanotechnology Initiative Manufacturing Training in Mexico Small and Medium Sized Manufacturing Firm Competitiveness Issues 30 State and National Manufacturing Competitiveness Studies Promote Advanced Manufacturing Advanced Manufacturing Workforce Projections 34 2

3 Manufacturing Improvement and Workforce Training Services Pay Off 39 Time Structures Survey of Manufacturers 40 Respondent Characteristics 40 Business Sectors Most Significant Technologies 43 Current technologies Future technologies Expected technological change Workforce Skill Needs 46 Expertise necessary for current technical job applicants Technical skills needed in the future Personal skills needed in the future Company Support for Training 51 Recruitment Recent hiring Future hiring Support Needed from the Community Colleges 52 Attachment 1: Manufacturers Survey Methodology 55 Attachment 2: Manufacturers Survey Questionnaire and Statistical Summary of Findings 56 Attachment 3: Manufacturers Survey Respondent Comments 70 Attachment 4: State Training Programs: Advanced Manufacturing Investments 76 Attachment 5: Manufacturing Occupations and Skills 78 Attachment 6: White House SBIR Executive Order 79 Endnotes 81 3

4 EXECUTIVE SUMMARY For the overwhelming preponderance of human history, humans have lived in societies that were characterized by 80% continuities, 15% cycles, and only 5% novelties at best. Now I believe the figures are reversed: 80% of our futures may be novel, 15% cyclical, and only 5% continuous with the past and present." Professor Jim Dator, Hawaii Center for Futures Studies The Challenge The National Materials Advisory Board pointed out in 2004 that [I]t is evident that if a firm or a national sector loses the ability to know how to make things, to use production as a strategic capacity, then it will lose the ability to capture value. 1 Important elements of California s strategic capacity is being addressed by California s Community Colleges. The Chancellor s Office created the Applied Competitive Technologies Initiative (CACT): to improve the competitiveness of small and medium-sized manufacturing and engineering companies by fortifying sound manufacturing technologies and by supporting the development of a skilled workforce. 2 In fulfilling this role, the California Community College s Applied Competitive Technologies Initiative is facing a new education/training challenge, one that is well characterized by Professor Dator in his statement above. Manufacturing in California in the 21 st Century is not what manufacturing was in the 20 th Century. For one thing, manufacturing employment has dropped from representing 37.8 percent of all wage and salary jobs in 1943 to 10.9 percent in Substantial job losses in manufacturing production have continued to occur in California, across the nation, and around the world for the last ten years. From January 1990 to September 2003, California lost almost 400,000 manufacturing jobs. The decline in manufacturing employment is currently measured by the decline in the number manufacturing production employees (this narrow definition will become important later) over the last decade. The proportion of all jobs accounted for by manufacturing in California dropped from 15.9 percent to 10.9 percent during the same period. 4 Finally, manufacturing s contribution to the state prosperity has also declined. Since 1977, manufacturing dropped from contributing 17.8 percent of the California s Gross State Product to contributing 11.3 percent of the state s Gross State Product. 5 Despite these substantial reductions, there were 52,341 manufacturing firms in California in About one-third of them are small firms. In 2003, California was the number one state for manufacturing with 1.5 million employees in the sector (32 percent of them are in Los Angeles County), and in value of output. 6 This represented 10.3 percent of the nations manufacturing workforce even after the recent decline in manufacturing jobs is taken into consideration. California has the largest share of basic jobs in high wage sectors though not in diversified manufacturing where it has been gaining jobs than does the nation. 7 Six developments account for the most recent changes in the late 1990s and earlier 2000s in the number of manufactures and employment: 1) prime manufacturers increasing their dependence on suppliers and pressuring them to reduce costs; 2) the integration of design- 4

5 production-logistics into global supply chains tied to prime contractor demands leading to a reduction in the number of US parts suppliers; 3) the adoption of new advanced digital manufacturing technologies producing productivity improvements; 4) the convergence of multiple technologies such as Nanotechnology, MEMS, and biotechnology to create new manufacturing and product hybrids; 5) the ability to offer value such as proprietary, hightechnology products; a willingness to customize; extraordinary service and parts support; short production runs; and fast turnaround time; 8 and 6) globalization of markets including the adoption of advanced technologies. These principal factors integration of supply systems, advanced digital manufacturing, convergence of new materials and technologies, and globalization are moving together to challenge California s rapidly evolving manufacturing sector. It is the continuing development and acceleration of this convergence, along with the accompanying workforce training needs that the California Applied Competitive Technologies Initiative (CACT) will respond to and facilitate over the next decade. Competitive Advantage = An Innovative Workforce + Advanced Manufacturing + New Materials + Global Logistics + Ubiquitous Information Technology The core of California s ability to sustain and expand its competitive manufacturing advantage in the future is the use of new materials, applied through advanced manufacturing techniques to produce innovative products that are moved across global electronic and surface logistics, just-in-time, to closely tied customers anywhere in the world. Information technology penetrates and ties together every element of this process. An innovative, highly trained workforce working with advanced manufacturing and the new materials technologies invents and applies the proprietary knowledge that generates a firm s competitive advantage. This report concentrates on advanced manufacturing. Advanced manufacturing depends heavily on information technology and the digital networks. It involves the simultaneous digital integration via specialized software of various subsystems involved in the design, manufacturing, and marketing activities occurring at several levels for a particular product. Digital manufacturing also permits what is called additive manufacturing where small components are simultaneously added together to create a product (this is an essential process for nanotechnology manufacturing at a very small scale.) For example, the design of an automobile involves fully integrating various systems. This requires the active design and production participation of the prime contractor such as General Motors and its parts suppliers. Automobile components include for example, brake rotors, suspension parts, or engine control computers. These must be smoothly and quickly brought together and assembled into a subsystem like the brake subsystem, the transmission, the suspension subsystem, or the engine. These larger subsystems are finally brought together via advanced logistics and assembled into an automobile. Digital integration also extends to the highest or enterprise level. Here various services such marketing, distribution, life-cycle management, product service, etc, are digitally linked together with product design and production information. This entire information technology system is used to design the next car model and to detect and fix problems with the existing one. 5

6 From 1990 through 2002 California s smaller manufacturing firms grew in number and in number of employees, while larger firms declined. These smaller and medium sized firms are California s future and are the ones to benefit most from improved competitive advantage. Ethnic entrepreneurs have been a primary source of high-technology start-ups, and the establishment of supply chains with South East Asia, China, and Mexico. The number of manufacturing firms owned by Latinos and other ethnical minorities while small now compared to White owned firms will increase given future demographic projections. California s competitive advantage will involve continuing to strengthen the global connections and support the growth and development of highly productive high-technology firms, including those owned and operated by ethnic minorities, as they operate in multiple industry sectors. Summary of Time Structures Manufacturing Survey Time Structures conducted a survey of two hundred manufactures. The data shows their thoughts on which technologies are important now, which ones are likely to be in the future, needed skills, and who and where they will be hiring from. The data is particularly useful for placing small and medium manufacturers within the broader perspective already presented. All two hundred manufacturing executives were interviewed by telephone. Most participants were small manufacturers; over three-quarters employ fifty employees or less. Most respondents produce an end product and sixty-five percent of them are not currently part of a major supply chain. About 88 percent of the surveyed manufacturers represented manufacturing sectors there were not expected to grow or could in fact decline by 2012 according to Labor Market Information Department data. These businesses would appear to be the most challenged to improve their competitiveness. A fundamental question arises from these facts: how should scarce CACT resources be divided between companies that may be decline and those that are growing but are not necessarily represented in this survey? Gazelles or rapidly growing firms can be from both older and newer industry sectors. Older Gazelles or newer Gazelles in older sectors, tend to be companies that have adopted new high productivity technology and other efficiency measures that increase their competitive advantage. Newer Gazells are often first movers in new sectors and benefiting from the newest technologies. When survey respondents were asked "Will you be manufacturing in California in three to five years?" 84% answered "yes." Those who answered "no" cited expense as the main reason for moving away. Clearly, these businesses along with their jobs are committed to staying in California. Most Significant Current Technologies 6

