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Export Boom Fuels Factory Town's Revival

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Tuesday, 22 July 2008 04:22

The Wall Street Journal
By TIMOTHY AEPPEL
Original Publish Date: July 18, 2008

MANITOWOC, Wis. -- This is a town manufacturing once deserted -- and is now reviving.

On a blustery January afternoon in 2003, nearly 900 workers at the town's second-largest manufacturer, a cookware factory, switched off their machines and were told the company was moving operations to Mexico.

Today, many of those workers are back at the same plant making pots and pans for new bosses. At a factory next door, workers are churning out energy-efficient industrial light fixtures. Across town, one company is using a former shipyard to produce 250-foot-tall steel towers used for wind turbines.

Sons and daughters who had abandoned the town are returning with business degrees and breathing new life into old factories. Among them is Tim Martinez, who left Manitowoc to study economics and business in Milwaukee. He bought the pots-and-pans plant, reopened the aluminum foundry and later brought in Brazilian cookware maker Tramontina to restart the assembly lines.

"America got tired of manufacturing," Mr. Martinez says. "But it remains a great way to make money."

A rugged cadre of producers like these in Manitowoc have survived a decades-long shakeout of American manufacturing -- and are now leading a largely overlooked revival.

The economic forces working in favor of U.S. manufacturing include a weaker dollar, which is helping drive sales for exporters and their suppliers. Rising transportation costs are encouraging companies to buy and produce more goods closer to home. An infrastructure and mining boom abroad is boosting orders for the huge cranes made by Manitowoc Co., one of the town's oldest companies. At the same time, rising labor costs in some countries are starting to make outsourcing less attractive.

To be sure, American manufacturing has deep problems. Inflation and a sharp slowdown in the U.S. economy are hurting a wide array of producers. Nationally, only about 10% of the U.S. work force is currently employed in manufacturing. That's down from a peak of about 42% in the early 1940s, and about 18% in the 1980s.

But while manufacturing now represents about 12% of gross domestic product, down from 15% a decade ago, exports have surged. Last year, the U.S. exported about $1 trillion worth of goods, up 39% from 2002, when the dollar started its decline. The National Association of Manufacturers, a trade group, estimates U.S. exports will hit $1.1 trillion this year. A weaker dollar makes U.S. goods more price-competitive in Europe and other lands with a strong currency.

Many towns that have retained their factories -- and are adding manufacturing jobs in the face of a wider downturn -- share certain traits. They have a deep history of manufacturing and a pool of skilled laborers and entrepreneurs who still live there. Often, there's a strong public commitment to maintaining factory jobs, with community colleges devoted to training programs and local governments providing incentives to lure new employers. There can also be an element of luck: A region might thrive for decades by concentrating on an industry that suddenly becomes the focus of fierce global competition.

Over the years, Manitowoc has seen booms and busts typical of most American factory towns. The local shipyards, for instance, thrived during World War II and then struggled when defense work dried up after the war and cheaper foreign competitors emerged. About a decade ago, factories began closing and moving overseas. The number of factory jobs in the Manitowoc region has fallen about 20% from its recent high point in the late 1990s. Still, the city says a third of the area's work force is in manufacturing, and six of the 10 largest employers are manufacturers.

Slow Recovery

Beginning in 2004, manufacturing employment started to slowly recover, and has grown by about 6% since then. The comeback has been helped in part by what Manitowoc doesn't make: Few companies here are tied to cars or home construction, two ailing sectors. Instead, its diversified base churns out parts for Israeli smart bombs, the ice-cream machines found at most Dairy Queens, and the pipes that carry oil to shore from offshore platforms. Not to mention malt for beer, sausages, and air horns for ships.

"Manitowoc is really a perfect place for manufacturing," says Glen Tellock, chief executive of Manitowoc Co., the crane maker. Mr. Tellock, who grew up in nearby Appleton, says the region benefits from being near a large share of the U.S. population, the ability to ship to the ocean through the Great Lakes, and access to skilled workers whose families have labored in factories for generations.

Like many global producers, Manitowoc Co. sets prices in Europe in euros. Each time the dollar drops, the price tag on a crane sold there translates into more dollars. With demand for cranes red hot, the company says it has no incentive to offer discounts.

Last year, Manitowoc saw its sales grow 37% to $4 billion. The company recently reported its backlog of orders for cranes had climbed to $3.3 billion, up 72% from the same time a year ago.

As the largest private employer in town, Manitowoc Co.'s success has rippled through the local economy. Manufacturing tends to have a larger economic "footprint" than other sectors, meaning strong orders for one company foster strong orders for its suppliers.

Here, Heavy Metal Fabricators LLC is handling metal fabrication and assembly work that Manitowoc can no longer handle in-house. Formed by several local welders, Heavy Metal was bought in 2002 by another local, David Wage. Mr. Wage, a physicist who spent the first part of his career working in a nearby nuclear-power plant, says he had always dreamed of operating his own business.

The durability of Manitowoc's manufacturers is a godsend for workers like 57-year-old Julie Ducat, who went to work at Mirro, the large cookware factory, two days after graduating from a local high school. Manufacturing is what she knows best, and she enjoys the predictability and steady pace of assembly-line work.

"My grandfather retired from Mirro the same year I hired on," she says. "I somehow always knew I was going to be there."

