San Diego County extends from Camp Pendleton to the north to the U. S. border with Mexico to the south. The county takes in 4,255 sq. miles, which is about the size of the state of Connecticut. Almost all industry is located in a coastal strip up to 30 miles wide.

Industry in San Diego is basically classified as "light," "clean," or "high tech" in comparison to the heavier industry of Los Angeles.

There are nearly 4,000 manufacturing firms in San Diego County, including such electronic giants as Sony and Kyocera and such medical leaders as Cardinal Health (formerly Alaris.) However, only 35 of these firms are large businesses with over 500 employees with about another 1% employing 150 to 499. The 98% balance consists of 2% employing 51-100, 4% employing 21-50, and 92% employing fewer than 20 persons according to data published by Inside Prospects.

ElectroFab has identified about 1,000 companies as having sufficient fabrication requirements to make it worthwhile to seek business. These companies are located primarily in industrial parks scattered throughout the county, with the greatest concentration being in the Sorrento Valley/Mira Mesa area of the city of San Diego and the highest growth areas being in the north San Diego county areas of Carlsbad, Poway, Vista and San Marcos.

With Mexico at its southern border, San Diego has become a key region for a rapidly expanding maquiladora industry. International firms such as Cannon, Sanyo, Sony, Mitsubishi, and Kyocera have established facilities within San Diego and across the border. Although the maquiladora industry suffered from the recession of 2001-2003 just as U. S. companies did, they started to rebound in 2004. However, many of the key vendors for Japanese and Korean firms also set up maquilas so it is difficult for U. S. companies to become vendors, especially for fabrication services.

According to information presented at the 2007 San Diego County Economic Roundtable by the San Diego Regional Chamber of Commerce, San Diego's manufacturing industry is still the number one producer of the Gross Regional Product (GRP), representing 25% of the 157.8 billion dollar GRP in 2006. The aerospace/military sector ranks second, and tourism is a distant third.

The top manufacturing sectors are:

  • Electronic/electrical machinery
  • Aerospace/transportation/shipbuilding
  • Industrial machinery/computers
  • Instruments

The San Diego manufacturing market expanded by 38% between 1986 and 1990 but the recession and defense cutbacks caused a reverse trend starting in 1991. Nearly one of every five manufacturing jobs in San Diego had been lost by 1995. One-third of these lost jobs were in aerospace and other defense related manufacturing. From 1994 on, however, other industries began adding employment, and the number of new, start-up companies and smaller business ventures also expanded, accounting for the creation of many jobs in the telecommunications, software, and biotech/biomedical devices.

San Diego has always been a "start-up business" area where companies grew to a certain size and were acquired by usually out-of-the area companies. The new owners usually kept the division or subsidiary in San Diego because they were afraid of losing key people if they moved the company out of the area. However, since 2001, these out-of-state owners have taken a look at the bottom line for their San Diego-based company and decided they couldn't afford to stay in California. San Diego companies have been consolidated to such former business unfriendly states as Ohio, Minnesota, and Maryland.

The biggest challenge manufacturers' representatives like ourselves face is that we have been losing customers and prospective customers since the beginning of 2001 because of the adverse business climate in California and the effects of the recession. Our records indicate that about150 manufacturers have either moved out of state or gone out of business since January 2001.

The main reasons for moving out of California are:

  • High cost of workmen's compensation
  • High cost of unemployment insurance
  • High cost of medical insurance for employees
  • High cost of energy
  • High cost of taxes

While the mass exodus of companies moving out of San Diego County slowed down after the Schwarzenegger reforms in early 2004, it began to accelerate last year. The initial list of 40 companies in my first report of March 2003, more than doubled to 85 by the end of 2003. Another 61 companies have either gone out of business or moved out of state since then for a total of 146 companies no longer in business or located in San Diego County.

It is important, however, to note that these 146 companies represent 10% of the number of customers and prospects we had in our database in the year 2000 before the recession started.

Based on employment data for companies listed in the 2000 Technology Directory for San Diego County and estimating 20 employees for companies not listed in the directory, I have estimated that we have lost more than 7,000 jobs. The California Manufacturers and Technology Assoc. calculates that we have lost more than 300,000 jobs in California since the beginning of 2001.

While the previous recession of 1991-1994 was largely the result of defense cut backs, the economic recession of 2001-2003 cut across all sectors of the manufacturing industry, resulting in an unprecedented pruning of prospects, customers, and competitors. We witnessed key OEM's 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.

After three years of recession (2001-2003), San Diego County's manufacturing industry had three years of a general business upturn from 2004-2006. This was the longest sustained upturn we had seen since 1999, and economic experts at the San Diego Regional Chamber of Commerce economic conference held in October 2006 predicted a slight cooling down of the economy in 2007. However, the economy slowed down more than was predicted in 2007 and continued to slow down even more in the first half of 2008. Experts made various recommendations for economic strategies to try to stave off a recession this year, but they are now admitting that the nationwide economy is in a recession. Now, they are recommending strategies to try to stave off a depression next year.

As the OEM's began to experience an upturn in 2004, our local competitors (primarily machine shops, sheet metal shops, and welding shops) became loaded with enough work to stretch out lead times. This resulted in the buyers at OEM's becoming willing to quote new companies for fabrication services to meet their own delivery requirements. Because we were calling on the buyers in a regular, timely fashion, we were able to take advantage of these new opportunities

The number of companies involved in new product design and development increased in the last five years, and this has resulted in more opportunities for the companies we represent due to our regular and timely contacts.

One might think that with so many former competitors no longer in business, it's back to business as usual, but nothing could be further from the truth. In the global economy, American vendors aren't just competing against their rival down the street but also against someone in China or Singapore. As China grabs more and more of the large volume market share, other Asian vendors are entertaining smaller and smaller volumes. Many of our competitors have disappeared only to be replaced by offshore competitors who compete primarily on the basis of selling price.

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 the latest recession has largely been one of the OEMs who remain ordering more. We haven't come across as many new OEM startups making hardware products in the past few years. However, there have been numerous startups offering software and internet products and related services.
What this means is that there are far fewer opportunities to get in on the ground floor with new startups. Instead, growth for vendors will be achieved by poaching customers from competitors. It will be a buyer's market and vendors will have to perform extraordinarily not just to grow but also to avoid losing market share. The two most common factors in losing customers have been a track record of excessively late deliveries and rejected parts. Those vendors who improve their performance in those areas are more likely not to lose existing customers, as well as gain new ones, than those vendors who continue to be lacking in these areas.

With a smaller pie of prospective customers to fight over, customer service, from the sales representative, to the worker on the production line, right up to the company president, will be key to the growth of business for job shops. Those companies lacking a sales force or who ignore or fail to act on reports of customer disgruntlement from their sales force will very likely see a diminishing customer base. Follow-through will be key; no sale should be considered complete until the order is delivered, the parts accepted and the customer indicates his satisfaction with how his order was processed.

Job shop and contract manufacturing vendors are not so much in the parts business as they are in the customer service business. With every requisition, OEM buyers have a potential problem. If you solve his or her problem by delivering parts compliant to drawing and on time, you just solved the buyer's problem and he will be happy with you. If you fall down in processing the order, you just created a problem for the buyer, and he or she will be unhappy with you, and in turn, us, for creating a problem for them.

There will be opportunities for growth in 2009 and beyond but they will require extraordinary marketing effort and customer service to achieve them.