7 When asked which technologies are most significant today, and which will be most significant in a few years, six technologies were identified from a list more often than others: "Lean" manufacturing technologies, including quality improvement and problem solving, is the first most valued technology today and remains among the top three in the near future. ISO 9000 and related certifications are among the top three most valued technologies today and will be the most significant of the technologies a few years into the future. Collaborative and/or concurrent engineering technologies have strong current significance but were mentioned less often for future significance. Security affecting technology or IT software and data has current significance but is recognized less for future significance. Manufacturing-related simulations and visualization technologies will grow in significance for several major manufacturing sectors Rapid prototyping from 3D modeling will increase in significance in the near future. Three technologies have some significance today but received little recognition as being particularly significance in the immediate future: Equipment and software to reduce scrap Supply chain management Energy use and energy conservation technologies Technologies with Less Significance Nine technologies were mentioned less often than others: Nanotechnology was not mentioned as having any current significance, but was mentioned as gaining a bit in a few years' time. Biotechnology and bioinformatics and related technologies were given only a few votes for current significance and, again, and are expected to make only small gains in the immediate future. Product lifecycle management technologies were mentioned by very few when considering both current and future manufacturing. Enterprise management technologies were not recognized as being very significant in today's manufacturing arena. Low environmental impact technologies such as green design, life-cycle manufacturing, cradle to grave design, were also not recognized as being very significant. MEMS, or Micro-Electro-Mechanical Systems, and related technologies were not mentioned often. Technical Workforce Skill Needs Over all business sectors, 58% say they are currently able to hire technicians who are adequately trained for the job, but 39% say they are not. 7

8 The transportation-related sector of manufacturing has the most difficulty: 54% report that they have trouble hiring adequately trained technicians. * Half of the aerospace sector agrees that finding adequately trained technicians is not easy. Manufacturers of both, industrial machinery and chemicals and plastics also find it a challenge, with 44% and 43% respectively reporting difficulty. Respondents said that when hiring technicians today, the most important fields of expertise are: information technology as applied to (1) quality management; (2) computer aided design; and (3) materials management. Detailed information was collected on specific technical skills and personal requirements that technicians must have to be a successful job applicant as manufacturing continues to evolve. The most important technical skills that applicants will need in the near future are: electronics, mechanical skills, and vocational skills such as welding, instrumentation, and basic shop. Familiarity with computer technology was ranked as being second most important. With regard to personal skills, almost 40% said technicians of the future will need to understand basic employment issues. Some of the qualities mentioned include: attendance, work ethic, workmanship and productivity; desire to learn, self-motivation and self-direction; ability to follow directions and ability to work as a team. English language skill development is next in importance. Community College Training and Student Hiring by Business About 43% of the businesses surveyed said that, during the last two years they had hired someone trained by a two-year community college or technical school. Forty-eight percent said they expect to hire someone with a two-year degree in the next two years. Opportunities for the Community Colleges In addition to training in mechanical, vocational and computer skills, a major recurring theme was the desire to see a strengthened communication network between college and business. For example, respondents noted that community colleges need to: "Keep up with current trends by using market research, advisory panels, communication with business, and so on." This sentence attempts to capture a broad desire on the part of manufacturers that colleges stay current by talking with them, developing outreach programs, and using industry and advisory committees to gather information on industry-related developments so that the colleges can stay one step ahead of their clients. Manufacturers find themselves facing a * This finding supports Time Structures analysis of transportation s Intelligent Transportation System employment needs. See: Time Structures (2005). Training California s Transportation Workforce for the 21 st Century: Responding to the ITS and The New Vehicle Technology Revolution. Advanced Transportation Technology Initiative, Economic and Workforce Development Program, California Community Colleges. 8

9 global challenge to California's manufacturing capacity and productivity due to improved technical and educational capacity of other countries. Individual manufacturers hope to stay one step ahead of these developments by implementing the formulae outlined above so they can gain and keep competitive advantage. The hope is that the community colleges can reduce expense and risk by knowing which technologies are on the horizon. Actions for Making CACT Visionary, Evolving, and Agile The following actions for strengthening the CACT initiative should be considered: 1. The Initiative Director should convene a working group to review and evaluate this report and its recommendations to develop an implementation plan that will align the CACTS training priorities with emerging technologies and the changing workforce. Further analysis by the CACT Centers of the survey results could yield useful insights for particular centers. 2. Consideration should be given to what the CACT can provide to companies in sectors that are less likely to grow. Technology transfer, targeted workforce training, and other strategies are suggested by the survey. The survey also showed that many companies did not give a high rank to high productivity technologies that could be useful now, such as enterprise management, life-cycle manufacturing, rapidprototyping, and product life-cycle management. They did rank these technologies as being important in the future. This future oriented technology evaluation extends to biotechnology and nanotechnology as well. A focus on showing the value of these technologies to improving productivity now may be appropriate. 3. Equal consideration should be given to allocating resources to promising start-ups in rapidly growing sectors that are much more likely to generate future jobs. The mix of technology services and workforce training that would contribute to their survival could be quite different. Time Structures survey s completed for the Biotechnology and Workplace Leaning Initiatives (nanotechnology/mems) provides useful data on their needs. 4. In the past, high technology manufacturing firms owned by ethnic minorities have provided a significant number of new jobs in Silicon Valley. Nanotechnology/MEMS and other initiatives being undertaken by Mexico, China, Southeast Asian, and Latin American countries should provide significant business supply and networking opportunities. CACTS should help California companies develop the necessary supply chain and cultural capacities to realize their unique advantage. The International Trade Centers could provide useful assistance. 5. The 21 st Century workforce will be very different from that of the 20 th Century. Extensive attention to these differences is provided in the Workplace Learning Initiative study. The most salient point is that about 47% of the new 21 st Century workforce will be Hispanic. Equally important is the fact that 52% of all students passing the math and English high school exit exam in 2005 were Hispanic. The 9

10 CACTS should join with the Workplace Learning Initiative to develop high school outreach programs to these students. Workplace Learning should also develop, in consultation with the CACTS, the necessary science and math classes to prepare the emerging workforce for the higher level training offered by the CACTS in advanced manufacturing. This partnership should extend to nanotechnology and MEMS as well. A similar partnership could be developed with the Biotechnology Initiative to address biotechnology advanced manufacturing training needs. 6. Develop the capacity to anticipate and track advanced manufacturing and other manufacturing competitive advantage developments by systematically collecting related data and by expanding participation in key government and private industrybased planning groups. The goal of this activity is to track a highly complex, evolving system that is not fully realized in the present. 7. Partner with the University of California, the California State University System and other universities to anticipate and develop new academic and training curricula as new technology transfer produce opportunities for new workforce career ladders. 8. Develop a communication and outreach strategy that identifies and communicates with California companies receiving an U.S. Small Business Innovation Research grant. The outreach effort could market CACT resources to support rapid prototyping and product design using digital media, with a particular emphasis on firms engaged in high technology manufacturing including nanotechnology and MEMS. President s Executive Order on U.S. Small Business Innovation Research dated February 24,

