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CT Manufacturing: Fighting Uphill Battle

By Brad Kane

February 07, 2011

Manufacturers are finding fewer and fewer reasons to stay in Connecticut. And it shows.

While nationally manufacturing revived in 2010 adding jobs to the industry for the first time in 13 years. Connecticut continued its slow, steady decline. Another 4,700 manufacturing jobs in the state were lost last year, continuing a trend of job loss for 19 of the past 21 years.

Since 1990, Connecticut has jettisoned 45 percent of its manufacturing industry employment, losing a total of 138,400 jobs. Only five states — Rhode Island, New York, New Jersey, Massachusetts and North Carolina — have lost a greater percentage of manufacturing jobs.

“If you lost 140,000 manufacturing jobs over the past 20 years, you ought to be scared out of your mind… but Connecticut isn’t,” said Fred Carstensen, director for the Connecticut Center for Economic Analysis. “The state has been too passive in keeping manufacturers here.”

More than 4,500 manufacturing companies remain in Connecticut, and the reasons they still are in the state range from a strong customer base to a sophisticated workforce to government loans. But the main reason these manufacturers choose to stay is the most fundamental:

They already are in Connecticut.

They came, they saw, they prospered here. For many reasons, these manufacturers chose Connecticut and find it easier to stick with it.

Inertia is a powerful force, even inertia of rest.

“Our customers pay a premium for our products, so I can afford to stay in Connecticut and pay the increased costs,” said Burke Doar, vice president of sales and marketing for Trumpf North America, based in Farmington. “But at some point, the customer will say ‘You aren’t worth the premium’.”

The cost of labor may be high; energy costs may be high; the government may be schizophrenic; but, for many, moving away is seen as a giant pain. For all their grumbling about paid sick leave legislation, the changing tax code and health care mandates — how the next straw will be the last straw — manufacturers find relocating to be an expensive and consequential ordeal.

But if inertia of rest is the best argument for manufacturing in Connecticut, the state is in trouble, Carstensen said. With 168,200 manufacturing jobs remaining, that number only will go down as jobs aren’t added into the state. Companies aren’t picking up and leaving in droves; but as new companies decide where to locate or current companies decide where to expand, Connecticut’s chances aren’t good.

“They aren’t going to pick up and leave overnight,” Carstensen said. “But they are slowly going to move their operations to where there are fewer and fewer jobs here.”

Those companies that are growing operations in Connecticut aren’t doing so because of the state’s business atmosphere. Yarde Metals is building a $20-million, 140,000-square-foot warehouse expansion at its Southington property because the facility is at the center of its distribution to the Northeast and the Mid-Atlantic markets.

“Connecticut certainly isn’t the most inexpensive place, but the majority of our market is here, so it would be expensive to relocate,” said Matt Smith, Yarde Metals’ president and chief operating officer.

What initially brought manufacturers to Connecticut usually boils down to: they had roots in Connecticut; they found a quality, competent workforce; and the state was a good location to serve and grow their customer base.

Pratt & Whitney Aircraft Co. was founded in 1925 in Hartford after Frederick Rentschler struck a deal with an existing Connecticut manufacturer for start-up money and facilities. That was the beginning of a $12.5 billion aerospace company with a global reach that maintains its headquarters in Connecticut.

That also was the beginning of Pratt & Whitney’s supply chain, now totaling more than 600 companies in the state. New Britain manufacturer Admill Machine started 22 years ago as a job shop for Pratt & Whitney, developing jet engine parts. Pratt still comprises 70 percent of Admill’s business and is the primary reason Admill remains in Connecticut.

“There’s a market here for aerospace business,” said Al Parlow, Admill Machine sales manager. “A lot of our business is built upon relationships, and we have established relationships here.”

Trumpf Inc. — a privately owned German machine tool manufacturer — picked Farmington as its North American headquarters because the owner thought — in 1968 — New England had a knowledgeable workforce and found the area to be more politically stable than the Midwest, where most of its competitors had their American operations.

