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Thursday, March 31, 2005 | This is part two in a three-part series. Read part one here.

The lower volume requirements of San Diego’s niche market manufactured products provides more opportunities for local and regional subcontract manufacturing instead of being sourced offshore compared to the higher volume manufacturing of the San Francisco Bay Area and the Los Angeles basin.

During the recovery from the defense cutback recession, there was tremendous business creation as newly unemployed defense industry engineers and managers started up their own companies. In contrast, the recovery from this last recession has largely been one of the original equipment manufacturers, or OEMs, who remain beginning to order for new and existing products because new OEM startups have been few and far between. What this means is that there are far fewer opportunities to get in on the ground floor with new startups. Instead, increased market share will be achieved by poaching customers from competitors.

Since preparing the first report in May 2003, I have come to believe that we are actually in a period of major disruption in our economy, not just in San Diego and California, but also in all of the United States. The problem isn’t just manufacturing companies moving out of California or going out of business; it is that we are sourcing too much manufacturing offshore, especially in China. Once manufacturing is moved out of the United States, it rarely comes back.

Beginning of an economic revolution

Additionally, the information technology industry has not proved to be the panacea for job creation that some thought it would be for the U.S. economy as American workers are sadly learning that information technology jobs can be even more easily sourced offshore to India and Russia than manufacturing can be sourced offshore to Asia. Compounding this phenomenon is the increasing trend by large corporations to outsource customer service and technical service jobs also to India and Pakistan.

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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