Partnering For Business Retention Rev 6 Seminar
-
Upload
david1mayagoitia -
Category
Documents
-
view
89 -
download
0
Transcript of Partnering For Business Retention Rev 6 Seminar
Partnering for business retentionA plan for regional economic development.
Presented by: DEITAC
WHY SHOULD WE TALK ABOUT PARTNERING?
• CONCERN regarding our shared future, California’s and Tijuana’s, with regards to manufacturing.
•A SOLUTION to improve our competitiveness globally, at least for some industries and cities.
THE REGION’S MANUFACTURING SUCCESS DEPENDS ON OUR COLLABORATION.
California’s industry at a glance
High-tech manufacturing industries employment
Source: US Bureau of Labor Statistics
Preliminary figures for 2009
Pharmaceutical & medicine
10% Commercial & service industry machinery
2%
Computer & peripheral equipment
13%
Communications equipment
6%
Audio & video equipment
1%
Semiconductor & other electronic component
20%
Navigational, measuring,medical, & control
instruments 20%
Magnetic & optical media
1%
Aerospace products & parts 16%
Medical equipment & supplies
11%
0
100000
200000
300000
400000
500000
600000
700000
2001 2009
620,279
452,524
27% employment reduction over the past 8
years
Summary of the last century
1900’s 1940’s 1970’s 1990’s
Birth of aircraft
industry
Forefront of aerospace industry
First microprocessor
produced
Biomedical industry
• Entrepreneurship & opportunity• Industrial base & labor growth• Industrial GDP increase• Hi-tech sectors diversification• Internal market growth• Innovation leadership
• Struggle to remain competitive• Tax burden & regulatory compliance costs
(and more to come) • Labor issues: unionism & workers comp.• Increasing government budget deficit• Engineering talent shortfall• Intra & international competition
Aerospace in California
• Birthplace of the aircraft industry
• 70,779 employees in 2009
• Value of shipments $ 23.7 billion USD (2008)
17% employment reduction over the past 8
years
Source: US Census Data, considering NAICS 3364
14%
86%
2009
CaliforniaRest of US
0
10000
20000
30000
40000
50000
60000
70000
80000
90000
20012009
85,051
70,779
Considering new options
“Locating manufacturing operations abroad is sometimes seen as the only way to compete with these challenges. …
Using low labor costs, relocation incentives and the availability of an extremely qualified technical workforce as inducements,
many foreign countries present an attractive alternative to California aerospace companies struggling with the cost of living
and doing business in the Golden State.”
Energizing California Aerospace, Report to the California Commission on Economic Development,
Aerospace Advisory Committee - November 2008
Industry relocation
Hughes helicopter
(Mesa, AZ)
Rockwell International
(Tulsa, OK)Lockhead
Martin(Marietta, GA)McDonnell
Douglas(Perry, GA)
Northrop Grumman
(Washington, DC)
Hughes Aircraft(6 southern US states)
Perhaps one of the most recent and significant cases is Northrop Grumman, moving it’s headquarters from L.A. to Washington, D.C., area, the company was the last major aerospace firm based in Southern California.
The decision is seen as a blow to the much-battered regional economy:…"This is very bad news, a crummy way to get 2010 started,"
said economist Jack Kyser of the Los Angeles County Economic Development Corp. …
Los Angeles Times - January 05, 2010.
McDonnell Douglas C-17(Salt Lake C., UT)
TRW(Fairfax, VA)
Rockwell International
(Dallas, TX)
• Currently no final assembly plants operating in California
• Over 32,000 direct employees, showing a decline trend
• Employment related to parts manufacturing, Corporate Headquarters, R&D facilities, Scientific & Technical Consulting
• Estimated 127,000 people worked in automotive support industries (2005).
Automotive in California
36% employment reduction over the past 8
years
Source: US Census Data, considering NAICS 3361,3362 & 3363
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
20012009
43,248
27,569
4%
96%
2009
CaliforniaRest of US
A century of automotive industry
One of the most dynamic and relevant components of the manufacturing industry in North America and globally has had a significant presence in California:
1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 +
GM Oakland / (Chevrolet cars and trucks)Chrysler Stockton / (Dodge trucks)
Chrysler San Leandro / (Plymouth & Dodge cars)Ford Long Beach / (Plymouth & Dodge cars)
Chrysler LA / (Plymouth & Dodge cars)
Ford Richmond / (Cars and armored vehicles)
GM Southgate/(Buick, Olds, Ponitac)GM Van Nuys / (Chevrolet – Pontiac cars)
Nash Motors El Segundo/(American Motors cars)
Ford San Jose / (Ford and Mercury cars)Ford Pico Rivera / (Ford cars)
GM Fremont / (Chevrolet cars and trucks )GM – Toyota Fremont (NUMMI)/ (Chevrolet, Toyota, Geo, cars and trucks )
Tesla – Toyota / (Electric vehicles)
Willys – Overland Maywood / (Cars)
Studebaker Vernon/ (Cars)
NEW
ERA
=
NEW
OPP
ORT
UN
ITIE
S
The case of Nissan North America
CALIFORNIA
TENNESSEE
NNA - Corporate HQGardena, CA - Est 1960
NNA - Smyrna plantSmyrna, TN - Est 1983
NNA - Canton plantCanton, MS - Est 2003
NNA – Decherd (Parts)Decherd, TN - Est 1997
Nissan Trading Corp.Farmington Hills, MI - Est 1984
Nissan Design AmericaSan Diego, CA - Est 2005
NNA - Corporate HQFranklin, TN - Reloc 2008
It is evident that proximity has strategic advantages; the question remains as for how long will design operations be sustainable by themselves for Nissan in California and what other companies will follow the example.