11 ADVANCED MANUFACTURING WORKFORCE TRAINING FOR THE 21 st CENTURY Manufacturing in California: Evolving, Not Dying Small manufacturers: number more than 296,000 nationally; represent more than 99 percent of the nation s manufacturers; account for 40 percent of the value of U.S. production; employ more than 8 million men and women; increasingly export: 95 percent of all manufacturers that export are SMMs, and are responsible for 15 percent of the nation s manufactured goods exports. 9 California manufacturers are a very significant portion of the nation s manufacturing capacity, reflecting industry changes that are going on nationally. Manufacturing in California in the 21 st Century is not what manufacturing was in the 20 th Century. For one thing, manufacturing employment has dropped from representing 37.8 percent of all wage and salary jobs in 1943 to 10.9 percent in Substantial job losses in manufacturing production have continued to occur in California, across the nation, and around the world for the last ten years. From January 1990 to September 2003, California lost almost 400,000 manufacturing jobs. The decline in manufacturing employment is currently measured by the decline in the number manufacturing production employees (this narrow definition will become important later) over the last decade. The proportion of all jobs accounted for by manufacturing in California dropped from 15.9 percent to 10.9 percent during the same period. 11 Manufacturing s contribution to the state prosperity has also declined. Since 1977, manufacturing dropped from contributing 17.8 percent of the California s Gross State Product to contributing 11.3 percent of the state s Gross State Product. 12 Graph 1 shows that most of the job decline has taken place due to the loss of larger Graph 1 Number of Firms by Size of Employment Firms 0-19 and 100+ Employees 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5, ,000 12,500 12,000 11,500 11,000 10,500 10,000 Firms with Employees 0-19 Employees 100-1,000+ Employees Employees Source: Source: California Employment Development Department, Report 524. "California Unemployment Insurance Reporting Units by Size, Industry and County". 11

12 companies. Between and 2002, there was an increase of 4,688 firms with19 or fewer employees, compared to a loss of 234 firms with 20 to 99 employees, and a loss of 587 firms with 100 or more employees. Dramatic losses in the later two groups occurred in the late 1990s and early 2000s, setting the trend for the new century. Manufacturing industries vary by California region. For this reason, job loss was not uniform across all of the state s counties. Counties showing a net gain in manufacturing jobs between July 1990 and October 2002 included: San Bernardino gaining 12,252 manufacturing jobs; Riverside County gaining 7,353 jobs; and Orange County gaining 5,158 jobs. In contrast, Los Angeles County lost 156,024 manufacturing jobs during the same period. 13 Overall, California manufacturing employment increased by 0.2 % in October, 2005 sustaining a multi-quarter growth pattern. 14 Despite these substantial reductions, there were 52,341 manufacturing firms in California in Graph 2 Number of California Manufacturing Firms by Firm Size (number of employees) in 2002 Number of Firms 25,000 20,000 15,000 10,000 5,000 20,588 9,321 8,156 7,690 3,378 2, ,000 and over Firm Size Source: California Employment Development Department, Report About one-third of them are small firms. In 2003, California was the number one state for manufacturing with 1.5 million employees in the sector (32 percent of them are in Los Angeles County), and in value of output. 15 This represented 10.3 percent of the nations manufacturing workforce even after the recent decline in manufacturing jobs is taken into consideration. California has the largest share of basic jobs in high wage sectors though not in diversified manufacturing where it has been gaining jobs than does the nation. 16 Six developments account for the most recent changes in the late 1990s and earlier 2000s in the number of manufactures and employment: 1) prime manufacturers increasing their dependence on suppliers and pressuring them to reduce costs; 2) the integration of designproduction-logistics into global supply chains tied to prime contractor demands leading to a reduction in the number of US parts suppliers; 3) the adoption of new advanced digital 12

13 manufacturing technologies producing productivity improvements; 4) the convergence of multiple technologies such as Nanotechnology, MEMS, and biotechnology to create new manufacturing and product hybrids; 5) the ability to offer value such as proprietary, hightechnology products; a willingness to customize; extraordinary service and parts support; short production runs; and fast turnaround time; 17 and 6) globalization of markets including the adoption of advanced technologies. The National Association of Manufacturers (NAM) recognizes the importance of nanotechnology to manufacturing s future. 18 After 31 months of consecutive net job losses now amounting to 2 million, it has never been clearer that the United States must push even harder to lead the rest of the world in technological sophistication and productivity. The race for the world lead in nanotechnology is one that the United States simply cannot afford to lose. Without question, the race begins in the laboratory. At the same time, the NAM will be promoting the earliest feasible manufacturing applications of research results. Key factors integration of supply systems, advanced digital manufacturing, convergence of new materials and technologies, and globalization are moving together to challenge California s rapidly evolving manufacturing sector. It is the continuing development and acceleration of this convergence, along with the accompanying workforce training needs that the California Applied Competitive Technologies Initiative (CACT) will respond to and facilitate over the next decade. Technology Convergence for California: Unique Future Materials and Productivity Advantage Converging Technologies Since 1920 there have been continuous improvements in manufacturing technology that have redefined how manufacturing is done and the materials used leading to increased levels of product diversity and productivity resulting in a new form of competitive advantage (Figure 1). First there was Henry Ford s assembly-line leading to mass production. Then the assembly-line was made more efficient improving productivity. Next came product improvements consistent with the customer s demands. Building on what had come before, the whole process was progressively digitized. Finally, we come to our era where we see the same development of new materials that lead to whole new digitized design, manufacturing and logistic processes shrinking the time from conception to final product, linking directly to the customers needs. 13

14 Figure 1 Error! Objects cannot be created from editing field codes. Source: Time Structures Advanced Manufacturing Advanced manufacturing depends heavily on information technology and the digital networks. It involves the simultaneous digital integration via specialized software of various subsystems involved in the design, manufacturing, and marketing activities occurring at several levels for a particular product. These abilities permit a small manufacturer to respond to a prime contractors requirements for low cost and for proprietary, high-technology products. It also permits rapid customization; a very high level of service and parts support; short production runs; and fast turnaround time. 19 Digital manufacturing also permits what is called additive manufacturing where small components are simultaneously added together to create a product (this is an essential process for nanotechnology manufacturing at a very small scale as discussed below.) For example, the design of an automobile involves fully integrating various systems. This requires the active design and production participation of the prime contractor such as General Motors and its parts suppliers. Automobile components include for example, brake rotors, suspension parts, or engine control computers. These must be smoothly and quickly brought together and assembled into a subsystem like the brake subsystem, the transmission, the suspension subsystem, or the engine. These larger subsystems are finally brought together and assembled into an automobile. Digital integration also extends to the highest or enterprise level. Here various services such marketing, distribution, life-cycle management, product service, etc, are digitally linked together with product design and production information. This entire information technology system is used to design the next car model and to detect and fix problems with the existing one. To summarize, advanced manufacturing involves the ability to speedily conceptualize, analyze, and make decisions about the design, production, quality, and sale of a product using information from numerous disciplines at multiple levels at the same time. 20 Almost 70 percent of the cost of a product is set by decisions made early in the engineering design and production development process. The ability to see and work concurrently with a large integrated design and marketing space permits better analyzed trade-offs between alternatives. In the future, advanced manufacturing workers will need the ability to integrate modeling and simulations across multiple domains including, for example, geometric modeling, performance analysis, life-cycle analysis, quality analysis, cost analysis, and manufacturing. Graph 3 provides one example of software designed for this purpose. Error! Objects cannot be created from editing field codes. Digital manufacturing tools permit a company s product market to be segmented. Each Graph segment 3 receive a functional variation of the same product. Once produced and sold, each 14