Mirro's history and size made it a powerful force in the local economy. The company started in 1898 and was an early innovator in the use of aluminum for pots and pans. When the factory, by that point owned by Newell Rubbermaid Inc., closed in 2003, Ms. Ducat lost her job. She worked with her sister, an interior designer, then clerked in a store and tried her hand in a bakery. "But the money just wasn't there," she says. So when she heard that a new company, called Orion Energy Systems Inc., was assembling energy-efficient light fixtures at one of the buildings at the old Mirro complex, she applied.

Orion is the brainchild of an inveterate tinkerer, Neal Verfuerth, who was raised in a small town an hour south of Manitowoc. Mr. Verfuerth, 49, quit high school to become an apprentice in tuck-pointing, the art of restoring mortar in old buildings. While looking for something to do during the long winters, when tuck-pointing halts, he started selling solar panels and developed an interest in alternative energy. He started Orion in 1996, initially distributing lights for other manufacturers, and by 2000, producing high-efficiency fixtures.

Mr. Verfuerth is convinced manufacturing needs to return to its vertical roots: A company should make most of its component parts itself. Outsourcing, he says, has diminished quality and service. Moreover, in the middle of the night, when he has an idea, he wants to be able to come to his factory and try to build it.

It isn't all smooth sailing, though: Orion projected lower-than-expected sales this week, sending its shares down 31% on Wednesday. Orion rose 2.5% to $6.09 a share in 4 p.m. composite trading on the Nasdaq Stock Market on Thursday.

One Word: Plastics

Much of the new growth in manufacturing here builds on the know-how of earlier generations. Richard Robinson bought a Manitowoc plastics company, Kaysun Corp., in 1975, after he stumbled across the company while working as a salesman for General Electric. Kaysun made everything from popcorn poppers to propellers for toy airplanes. At the time, many of its products were beginning to be made overseas.

"It was ugly stuff, the cheap stuff, and the Koreans were already making a lot of it," says Mr. Robinson. But, he says, the company had on staff one of the best industrial designers he had ever met. After he bought the company, he got rid of the houseware business, and began making what were then considered far-higher-value plastic components, such as parts for IBM Selectric typewriters and outboard motors.

Each of his six sons and stepsons worked in the business, and Mr. Robinson hoped one would take over. But one by one, they left town. Only his oldest, a skilled toolmaker, remained in the family business, but he wasn't interested in running it.

His youngest, stepson Ben Harrison, went to college in Iowa and settled in Chicago to work for a large steel distributor. He eventually told his father he wanted to join Kaysun but didn't want to leave Chicago. "I liked nightclubs," says Mr. Harrison, who became the company's Chicago sales force.

In 2003, about the same time Mirro was closing, Mr. Robinson, now 79, asked his stepson to come home and run the company. Drawn by the possibility of making a good living and supporting a family, as well as the town's untapped growth, Mr. Harrison returned.

Now CEO of Kaysun, he is pushing the company further into products he believes will be insulated from overseas competition, including making the plastic housing for global-positioning-system devices carried by soldiers in Iraq and Afghanistan.

While companies like Kaysun are bringing more manufacturing jobs to Manitowoc, some locals say they aren't interested in applying. Nancy Glasow spent 31 of her 58 years at the Mirro plant, where she ran a computerized trimmer that cut excess metal off the pots as they came down the assembly line.

"When Mirro closed, I literally cried for two days," says Ms. Glasow. "Now I'm grateful, because if that hadn't happened, I'd never have had the courage to quit."

With the help of federal funds for retraining workers who lose their jobs because of trade agreements, she graduated this spring from nursing school and has started work at a local nursing home. She now makes nearly twice what she earned at Mirro.

Making School Desks

Steve Schenian, the owner of a trucking company here, jumped into manufacturing just this past May. He bought a local furniture factory, Invincible Furniture, that was in receivership. Founded in 1913, Invincible specializes in the ubiquitous metal desks and filing cabinets found in the offices of school principals across the U.S.

"We also got a lot of support -- from the state and from the local economic-development people -- because nobody wanted to see this place's payroll disappear," he says.

Mr. Schenian is still targeting schools, which accounted for 65% of Invincible's $8.5 million in sales in 2007. A decade ago, he says, sales were closer to $20 million. He says he can gain an edge over foreign competitors by being closer to his customers. For instance, he can easily offer 150 colors because he doesn't have to produce months in advance in order to bring product from overseas. And salvaging the factory has assured a steady stream of work for his trucks, shuttling in raw materials and carrying away finished product.

Across town at Burger Boat Co., the weak dollar is bringing in customers from abroad. One of the oldest companies in town and one of the most venerable names in yacht building, Burger Boat closed in 1990 and reopened in 1993 under new owners.

On a recent day, more than 300 craftsmen swarmed over four huge yachts in various stages of production. Carpenters installed teak railings, electricians strung wiring, and metalworkers smoothed the aluminum hulls with handheld sanders. The price tag for one of them: $40 million.

James Ruffolo, president of Burger Boat, says the favorable exchange rate has helped win buyers -- even some for whom it would seem price is no concern. He says he has attracted Russian billionaires, including one who bought identical yachts -- dubbed "the twins" by workers -- so he could keep them stationed in different parts of the world. One buyer from the Middle East insisted on christening his boat with a champagne bottle filled with water carried to Manitowoc from Mecca, says Mr. Ruffolo.