Biomedical industry in CA
Total Biomedical Employment by Cluster (2008)
Source: California Biomedical Industry – 2010 report; California Healthcare Institute – PriceWaterhouse Coopers
Sacramento 1.1%
Bay Area 19.5%
Ventura/Santa Barbara 3.7%
Los Angeles 16.1%
Orange County 11.1%
San Diego 8.6%
Riverside/San Bernardino
2.9%
• Second largest hi-tech sector on employment in CA
• 36% of companies reduced their employment in 2008-2009
0
10000
20000
30000
40000
50000
60000
70000
20012009
69,656
63,638
9% employment reduction over the past 8 years
(medical device sub-sector)
US Census Data, considering NAICS 334510, 334516, 334517, 339112,
339113, 339114, 339115.
Why the downsizing?
45%
13%
13%
4%4%
4%4%
13%
Overall business climate/ cost of doing businessLack of tax incentives / unfavorable tax environmentInfrastructure established elsewhere
Cash incentives from other regions
Qualified workforce elsewhere
Willingness to tailor packages to individual company needs elsewhereCost of living elsewhere
Other
If your company’s R&D, manufacturing, general and administrative or overall workforces inside California have been reduced in the past year, select the choices (all that apply) that describe why.
Source: California Biomedical Industry – 2010 report; California Healthcare Institute – PriceWaterhouse Coopers
45%
13%
13%
4%4%
4%4%
13%
Overall business climate/ cost of doing businessLack of tax incentives / unfavorable tax environmentInfrastructure established elsewhere
Cash incentives from other regions
Qualified workforce elsewhere
Willingness to tailor packages to individual company needs elsewhereCost of living elsewhere
Other
The end result
0
50000
100000
150000
200000
250000
300000
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Transportation equipment manufacturing employment in
California
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
General manufacturing employment in California
A clear trend over 20 years of manufacturing employment loss.
- 59% - 35%
AXIS, with data from California Employment Development Department
Best and Worst State Ranks 2010 (For doing Business) Chief Executive Magazine
Bill Dormandy, CEO of San Francisco medical device maker ITC, summed it up: “California has a good living environment but is unfavorable to business and the state taxes are not survivable. Nevada and Virginia are encouraging business to move to their states with lower tax rates and less regulatory demands.”
What do CEO’s think?
A broader benchmark
2009 State Index
Competitive disadvantages
• Workers compensation premium rates Rank = 37
• Travel time to work Rank = 44
• Median monthly housing costs Rank = 49
• % of Population aged 25 and over that graduated from high school Rank = 48
• S&E degrees awarded per 100,000 hab. Rank = 31
• % of labor force represented by unions Rank = 45
• Minimum wage Rank = 44
More to come
In addition to the increasingly large number and complexity of regulations that has typically doubled the approval time of projects to 51 weeks versus 26 in other states -- increasing the cost of operations in the long run-- there's more on it’s way:
– 2010 continued economic decline
– Implementation of AB 32
– ‘Card-Check’ Forced unionism bill
– Clean and alternative energy regulations
– Healthcare related regulation
WHAT ARE THE OPTIONS?
a) Closing down operations• Direct and indirect loss of labor• Tax base erosion• Loss of economic base
b) Relocating to Asia • Total loss of labor and partial loss of professional positions• Partial tax base loss• Partial loss of economic base• Slower response to market• Risk intellectual property
c) Relocating elsewhere in the US• Total loss of manufacturing jobs and eventual loss of
professional positions• Gradual tax base loss• Gradual loss of economic base
Or partner with Tijuana and stay in CA.