15 product, its performance, and its service record can be digitally tracked. 21 The above PowerPoint slide shows Microsoft s plans to develop a fully IT integrated manufacturing, distribution, customer, and highway system (Graph 1). 22 Connected Concept Cars include remote data communications to dealerships, distribution and logistics systems, product research and design, manufacturing operations, quality control, product marketing, and invehicle computer and other systems that tells the driver of potential performance problems and maintenance updates. 23 Information flowing from any one point in this diagram could be analyzed and used at any other point to improve overall systems operations and competitive advantage. For example, data produced by the operating vehicle on the road can be automatically collected and sent to various company operations, changing how they go about producing and installing parts in the near future. Software in the vehicle could also be instantaneously updated. 24 Generally, this flow of information and the networks it creates changes the form of the involved companies and their divisions. It does so because it integrates internal company functions with other outside internal company functions via virtual structures that coalesce and vanish in response to the digitally dynamic marketplace. 25 Integrating Advanced Manufacturing with New Nanotechnology and MEMS Materials Produces Competitive Advantage A big change is underway in the scale that manufacturing works at. Up until recently nearly all manufacturing applications involved the reduction of thousands of tons of raw ores or natural products via melting, chilling, vaporizing, pounding, cutting, drilling, casting, forging, grinding, a chemical reaction, or some other method to produce materials that could be turned into marketable products in multiple industries. These top-down processes for manufacturing products are being replaced by bottom-up or additive process at far smaller scales; Micro-Electro-Mechanical Systems (MEMS), and Nanotechnology. The term MEMS is typically applied to small systems which have a moving part and utilize some form of electronics. In terms of a measurement, anything under 100 nano meters (nm) is nanotechnology; and anything greater is microtechnology or MEMS. In a way of speaking we can say that MEMS involves the flea on the ant; nanotechnology involves molecular processes that regulate the flea s cells. Nanoscience is a broad term used for the study of materials and/or processes at the nanoscale in a variety of disciplines. Biology, chemistry, and physics have all independently converged into nanoscientific research areas, ranging from everything to understanding intracellular processes to chemical interactions to quantum mechanics. Nanotechnology is the technological realization of the direct manipulation of materials and processes at the nanoscale or molecular and atomic levels. Building molecule by molecule, or bottom up, is the realm of nanotechnology. Biotechnology is using nanotechnology to develop and produce various products. The interrelationship between the two technologies will deepen over the coming decade. See: Time Structures (2005). Biotechnology Workforce Training Needs in the 21 st Century. Biotechnology Initiative, Economic and Workforce Development Program, California Community Colleges. 15

16 MEMS and Nanotechnology companies see themselves as producing product platforms that can be applied in multiple industrial settings. 26 Industry data is often duplicative on the number of companies and other information. As new processes or materials associated with nanotechnology and MEMS emerge, it will become harder to find the requisite workforce and with them the needed advanced manufacturing skills. The National Research Council believes that the question is: [whether ongoing] production activity is needed to sustain the knowledge required to implement the new science and science-based engineering. In other words, a regional or [state] government may not care if the learning goes on within a specific firm, as long as the learning is captured in technology development within its domain. [I]t is evident that if a firm or a national sector loses the ability to know how to make things, to use production as a strategic capacity, then it will lose the ability to capture value. [If this is so], [t]hen, because the firm is constructing and evolving a complex evolutionary system, not just procuring a set of defined components, more of the system a larger portion of the value-added must be kept in-house and not outsourced. More generally, if production becomes characterized by rapid turnaround and custom activity, is the decision about where to locate production within the firm changed? Do diversified quality production and flexible specialization teach us that custom production and rapid turnaround imply tighter geographical and organizational links between production and development? 27 The implications are profound for global swarming or the continuous re-alignment of highly innovative and productive small and medium sized manufacturers with regional and global supply chains. Regional dominance by integration of innovation, design, and production of key components and subsystems can be maintained only so long as another region does not obtain more advanced design, materials or digital manufacturing technology. India, China and other advanced, and developing countries will inevitably take a larger portion of the technology pie given the investments they are making in emerging technologies like those being discussed here. More importantly however, there is the distinct possibility of the pie itself growing faster than before. There could be benefits to geographical diversity in science and technology. Different conditions and markets, as well as different scientific cultures, may spur innovation along unusual lines and in more appropriate ways than was possible earlier, leading to a synergy through the development of mutual attraction and compatibility between globally dispersed innovative regions. 28 Clearly, California s small and medium sized businesses must strive to obtain first mover and competitive advantage for the production system that they are part of and/or become a part of emerging ones in other nations. 29 The problem today is that prime contractors change their 16

17 suppliers as often as every one or two years 30 The impact of such switching could be diminished or limited by innovative production specialization resulting from the unique union of technology and workforce skills in a particular company or region. A well trained workforce that develops and sustains the capacity to build and implement the new advanced manufacturing and materials technology will be the competitive workforce of the future. Manufacturing in California Today Twenty-first Century manufacturing will take root and grow in California. The Bay Area Economic Forum points out that: 31 As global manufacturers continue to meet customer demands for both lower prices and more customized and rapidly delivered products, a substantial amount of global production will remain in high-cost countries, so long as the benefits to customers of rapid delivery and customization outweigh the benefits of lower cost [and longer delivery time]. Fundamentally, the proportion of products for which the benefits of local production outweigh the savings from offshore production is far higher than might appear at first glance. This is particularly true when converging technologies that will revolutionize existing manufacturing sectors and create whole new ones in the future are considered. California is on the leading edge in four major ones: biotechnology, information technology, nano/mems, and advanced automotive engine alternative fuel design. New technologies must be combined with workforce training, and reduction of other cost of doing business if a company is to stay in California. 32 We will argue that the Bay Area Economic Forum s vision needs to be adjusted because local high-technology small and medium sized firms are constructing and evolving a complex evolutionary manufacturing global system in both old and new sectors. This system involves new competitive production relationships that are dependent on rapid product design that utilizes new materials and digital manufacturing techniques. These advantages are tightly tied to unique in-house intellectual property skills that cannot be easily duplicated, and to highly efficient logistic systems. These important local conditions qualify decisions about where to place production operations and when to move such critical capabilities. These new modes of production, based on unique technology and workforce based intellectual property, linked vertically and in parallel via information technology and logistic systems to multi-national corporations and local markets, will produce strong, virtual companies that are globally distributed. 33 California s Manufacturing Competitiveness Compared with Other States The Office of Technology Policy, Technology Administration, US Commerce Agency, compares the technological competitiveness of states using nine indicators of funding flows, twelve of human resources, four of capital investment and business assistance, five Table 1: California Competitiveness 17

18 Source: Office of Technology Policy, Technology Administration, US Commerce Agency (2004). The Dynamics of Technology Based State Economic Development: State Science and Technology Indicators. Washington, DC. 18

