The Morning Report
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Wednesday, March 30, 2005 | This is part one in a three-part series.

San Diego manufacturers experienced a slowdown for the first two months of 2005 after an upturn in 2004. The only companies enjoying an upturn so far this year are a few defense contractors who have been awarded follow-on contracts for existing programs. Everyone else seems to be experiencing flat sales bookings for reorders from existing customers and few new customers.

The 2004 upturn included almost every sector and to make San Diego’s job shops, contract manufacturers and metal finishers significantly busier. This was the longest sustained upturn we have seen since 1999.

(Editor’s note: According to data released March 18 by the California Employment Development Department, manufacturing employment in the county has remained relatively stable since last year. The data says that the county had 103,200 manufacturing jobs in both February 2004 and February 2005. Jobs are only one indication of the sector’s health. An increase in contracts may not lead to more jobs if there are productivity increases.)

Original equipment manufacturers losing customers

This last economic recession saw an unprecedented pruning of prospects, customers and competitors. While the prior recession of 1991-1994 was largely the result of defense cut backs, the California recession of 2001-2003 cut across the board. It witnessed key OEMs cutting back to a fraction of what they once were, going out of business entirely, moving out of the area or moving their manufacturing out of the area. In my more than 20 years of doing sales and marketing in San Diego, this is the worst I’ve seen.

However, the loss of companies didn’t make the headlines in San Diego like the departure of General Dynamics did in the early 1990s because they were mostly smaller companies of fewer than 50 people. Buck Knives’ announcement about their intent to move finally made the headlines in 2003, and they were added to the list when they moved to Post Falls, Idaho in December 2004. The loss of Tyco Nellcor Puritan Bennett in 2002 should have made the news as they had over 1,000 employees when they left in 2000.

Hanging by a thread

We survived the recession of the early 1990s in San Diego by making a painful conversion from defense/aerospace business to mostly commercial business in diversified high-tech sectors, such as bioscience, telecommunications and information technology. This time, there wasn’t another market to which to convert.

In the global economy, American companies aren’t just competing against their rival down the street but also against someone in China, India or Malaysia. As China grabs more and more of the large volume market share, companies in other Asian countries are entertaining smaller and smaller volumes. Many local job shops have disappeared only to be replaced by offshore competitors who compete primarily on the basis of selling price.

Michele Nash-Hoff has been a principal in ElectroFab Sales since 1985, specializing in working with emerging and existing companies to select the right manufacturing processes and outsourcing options for their products. She is the author of numerous articles on technology, manufacturing and business incubation.

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