Extended value chain
How we can be part of the solution
Rese
arc
h a
nd d
evelo
pm
ent
Key c
om
ponent
manufa
cturi
ng
Com
modit
ies
man
ufa
cturi
ng
New
pro
du
ct d
esi
gn
Ass
em
bly
and
pack
ag
ing
Cust
om
izati
on
Logis
tics
and d
istr
ibuti
on
Mark
et
an
d b
rnad d
evelo
pm
ent
Cust
om
er
serv
ice
Valu
e a
dded California
Tijuana
AXIS | Strategic Intelligence Center, based in the Stan Shih model
$
Flexible partnering curve
LCC
• Production outsourcing contracts
• Materials and parts
• Support services
• R&D and tech support
• Finished / semi-finished goods
• Support services
An integrated industrial model= A more COMPETITIVE region
Current efforts in the right direction:
CAHeadquarters
Strategic ProcessesR&D Centers
Sales & Customer Service
TJManufacturing
Outsourcing
= A Stronger Regional Economy
(CA exported $ 17.4 B USD to Mexico in 2009)
$
$
$
Our proposal
Partner with Tijuana : the most convenient near shore option.
PROS
• Keeping in CA high value added operations.
• Keep strategic manufacturing processes and jobs.
• Keep a significant proportion of your tax and economic base.
• Keep a large portion of supporting operations (labor multiplier of 5 to 15).
• Be time and cost competitive
• Strengthen a consumer and export market
CONS
• Loose some of the manufacturing employment .
Maintaining a good share of the value added in many ways
"There are over 5,000 individuals on U.S. payroll commuting daily from San Diego to Tijuana, and that number goes up constantly.
Nearly every manufacturing plant that locates in Tijuana creates jobs for U.S. payroll individuals; in many cases companies have
over 20 professional level employees.
A significant number commute on hired shuttle services."
Fernando Ortiz-BarbachanoPresident, Barbachano International, Inc.
What others have done
• There are plenty of success stories that confirm our model:– Qualcomm (San Diego – Tijuana)– CareFusion (San Diego – Tijuana)– Solar Turbine (San Diego – Tijuana)– Kyocera (San Diego – Tijuana)– Sony/Foxconn (San Diego – Tijuana)– Sanyo-Matsushita (San Diego – Tijuana)– Yakima (San Diego – Tijuana)– Avery Dennison (Pasadena – Tijuana)– Mattel (El Segundo – Tijuana)– Clayton (City of Industry – Tijuana)– Teledyne (Thousand Oaks – Tijuana)– Leach International (Buena Park – Tijuana)– Meade Instruments (Irvine- Tijuana)– Plantronics (Santa Cruz – Tijuana)– Sunbank Corp. (Paso Robles – Tijuana)Among others
Achieving specific benefits
Using the production sharing model = reduction in manufacturing cost.
Labor costs are 40-80% lower in Tijuana than in the U.S., and the fully-burdened cost for most manufacturing or assembly operations ranges from as little as $7 and up to $15 per shop hour (including direct labor and support staff, plus all facility and operating costs).
What's in it for you?
DescriptionUS Cost Tijuana Mex. Cost
EmployeesNumber of EmployeesDirectIndirectAdministrativeHours/Work WeekHours per year
140101251440
2080
140101251448
2496
Labor Cost per HourDirect Labor Cost/HrIndirect Labor Cost/HrAdmin Labor Cost/Hr
$ 12.97$ 21.71$ 24.47
$ 2.95$ 12.35$ 22.65
Factory CostLaborOverheadGeneral & Administrative
$ 12.97$ 7.90$ 3.87
$ 2.95$ 4.64$ 3.70
Factory Cost/Hour
Total Operating Cost
Potential Annualized Savings
$ 24.74
$ 5,196,584
$ 11.29
$ 2,846,436
$ 2,350,148
Notes: 1.Exchange rate at $13 Mexican Pesos per $1 US Dollars; 2. Does not include Interest, Amortization & Depreciation; 3. Does not include relocation costs.
*COMPARATIVE COST ANALYSIS AND POTENTIAL SAVINGS, OF A TYPICAL 140 EMPLOYEE MEDICAL DEVICE MANUFACTURING OPERATION LOCATED IN THE US AFTER RELOCATING TO TIJUANA, MEXICO
While already very cost-competitive, the recent decline in value of the Mexican peso in 2009-2010 has made the cost of doing business in Tijuana even lower…
…typically more than 50% lower than in the U.S. …not to mention Mexico’s48-hour work week…
How to get started
3 phases to establishing operations in Tijuana:
GET TO KNOW TIJUANA :
• Receive information in print or electronic format
• Visit existing operations in Tijuana
• Meet with key institutions
DETERMINE THE SCOPE OF OPERATIONS SUITABLE FOR NEARSHORING:
• Estimate total cost savings
• Evaluate operation model (Shelter, outsourcing, stand alone ops.)
• Decide on ownership structure
SET UP YOUR BUSINESS IN TIJUANA:
• Incorporate Mexican Company
• Register with fiscal and labor authorities (state and federal)
• Obtain Facility (lease-buy)
• Open bank accounts• Start your set-up
process. Etc…
Tijuana’s EDC and its members are here to assist you in EVERY STEP TO RECOVERY.
Regional Team-Marketing
• Seminars in Northern California
• Joint Presentation:– Implementing
your Near-Shore Strategy in the San Diego-Tijuana Region
www.tijuana-edc.com
Questions, comments?
Thank you!