19 of the state of technology business base, and eight outcome measures (Table 1). California is ranked against other states with 1 being first and 50 being lowest. The bar graph to the right shows whether the state performance on the indicators is below, meets or exceeds the national average. Inspection of the table shows that California meets or exceeds national performance in 33 of the 38 measures. It is weakest in human resources including national math test scores, percent of population graduating from high school, percent of population receiving a Bachelor s Degree. The Manufacturing Institute considers a high performance workforce as the most important factor to future manufacturing success, followed by product innovation. 34 Generally, while being strong in many areas that support technology based economic development, the state is weak in human resources development. California is very strong in net high-technology firm formations, patents, venture capital, and federal funding awards for advanced research. These factors suggest that currently California has the technological and investment capacity to potentially respond to emerging manufacturing and new materials challenges but does not have the trained workforce to take advantage of what these resources could deliver. Few if any other states or nations have all of the key elements including workforce skills necessary to achieve manufacturing competitive advantage today. Increased Manufacturing Productivity Globally and Loss of Market Share have Hurt California Manufacturing Firms and Lost Jobs Productivity, declines in demand, manufacturing imports growing faster than export opportunities leading to loss of market share, 35 deindustrialization or a 25% to 33% shift of job growth from goods production to services sector, deunionization, importation of manufactured goods, energy costs, and low labor costs, not outsourcing, account for California s loss of manufacturing jobs. 36 Businessweek, commenting on the national loss of jobs notes: 37 The real culprit in this jobless recovery is productivity, not offshoring. Unlike most previous business cycles, productivity has continued to grow at a fast pace right through the downturn and into recovery. One percentage point of productivity growth can eliminate up to 1.3 million jobs a year. With productivity growing at an annual rate of 3% to 3 1/2% rather than the expected 2% to 2 1/2%, the reason for the jobs shortfall becomes clear: Companies are using information technology to cut costs and that means less labor is needed. Of the 2.7 million jobs lost over the past three years, only 300,000 have been from outsourcing, according to Forrester Research Inc. The historical importance of improvements in productivity can be seen in the following Graph 4. ** Improvements in productivity have nearly doubled output per unit of input since the 1950s. Manufacturing labor productivity has outpaced that of the rest of the economy These points are more fully addressed in other Time Structures future oriented studies for the Economic and Workforce Development Program, California Community Colleges. ** Productivity varied by manufacturing sector. See: Mark Schweitzer and Saeed Zaman (2006). Are We Engineering ourselves out of Manufacturing Jobs? Federal Reserve Bank of Cleveland. 19

20 Graph 4 Retooling Manufacturing Bridging Design, Materials, and Production, NAS, since 1977, even in the midst of recession, and strongly exceeds that of the US principal Graph 5 Source: Manufacturing Institute (2006).The Future Success of Small and Medium Manufacturers. trading partners. These improvements have helped to respond to wage competition. 38 Globalization is also growing because developing countries have improved their physical Gobalization refers to the local results of a number of global driving forces that are changing local cultural, economic, production, political, design and other factors including: the aging of the world s population, new enabling technologies such as nanotechnology, and information technology, the spread of transnational business and finance networks, improved education and technological ability, new geographical and political issues with new boundaries (militant Islam for example), a growing inter- and intra-nation wealth gap, the failure of various governmental and world institutions to solve conflicts and various social problems, the extension of design beyond single manufactured products to the design of nature (biotech) and to the design of economies of 20

21 and educational infrastructure. Graph 5 shows that the US continues to dominate global manufacturing but that China and Korea are growing. Logistics is becoming a major global competitive edge when combined with advanced manufacturing, new materials, education and training. Competitive advantage in new and emerging markets depends on the most productive channeling of resources, quality, and the capacity to adjust manufacturing functions relative to engineering changes to deliver quality products just-in-time anywhere in the world. For example, if a new US application of an existing technology creates a new market in China, management must decide whether the design of the products and their production is best carried out in the US or in China. In fact the decision may be made to divide the process up, driven at least partially the local infrastructure (energy, roads, etc), production quality, and other design, information technology, and manufacturing factors. China is still weak in many of these areas but has developed a comprehensive plan for addressing them. 39 The dynamic nature of competitive advantage can also be seen by comparing direct labor and total manufacturing costs between the US and China. 40 China s direct labor costs are far lower. However, the US total manufacturing costs (design through delivery) are lower than China s because of higher productivity. The Chinese are aware of this gap. According to an Alliance Capital survey, China s manufacturing job decreased 15 percent, double the average (7%) of the remaining third world countries for This suggests that the Chinese are also improving productivity. According to a June 24, 2000 China State Council Document: 41 With 5 to 10 years effort. Domestic integrated-circuit products will also satisfy most domestic demand and be exported as well while reducing the development and production technology gap with developed countries. [This is not an empty threat.] Andy Chatha, President of ARC Advisory Group, concluded from a recent trip to major Chinese industrial centers that China s automation business is booming -- growing at 25% or 3 times its GDP growth rate. Most major automation companies claimed to have landed at least one mega order in the range of $20-$40 million this year [2003]. Completely new facilities are being built in every industrial sector, including refineries, steel mills, and power, auto, and cement plants. Plus, China s trade balance gives it the money to invest in badly needed infrastructure. Small and Start-up Manufacturing Firms Account for Most Job Growth According to a study by the California Economic Strategy Panel, more than 62 percent of the state s job growth from 1993 to 2002 came from newly formed small companies. logistic systems (intelligent transportation systems), movement and connectivity, and globally distributed problem solving and production capacities (virtual companies). See: Bruce Mau (2004). Massive Change, London: Phaidon Press; and Mary O Hara-Devereaux (2004). Navigating the Badlands: Thriving in the Decade of Radical Transformation. San Francisco: Jossey-Bass. The bipartisan California Economic Strategy Panel was established in 1993 to develop an overall economic vision and strategy to guide California State government and regional public policy. The Panel engages in an objective and collaborative biennial planning process that examines economic regions, industry clusters, and cross-regional economic issues. See: 21

22 Another 37 percent came from expansion of existing firms. Less than 1 percent came from businesses moving into the state. Historically, small California firms have been among the top national performers in terms of growth and sales. 42 Small firms tend to fail more frequently than larger firms, but once they grow they tend to survive with the most dynamic companies creating the most jobs. Many of these characteristics apply to manufacturing firms in California too. 43 Many small manufacturers sell the bulk of their production to one or two large regional or global firms. Many sell their products locally or regionally. There are several types of largefirm small-firm relationships: 44 Non-dependent subcontracting in which a subcontractor provides entire subassemblies such as a completely assembled car door; Subcontracting by a single firm for specific parts or services; and Participation in a business network or supply chain where a number of firms provide a product cooperatively. A California Strength is her Small and Medium Sized Manufacturing Firm s Connections with Global Supply Chains Multinational enterprises provide and control a very large portion of the world s trade and services. A significant portion of this trade flows among supplier and service networks that include increasing numbers of small and medium sized manufacturers. In 1999 more than 40 percent of U.S. imports, and 35 percent of U.S. exports, flowed between parent companies and their subsidiaries. As multinational enterprises move toward acquisition of firm-specific technological capabilities, they are tending to rely on extensive contacts and networking with external sources of expertise and innovation, particularly in smaller firms. These relationships vary by industry and often by firm within an industry. Product distribution, particularly software, is moving rapidly to private networks or to the Internet. Worldwide sales of both consumer products and business services over the Internet will be an estimated $300 billion to $1 trillion in the first decade of the twenty-first century. 45 U.S. small businesses (under 100 employees) are a major force in Internet buying and selling. Recently, 2.8 million US small businesses spent $25 billion for goods and services over the Internet. Business-to-business (B2B) spending, which tops online consumer spending, is driven by two main opportunities: cost savings through more efficient internal operations and trading exchanges (buying and selling goods). 46 Trade networks are organized and controlled by an increasingly small number of multinational enterprises. Five firms control more than 50 percent of the global market in the following industries: consumer durables, automotive, airlines, aerospace, electronic components, electronics, and steel. Another five firms control over 40 percent of the global market in oil, personal computers, and media. 47 Adapted from: Gus Koehler (1999). California Trade Policy. California Research Bureau. 22