In the 42 years since Trumpf North America opened for business, the company maintains 67 percent of its 750-employee workforce in the state; but the German family that owns the company — the Leibingers — is mindful of Connecticut’s extra costs, said Doar, Trumpf North American vice president for sales and marketing. In 2008, Trumpf shifted its frame welding operations from Connecticut to Monterrey, Mexico.

Still, the company sees the value in staying at its established headquarters, Doar said. In 2006, Trumpf opened a $35-million laser factory on its Farmington campus. The company picked Connecticut over a less expensive New Jersey site because the company already owned the Connecticut land, and shipping the parts across the parking lot is cheaper than sending them up the East Coast.

“We are fortunate that we have owners that look long-term,” Doar said.

To offset the high labor and energy costs that come with production in Connecticut, Trumpf searches for efficiencies in its manufacturing to keep its prices reasonable, Doar explained. The company bills itself as a provider of premium products that perform better than its competitors’, so customers are willing to absorb the extra costs.

But labor and energy costs keep rising for Connecticut businesses relative to the rest of the nation. For the third consecutive year, Connecticut’s electricity rates were the second highest in the country, behind only Hawaii.

Since 2007, the average weekly earnings of Connecticut manufacturing employees were the second highest in the nation, as Washington state and Michigan flopped the No. 1 and 3 spots. In November, Connecticut officially took over the No. 1 spot, as the only state in the nation where manufacturing employees take home more than $1,000 per week on average.

When Shelton packaging manufacturer Inline Plastics Corp. was choosing a location for its 2011 expansion, the company found a Georgia facility would be 50 percent cheaper in energy costs, 13 percent cheaper in labor costs and 40 percent cheaper in building costs than Connecticut, said Inline President Tom Orkisz.

The 42-year-old company eventually chose Connecticut for the expansion — growing its workforce in the state to 214 — because most of its customers are in the Northeast and the shipping is cheaper. Plus, the Connecticut Development Authority and the state Department of Economic and Community Development loaned Inline $800,000 to cover half the expansion costs.

“It was a close race between placing the facility in Georgia or Connecticut,” Orkisz said. “The state’s support certainly helped.”

South Windsor aerospace parts manufacturer AMK Welding Inc. discusses leaving Connecticut occasionally, as its clients want AMK closer to their facilities throughout the United States and Europe, said Brett Greene, AMK operations manager.

But the 47-year-old company stays because of its history in the state, and employing New England’s well-trained and competent workforce is vital to operations, Greene said. AMK hit all-time high revenues at $10 million in 2010 — selling mostly to Connecticut-based General Electric — and the company doesn’t need major change.

“We are structured around manufacturing in New England,” Greene said.

With 3 percent of manufacturing job lost in 2010, companies such as AMK and Inline are the exception, not the norm. Admill’s most recent expansion in 2008 wasn’t in Connecticut, but to Poland. Pratt & Whitney has a facility there, and Admill answered the call of its primary client, adding a facility and 15 employees in Eastern Europe.

“It is more of a competitive market out there,” Parlow said. “The cost of parts is why you get this increased globalization going on.”

By the end of 2011, Pratt & Whitney will eliminate 15 percent of its once 12,000-strong Connecticut workforce, shipping the jobs to locations where labor and energy costs are cheaper. Connecticut cannot compete for low-skilled manufacturing jobs anymore and must concentrate on high-skill, high-paying work centered on advanced technology, Pratt President David Hess told state government and business leaders at the 2011 Economic Summit & Outlook in January.

To compete for these jobs, Connecticut needs to provide educated, young workers; a stable and predictable tax structure; efficient regulatory processes; and an environment of technological innovation, Hess said.

“Connecticut must recognize that it too needs to compete for jobs, not just against other states in the U.S., but internationally as well,” Hess said. “It needs to transform itself.”