Manufacturing grows despite drought, regulations

Central Valley Business Journal

June 6, 2016

 MODESTO — For the Central Valley, known for farming and shipping, its status as a manufacturer is often overlooked.

However, here in San Joaquin, Stanislaus and Merced counties, companies make products ranging from auto parts for Tesla’s electric cars to the steel beams for Sacramento’s new Golden One arena.

“Because of the diverse base we have, California remains No. 1 in the nation in manufacturing,” said San Joaquin Partnership President and CEO Mike Ammann. “It is more capital intensive and automated, and jobs are more skilled due to working with robots and computers.”

He pointed out that technology is driving Central Valley manufacturing closer to distribution points because manufacturers must be able to deliver product quickly.

“Manufacturing here is changing, becoming quite combined-value added. The supply chain is expanding and our county is at the forefront of the supply chain,” he said.

A recent study by the Manufacturers Alliance for Productivity and Innovation Foundation noted that economic activities are generated by a large and complex value chain composed of an upstream supply chain that gathers materials and services; and a downstream sales chain which moves goods and services to markets.

In this market linkage important elements were revealed: for every dollar of domestic manufacturing value, another $3.60 of value-added is generated elsewhere. For each full time equivalent manufacturing job, there are 3.4 full-time jobs created in non-manufacturing industries.

That report noted that manufacturing is efficient in delivering a value-added element both in and out of its immediate business sector.

“It takes about 5.8 full-time manufacturing jobs to achieve $1 million in value-added, compared with 7.7 for transportation and 16.9 for retail trade,” the report said.

To attract more manufacturing businesses, experts say California needs to show them certainties exist that will make investing in the state’s business climate a solid investment.

“We need to show that they can count on regulatory certainty, fair taxes, affordable energy and reasonable labor policies to support their long term success,” said California Manufacturers and Technology Association Vice President for Communications Gino DiCaro. “Our business climate challenges are entirely man-made. They could be solved by dedicated leaders who … take bold steps to improve the business climate.”

Although various areas of California haven’t shown the sort of growth in durable goods manufacturing as the industry anticipated, there are positive signs in the Central Valley, said Stanislaus Business Alliance CEO David White.

“The Alliance monitors our manufacturers. We speak to them frequently and companies are expanding,” he said. “Overall, the Central Valley’s manufacturing sector is strong.”

In fact the manufacturing sector was one of the strongest in the Central Valley in 2015, according to Stanislaus State’s Business Forecast. Valley manufacturing jobs grew at an average rate of 1.21 percent last year.

Merced posted the fastest growth in manufacturing employment at 8.64 percent, followed by Stockton at 4.6 percent. The only dip in our region was in Modesto where manufacturing employment declined by 4.41 percent.

“Growth in this category of employment exceeded growth in wholesale trade employment, information, and financial activities employment,” said the report’s author, economist Gokce Soydemir. “This was the most striking development in 2015, given that wholesale trade employment historically has been in the top three fastest-growing categories of employment in the Valley.”

White points out concerns remain about California’s business climate and its effect on businesses and jobs.

“The new mandated minimum wage, more and more state and federal regulations make it difficult to compete with other states that aren’t as heavily regulated as we are,” White said.

Tracy-based Surtec Inc., which was named a “Small Business of the Year” by the state in 2015, is accustomed to complying with regulations. The company develops and produces products, equipment and programs for the cleaning and maintenance industry.

“Regulations are an everyday occurrence for us,” said Mary Ann O’Neal, the company’s marketing director. “California continuously leads the nation in establishing the toughest regulations, programs and procedures and Surtec is constantly being challenged to meet new, more stringent mandates.”

However, when it came time to expand, O’Neal said there were lots of reasons to choose Tracy.

“Surtec located in Tracy for more space,” she said. “The company was able to build a custom facility with a lot more square footage. It was quite an expansion, making room for the growing staff, updates to manufacturing capabilities, a larger chemists lab, and a much broader equipment and service department.”

Those who work to develop the Central Valley’s economy say the region has a lot going for it, including cheaper and more available land; access to rail, freeways and the Port of Stockton; and an atmosphere that’s welcoming to business.

“The Central Valley’s business friendliness is very strong in the manufacturing sector,” White said. “We expect it to remain so.”

“We’ve overcome barriers thrown up, drought, regulations, and more,” Amman said. “But manufacturing is an adaptable, gritty business sector, and San Joaquin County has room to grow and build for the future.”

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