23 Multinational enterprises such as those that dominate the above markets differ according to: The direction of movement of their products (from a foreign to a domestic economy is one example). The regional or global reach of their markets. The location of their research, production and other facilities. The type of product they produce, be it natural resource products, manufactured goods, or services. Cultural links to a multinational company s culture of origin can provide an important competitive advantage to small suppliers who wish to develop a networked relationship. Production-sharing involves the distribution of production processes to different global locations based on inherent efficiencies (such as labor costs or skills), reduced cost of production inputs, or improved access to local markets. Typically, U.S. companies retain the research and development, and the capital-intensive production of parts or assembly, while outsourcing labor-intensive operations to a suitable foreign location. Such relationships require careful networking, rapid digital communications and production coordination, and excellent air and sea port facilities to achieve just-in-time parts delivery. 48 As we will show below, these relationships are becoming much more complex due to advanced manufacturing techniques, and changes in materials used for manufacturing, and logistics. California s firms are particularly strong in investing in manufacturing industries that use global production sharing, especially in Asia. 49 The level of foreign firm investment in California manufacturing is also high, particularly in wholesale trade, information industries, such as publishing, motion pictures, and data processing; professional, scientific, and technical services; and in construction and transportation. Exports supported almost 28 percent of California manufacturing workers. For the rest of the United States, this figure is less than 19 percent. Such international connections are strengthened by business established by immigrants who tend to maintain and improve links with their country of origin s business sector. Nearly every California manufacturing sector supports a higher proportion of their workers through exports than the same industries in the rest of the United States. For example, perhaps as many as half of the manufacturing firms in Los Angeles export their products. 50 Clearly, for California, small and medium sized company production is closely tied to logistics, including the Internet, that are, in turn tied to supply chains and markets around the world. Rarely is a single company be they large or small best from a global perspective in every function. This is a competitive issue for small and medium sized specialized manufactures that utilize unique production methods and materials. With the right partnering and flexible networking, the resulting global virtual organization can find and pool the necessary talent and resources to ensure global first-mover advantage or other competitive positioning. 23

24 Major corporations are already sophisticated internationally in terms of their facilities and customer base, finding or creating these partners, understanding international law, buying research capabilities, and negotiating agreements. Intel s recent investment of $1 billion in India, including creation of a venture fund or India s recent agreement with Canada to jointly create nanomedicine products are good examples. 51 Another is Cisco Systems putting $750 million into R&D in its Indian facilities, its plan to create a $100 million Indian seed investment fund, and to provide $10 million for rural connectivity. Microsoft is investing $1.7 billion in India too. The goal is to take advantage of emerging low cost production operations and to purchase new innovative firms that will be serving the Indian market (Microsoft is developing a new Indian language based Windows to compete against Lynx for example.) For a small to medium-sized company, however, gaining global competitive advantage by direct investment is not possible. Successful participation by California s small to medium-sized companies in global supply chains that link to India and China for example, are pivotal for California. Global partnering through various networks is possible for these companies using international organizations like Intelligent Manufacturing Systems. 52 California s small and medium sized companies will have to become part of a Global swarm. Rather than a single enterprise with all of its functions embedded in it production processes, the global virtual enterprise will be dispersed, with smaller units everywhere all working for the collective, or swarm. An automobile company now has suppliers making parts and subsystems all over the world and many research and design functions done remotely, but still controlled by the swarm. 53 Logistics, information systems, organized into supply chains, for example, provide a competitive advantage by efficiently linking a firm to the swarm. Advanced manufacturing techniques (discussed below) allow production equipment to rapidly produce more and different localized consumer centered products for clients anywhere in the world. 54 Increased Numbers of Minority Owned California High Tech Start-ups with International Ties is a Competitive Advantage A second change is taking place in high-technology innovative start-up and firm ownership in both Northern and Southern California. For Northern California, AnnaLee Saxenian points out that: 55 When local technologists claim that Silicon Valley is built on ICs they refer not to the integrated circuit but to Indian and Chinese engineers. Skilled immigrants account for at least one-third of the engineering workforce in many of the region s technology firms and they are increasingly visible as entrepreneurs and investors. This case has relevance beyond the region. As the center of technological innovation as well as the leading export region in California, Silicon Valley serves as a model and a bellwether for trends in the rest of the state. Saxenian goes on to point out that in1998, Chinese and Indian engineers were senior executives at one-quarter of Silicon Valley s new technology businesses. These immigrant- 24

25 run companies collectively accounted for more than $16.8 billion in sales and 58,282 jobs in Start-ups by Chinese and Indian immigrants accelerated during the 1990s. These businesses also established far reaching business ties to Asia due to their language skills and cultural sensitivity. Such contacts continue to be developed for Nanotechnology and MEMS. For example, Shanghai National Engineering Research Center for Nanotechnology Co. Ltd. has Silicon Valley ties with Stanford, Stanford NanoFab, & UC Berkeley, and Sp3 Inc. in Mountain View. The CEO of Shanghai National Engineering Research Center for Nanotechnology Co. Ltd. is Dr. Jie Han, was formerly the technical director and manager of the NASA-Ames Center for Nanotechnology. 57 In recent years there has been a significant rise in Mexican foreign investment in manufacturing, primarily in Southern California. In 1993, the year before NAFTA started, Mexican-invested affiliates in California employed about 5,900 workers. By 2000, that figure had risen to an estimated 9,700 workers. Likewise, the value of property, plant, and equipment (PPE) owned by Mexican-invested affiliates rose over the same period, from $750 million to an estimated $1.1 billion. 58 Most of this investment occurred along the border close to where the parent investing companies were located: 72 percent of Mexican-owned subsidiaries in California are in Imperial and San Diego Counties. This California-Mexico economic integration through supply chains is particularly important because it involves production-sharing between the two countries. California investors favor investment in manufacturing in Mexico over the rest of the world. The following charts show where Mexican-owned subsidiaries are located in California and California-owned subsidiaries are located in Mexico. Graph 6 25

26 Like the Asian connection, the Mexican connection works, not just because of proximity, but also because of scientific, language and cultural strengths exist on both sides of the border. The Growing Number of Minority Owned Manufacturing Firms is Increasing California s Future Potential to Establish new Global supply Chains and Markets Right now, the vast majority of all types of business with employees (not just manufacturing) are owned by White Californians (75.8 percent), followed by Asian (15.3 percent), with Hispanics a distant third (7.1 percent) (Graph 7). In 2002, White owned businesses Graph % Chart: California Business Ownership and Employment by Ethnicity (2002) 80.0% 70.0% Percent of all firms 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% Hispanic White Black American Indian and Alaska Native Percent all Firms Percent Firms w ith Employees Percent Employees Asian Source: 2002 Survey of Business Owners, U.S. Census Bureau. employed 6.1 million workers; Asian owned 762 thousand, and Hispanic firms employed 447 thousand workers. This profile is also probably true of manufacturing firm ownership (only U.S. figures are available) and company earnings as shown in Graph 8. 26

