Oregonian, The (Portland, OR)-July 29, 2012
Author: RICHARD READ, The Oregonian
Floyd Sutz and his crew at Vanguard EMS Inc., a contract manufacturing company, swim upstream each day in a Beaverton office park off Oregon 217.
They buck the powerful tide of jobs moving offshore by making electronics products under contract, rather like millions of workers do in China. To keep afloat, they concentrate on their specialty, making complex electronics goods for customers who require extra quality control and monitoring.
As Oregon slowly recovers from recession, manufacturing and high technology are two of the industries expected to help lead the state and boost hiring. Exports and health care are other promising sectors.
These industries must carry the load in the absence of housing and construction, which often lead economies out of slumps but are still struggling, along with lending, from the real-estate bust and financial crisis.
Like Sutz and his workers at Vanguard, businesses across Oregon must step carefully, finding well-defined niches in an ever more competitive global economy. Workers and job seekers, too, must hone skills and target specific opportunities while the state's unemployment rate remains high, especially in rural areas.
In many cases, expectations have dropped. Wage-earners adjust to lower paychecks and companies confront shrunken domestic markets. Vanguard employs 150, down from a peak of 450 in 2000. As Vanguard's competitors failed, the company survived by dropping prices and breaking even at times in order to retain its trained workforce until finding the next viable contract.
Now Sutz, like many other business owners across the state, is cautiously optimistic.
"There are more opportunities that we're working on than I've seen at the same time in the last three years," said Sutz, crediting the strengthening economy and individual circumstances. "In one case, and this warms my heart, the CEO has mandated that the product will be made in America."
Oregon has long been a manufacturing state and an export hub. During the last few decades, it transformed into a high-tech manufacturing state and a place that boosts well-paid jobs by adding value to products --processing agricultural goods, for example --before shipping them.
The recession hurt manufacturing, which had already declined after peaking at 232,000 jobs in 1998. Oregon factory employment plunged to 161,900 in 2009. In June, manufacturing employment hit its highest level in three years, rising by a seasonally adjusted 900 jobs to 168,700.
Exports, which tend to support high-income jobs, also dove. But they're rebounding, and this year could break the $14.9 billion record set in 2009. While Europe falters, Asia's relentless growth plays to Oregon's advantage as a Pacific Rim state.
Health care is another sector helping lead Oregon toward recovery, said Tom Potiowsky, chairman of Portland State University's economics department. "The tough part is," he said, "this is all going to unfold slowly."
"The thing you cannot do is compare current growth to the mid '90s," said Potiowsky, who directs the Northwest Economic Research Center. "If you do, it doesn't look like much is happening."
Offshoring boomed during the 1990s and 2000s, as U.S. companies took advantage of inexpensive labor and growing manufacturing capabilities abroad. Some Portland-area contract manufacturers closed between 2001 and 2003 as work diminished.
Sutz, who worked at the company he later renamed Vanguard, acquired the business in 2003, saving it from closure. Competitors Benchmark Electronics Inc., in Beaverton, and Suntron Corp., in Newberg, shut in 2009 during another wave of closures, ending about 500 jobs.
Sutz is proud that Vanguard, with undisclosed sales, has halved overhead expenses in five years. The company's 150 employees produce about the same revenues as 250 workers did when he bought it.
Vanguard has transformed in ways that many Oregon companies have done to stay alive. The landlord added space so workers could streamline assembly in the 70,000-square-foot plant.
The company then moved every piece of factory equipment, reorganizing workflow and job descriptions to boost productivity. The manufacturing manager wears two hats, also directing engineering. The human resources manager doubles as quality control manager.
Line workers make between $11 and $19 an hour, plus health benefits and, when times are good, profit sharing. That's still well above Chinese wages, though pay in China is rising, prompting some U.S. companies to reconsider offshoring.
Sutz promotes what's called onshoring, seeking relatively low-volume orders for products that keep upgrading, meaning that customers want to keep close tabs on the assembly line. He points out hidden costs of offshoring, such as travel and shipping expenses, tariffs, time-zone differences, long lead times, and cultural and linguistic misunderstandings.
Once companies perfect products and shift to mass manufacturing, they tend to graduate from Vanguard and go offshore. Sutz wishes them well. Some manufacturing should go abroad, he said. "There is no cellphone made in the United States," Sutz said. "No PDA, no tablet, no hand-held phone and no remote control, unfortunately."
But Vanguard can continue making products such as sensitive military or high-tech goods banned from foreign production. It makes goods including circuit boards that customers don't want to produce abroad for fear of trade secrets being stolen. It makes a respirator for premature infants that requires strict quality control. It makes equipment for testing disk drives that are built offshore.
"I think for our country to continue to innovate and thrive, we have to make things here," Sutz said. "There's a connection between making a thing and improving and innovating."
Sutz, 56, remembers his father, a Chicago tool-and-die designer, returning from work excited by ideas for improvements that he sketched for his family. His dad's superiors repeatedly shot down the suggestions.
"That really stung me as a kid," Sutz said. He makes a point of soliciting ideas from line workers.
But as a business owner on the front lines of global competition, Sutz worries about younger workers.
"I'm concerned about the typical low-skilled to semi-skilled American workers for the next couple of generations," Sutz said. "We're going to see a couple of generations where kids, typical working-class Americans, aren't going to do as well as their parents.
"There are a lot of hungry, smart, capable people in the world, and they're willing to work for a lot less than what their peers earn here."
Richard Read: 503-294-5135; firstname.lastname@example.org. twitter.com/ReadOregonian
Edition: SunriseSection: Olympics
Record Number: MERLIN_20374093Copyright (c) 2012 Oregonian Publishing Co.