27 Graph % Graph : U.S. Manufacturing Ownership and Employment by Ethnicity (2002) 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% All Firms Percent Firms w ith Employees Percent Percent of Employees 20.0% 10.0% 0.0% Hispanic White Black American Indian Asian Hawaiian and Pacific Islander Source: 2002 Survey of Business Owners, U.S. Census Bureau. The share of all types of businesses owned by minorities rose from 6.8 percent of all U.S. businesses in 1982 to 15.1 percent in In California, the share of business owned by Hispanic firms, for example, increased from 336 thousand in 1997 to 427 thousand in 2002, a 27 percent increase in five years. Graph 9 Graph: Number of California Hispanic Owned Businesses 1997 & , ,805 Number of Firms & Sales (x 1 million) 400, , , , , , ,000 50, ,405 51,682 57, Firms 2002 Firms 1997 Sales/ 2002 Sales/ Source: Small Business Administration (2002), Survey of Business Owners. Data include firms with paid employees and firms with no paid employees Survey of Minority-Owned Business Enterprises. Data include firms with paid employees and firms with no paid employees. 27

28 Despite these increases, minority-owned firms generally had lower survival rates than nonminority-owned firms. Even so, minority-owned firms that survived had higher expansion rates and lower contraction rates than non-minority-owned firms. Most important, while there was an overall loss of employment in 1997, firms owned by Hispanics and by American Indians and Alaska Natives offered a significant increase in new jobs from the Only five percent of all US firms are located in Hispanic neighborhoods where California s future workforce predominantly resides. Of this small number, only a little over half are located in economically distressed Hispanic areas. About 24 percent of Hispanic-owned firms and about 21 percent of Hispanic-owned firm employment are in Hispanic neighborhoods. Looking at more rapidly growing firms, about 48 percent of Hispanic owned fast growing or Gazelle firms are in non-hispanic neighborhoods. Only 19 percent of Hispanic owned Gazelles and 18 percent of their employment are in a Hispanic neighborhood. 60 This information suggests a number of things. First, an integrated EWDP approach involving the SBDCs, CACTs, and other Initiatives could provide assistance that would help to stabilize the companies. Second, while entry level workforce training programs may be located near students, continuing education programs for workers may need to be located close to or in businesses that are located outside of ethnic neighborhoods. Business location also raises questions about job recruitment and placement given potential travel distances between lower income neighborhoods and a good paying job. Latino Manufacturers Mexico MEMS/Nanotechnology Initiative Mexico is moving decisively ahead to capture new technology. Created by the Me'xico- Estados Foundation United for Ciencia (FUMEC), with supports of the Secretariat of Economy, the Center of Productive Joint in MicroTecnología (CAP-mems) Mexico s MEMS initiative is an effort to align with the global design, development, encapsulation and commercialization of MEMS and nanotechnology research, product development and manufacturing. At the moment, Mexico is collaborating with New York, New Mexico, and Texas but not California. Mexico is developing 11 Centers of Design MEMS. The plan calls for attracting national or foreign Investors; academic organization that can reorient their capacity and develop international collaborations with Mexican Universities to help develop cross-border MEMS supplier chains. Already, an "Agreement of Intention" relating to the use of MEMS in the electrical industry has been signed. "Mexico and the United States can generate regional abilities competitive [sic], particularly if they focus in specific niches where Mexico can complement abilities of the United States to accede to national and global markets". The goal in the agreement is to assure that Mexican companies in the electrical sector and companies in the United States collaborate to develop opportunities that apply MEMS to the electrical sector. It is ironic that California is not involved in these efforts despite the state s leadership in research and private sector development. Manufacturing Training in Mexico 28

29 The World Bank studied manufacturing in Mexico in While the study does not look at high-technology manufacturing, it does provide useful insights about how this emerging California manufacturing group views training. Table 2 shows that product exports are becoming more important, as is investment in research and development, and the adoption of new technology. Table 2 Source: Gladys L6pez-Acevedo (2003). Wages and Productivity in Mexican Manufacturing. The World Bank Latin America and the Caribbean Region Economic Policy Sector Unit. Workforce training in Mexico is strongly related to the size of the firm, with only 10 percent of micro firms training their workforce compared to 29 percent of small firms, 47 percent of medium sized firms and 58 percent of large firms. External training was important for micro through medium sized firms, with large Mexican firms depending more on in-house training (Table 3). Different size Mexican firms seem to benefit in different ways from training, with worker s wages in smaller firms benefiting the most. Are rates of return to training associated with complementary investments in technology? Training only has a positive effect in certain types of technology adoption. For example, combining in-house training with the acquisition of new numerically controlled computerized machinery increases 29

30 productivity by 44 percent. both employees and employers benefited the most from external training. The wage return, from in-house and external training was positive in 1999, but whereas in-house training only increased wages by 4 percent, external training increased wages by 26 percent. 62 Table 3 As we will see in a moment, many of the training issues that small Mexican firms face are also faced by small California and US firms. Small and Medium Sized Manufacturing Firm Competitiveness Issues The evolution of manufacturing in California and the US has not been ignored. Studies identifying what should be done to improve small and medium sized manufacturers competitiveness have identified a number of issues including: advanced manufacturing and production technology; and advanced manufacturing and production workforce skills and training. Industry or sector specific surveys have also been done including two completed by Time Structures specifically for this study: California Latino manufacturers technology and workforce skills and training needs; and California nanotechnology and MEMS manufacturing firm technology and workforce skills and training needs. Taken together, a picture emerges showing the tight relationship between basic research, technology transfer, product development, productivity improvements, workforce training, global swarming, logistics, and information technology will determine small and medium sized manufacturing firm competitiveness. One of the more important findings of these studies is that small manufactures don t train their employees. A 2001 National Association of Manufactures survey found that: 63 Sixty-one percent of the respondents said they spend one percent or more of their payroll on training for both hourly and managerial employees; one third (33 percent) 30

31 spent two percent or more; and 17 percent spend three percent or more. Most training (62 percent) is done in-house. The top three sources for outside training are vocational/technical schools (46%); business associations (46%) and community colleges (45%). A California survey of 3,000 small manufactures makes similar findings. This survey noted that identifying and adopting new technology, including information technology, were critical issues for Los Angeles area manufacturers. 64 Taken together, training and technology adoption issues suggest that it may be difficult for existing manufactures to migrate to nanotechnology and advanced manufacturing related process without technology transfer and workforce training help from the CACTs and other EWDP initiatives. State and National Manufacturing Competitiveness Studies Promote Advanced Manufacturing Over the past seven years eleven studies have been conducted by various state and federal research groups analyzing the competitiveness of US and California s manufacturing. The immediate and continuing economic challenges being faced by the United States and California are best described in a joint 2005 study by the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine of the National Academies. Their joint statement deserves a lengthy quote: 65 Having reviewed trends in the United States and abroad, the committee is deeply concerned that the scientific and technical building blocks of our economic leadership are eroding at a time when many other nations are gathering strength. We strongly believe that a worldwide strengthening will benefit the world s economy particularly in the creation of jobs in countries that are far less well-off than the United States. But we are worried about the future prosperity of the United States. Although many people assume that the United States will always be a world leader in science and technology, this may not continue to be the case inasmuch as great minds and ideas exist throughout the world. We fear the abruptness with which a lead in science and technology can be lost and the difficulty of recovering a lead once lost, if indeed it can be regained at all. This nation must prepare with great urgency to preserve its strategic and economic security. Because other nations have, and probably will continue to have, the competitive advantage of a low-wage structure, the United States must compete by optimizing its knowledge-based resources, particularly in science and technology, and by sustaining the most fertile environment for new and revitalized industries and the well-paying jobs they bring. The following list summarizes advanced manufacturing methods, logistics, productivity and workforce training options offered by these studies: *** *** These options emerge from this analysis and are also pulled together from a number of manufacturing studies used in this report including: National Research Council (1998). Visionary Manufacturing Challenges for Washington, DC.; National Coalition for Advanced Manufacturing (2003). Expanding California s Prosperity: Policy Options to Strengthen California Manufacturing. Washington, DC; Bay Area Economic 31

32 Production: Achieve concurrency in all operations. Integrate human and technical resources to enhance workforce performance and satisfaction. Develop the capability to instantaneously transform information gathered from a vast array of diverse sources into useful knowledge for making effective design, production, and logistic decisions. Reduce production waste and product environmental impact to near zero. Develop the capability to reconfigure manufacturing enterprises rapidly in response to changing product designs, time constraints, and emerging opportunities. Develop innovative manufacturing processes and products with a focus on decreasing dimensional scale. Assist small and medium sized companies with identifying and adopting energy conservation technologies. Assist small and medium sized manufacturers in industries that have not used hightechnology in the past, such as food processing, to identify and Adopt technologies that will give them competitive advantage in their industry. Standards and Training: Expand Cooperative Technical Assistance Programs to establish and implement production and other global standards. Provide continuous life-long training for California s workforce that is consistent with matrix and vertical career ladders. Develop a pipeline that connects and motivates high school and college students to choose manufacturing as an occupation. Address the need for improved English engineering language skills by designing ESL programs for workers that suit small and medium sized manufacturer s needs. Align training courses with manufacturer s work and training schedules, and worker transportation requirements to go to a training sight. Provide integrated training programs for workers throughout a supply chain. Forum (2005). One Million Jobs at Risk: The Future of Manufacturing in California. San Francisco; California Regional Economies Project (2004). Manufacturing in Transformation: Economic Change and Employment Opportunities in the Design, Production, and Logistics Value Chain. Sacramento; Committee on New Directions in Manufacturing, National Research Council (2004) New Directions in Manufacturing: Report of a Workshop. Washington, DC; National Association of Manufacturers (2003). Keeping America Competitive: How a Talent Shortage Threatens US Manufacturing. Washington, DC; Committee on Bridging Design and Manufacturing, National Research Council (2004). Retooling Manufacturing: Bridging Design, Materials, and Production. Washington, DC; Committee on New Directions in Manufacturing, National Research Council (2004).New Directions in Manufacturing: Report of a Workshop. Washington, DC; Los Angeles County Economic Development Corporation (2005). Manufacturing in Southern California. Los Angeles; US Department of Commerce (2004). Manufacturing in America: A Comprehensive Strategy to Address the Challenges to US Manufacturers. Washington, DC.; National Research Council (1998). Visionary Manufacturing Challenges for Washington, DC. 32

33 Training Networks: Support the integration and coordination of the CACTS with a newly coordinated Manufacturing Extension Partnership that are integrated in a statewide and National Virtual Network of Centers of Manufacturing Excellence. Explore new avenues for leveraging the unique capabilities of California s national laboratories, colleges, and universities for the benefit of small and medium sized manufacturers, including technology transfer and support for new start-ups. State and Global Supply Chains Develop in-state supply chains to encourage emerging technologies such as MEMS, Nanotechnology and the life sciences to use California suppliers and services. Integrate production improvement strategies with logistics requirements such as product tracking. Texas state economic development experts, in a study of Advanced Technologies and Manufacturing, recognize these changes, and identified several converging technologies that they recommend that Texas concentrate on. (Keep in mind that Texas is second to California in average manufacturing employment.) 66 These are: 67 Nanotechnology, advanced materials, micro-electromechanical systems (MEMS), semiconductors, robotics, wireless (GPS, GIS, smart networks), and power generation. This list and the California Community College s Economic and Workforce Development Program technology priorities are consistent with Texas list and that identified by the National Science and Technology Council, Interagency Working Group on Manufacturing Research and Employment which are: intelligent and integrated manufacturing, manufacturing and hydrogen, and nano-manufacturing. For California, it is the convergence of these technologies along with digital manufacturing, information processing technology, biotechnology, intellectual property created by a trained workforce, and integration of the whole system with logistics, that will confer a product and productivity advantage for California. All but two of these technologies are being addressed by studies that have been or are currently being conducted for the Community Colleges by Time Structures.: Training California s Workforce for 21st Century Transportation Vehicles and ITS Infrastructure, Advanced Transportation Technology Initiative, California Community Colleges; California Community Colleges: Technical Training for Competitive Advantage in the Hydrogen Economy, Advanced Transportation Technology Initiative, California Community Colleges; and Requirements for Digital Manufacturing, Applied Competitive Technologies, California Community Colleges. 33

34 Advanced Manufacturing Workforce Projections The Bay Area Economic Forum in its study, One Million Jobs at Risk: The Future of Table 4 Source: Bay Area Economic Forum (2005). One Million Jobs at Risk: The Future of Manufacturing in California. Manufacturing in California, forecasts that a substantial number of manufacturing jobs will be lost to California if manufactures and the state continue with business as usual. Looking at the report s recommendations that are relevant to this study, companies should: 68 Focus on delivering more customer value and quality (for instance, through more rapid delivery and product customization) rather than just lowering costs. Deploy world-class manufacturing techniques to shorten time involved in supply chains, lower costs, and increase timely delivery. The study recommended that the State government should: Support state universities, community colleges, and vocational institutions in providing more and better-coordinated workforce training programs, to ensure that California companies have access to a labor force with the skills needed to compete with other states and other countries. A second set of recommendations suggests that the State develop a manufacturing strategy that focuses on sectors that are likely to prosper in California. This analysis, in our opinion, can also be used to project likely sector s experiencing job growth. 34

35 Figure 2 Source: Bay Area Economic Forum (2005). One Million Jobs at Risk: The Future of Manufacturing in California. Going to the far right of Figure 2, we find that auto research and development, semiconductors, pharmaceutical research and development, and biopharmaceuticals are sectors that are likely to see job growth. All of these sectors, except semiconductors (MEMS and Nanotechnology will revolutionize this sector in the near future so it should be included here), are all priority workforce training areas for the Economic and Workforce Development Program. The Labor Market Information Division, Employment Development Department (LMID), has made employment projections for manufacturing. Many of manufacturing jobs included in these projections will be using advanced manufacturing tools and systems in the future (Table 5). Each year an average of 65,680 manufacturing jobs in design, production and logistics will open up. The projections do not include biotechnology, medical device, pharmaceutical, and MEMS/Nanotechnology jobs that are expected to develop over the coming years. See: Time Structures (2005). Training California s New Workforce for Nanotechnology, MEMS, and Advanced Manufacturing Jobs. Economic and Workforce Development Program, California Community Colleges. Biotechnology and MEMS/Nanotechnology projections are made in the Time Structures (2005). Training California s New Workforce for Nanotechnology, MEMS, and Advanced Manufacturing Jobs. Economic and Workforce Development Program, California Community Colleges; and in the biotechnology study for the same client. 35

36 LMID has also projected manufacturing employment (excluding the categories just identified) for 2012 (Table 5). Starting from the base year of 2002, manufacturing generally Table 5 Source: Labor Market Information Division, Employment Development Department (2005). Manufacturing Careers. At: 36

37 Table 6 Source: Labor Market Information Division, Employment Development Department (2005). Manufacturing Careers. At: is expected to grow by 26,800 (1.6 percent) from 1,638,200 to 1,665,000 in Durable manufacturing jobs are expected to grow by 22,700 jobs (2.2 percent), from 1,053,300 to 1,076,000 in These modest projections show just how important technology transfer and workforce training are to the future of these companies. 37