How to Build an American JobBy , , and
High-tech manufacturing plants that make products such as electric-car batteries and LED lighting may create millions of jobs in upcoming years. Few of those jobs are likely to be in North America, where 49 chip factories have shut down since 2000. In the same period, Taiwan and China have built dozens. Many technology executives say the only antidote is government assistance, which has been far greater in other parts of the world. Now some U.S. officials are responding with subsidies and tax breaks, in an effort to combat high unemployment. Here's a look at three companies that are seeking to take advantage and create high-tech manufacturing jobs at home.
DETROIT POWER PLAY
As the U.S. economy unraveled in October 2008, Andrew Liveris, chief executive officer of Dow Chemical (DOW), asked his director of business development, Ravi Shanker, how they could create jobs near Dow's Midland (Mich.) headquarters, 130 miles northwest of Detroit. Shanker suggested that Dow make lithium ion batteries, the key component of electric-car engines. The Li-ion industry is expected to grow from $200 million to more than $25 billion by 2015, according to Needham & Co. In 2008, Asian companies had 98 percent of the market.
On June 21, Liveris broke ground on an 800,000-square-foot plant in Midland that will employ 800 people making 60,000 Li-ion batteries a year. It's owned by Dow Kokam, a joint venture created in 2009 with a U.S. partner that licenses technology from South Korean battery maker Kokam. Liveris is hoping Michigan's skilled workforce will be able to help it win business from companies such as Honda (HMC), Ford (F), and Tesla Motors (TSLA), the electric-car maker that went public on June 28.
The deal was predicated on government support, as Dow Kokam received $161 million of the $2.4 billion the Obama Administration has earmarked for the electric-car industry. That covered half the cost of the 400,000-square-foot first-phase plant. An additional $180 million in Michigan tax incentives will help fund the second phase. "We would never have built it in Michigan, or the U.S., without that aid," Liveris says. "It takes some of the risk away from the investment."
Dow is using federal and state grants for a facility in town to make solar roofing shingles, employing an estimated 1,200 people. In addition to the 2,000 permanent workers at the two factories, Liveris believes the projects will create 14,000 jobs in local industries and services.
To make real progress, Liveris says the U.S. needs to cut corporate taxes and adopt an energy policy that promotes American-made alternative technologies. As a member of Thailand's Board of Investment, he advises the Thai government on how to craft the sorts of financial incentives he wishes were available in the U.S. "It's not a level playing field," he says. - Jack Kaskey
FUNDED BY ABU DHABI
When chipmaker Advanced Micro Devices (AMD) announced it was getting out of the manufacturing business in 2007, people in Malta, N.Y.—a town of 13,000 that is 20 miles from Albany—worried about the fate of the massive plant AMD was planning to build there. Help came from an unexpected source: the government of Abu Dhabi.
The $6.6 billion, 300,000-square-foot factory project has been taken over by Globalfoundries, the company created when Abu Dhabi's Advanced Technology Investment bought AMD's plants in Dresden, Germany, and took over the Malta project. As in Michigan, subsidies were essential. New York State committed up to $1.2 billion in tax breaks and other incentives, depending on how many jobs the Malta facility creates. According to the Semiconductor Industry Assn., building a chip plant in the U.S. adds $1 billion in costs over its lifetime.
With both a state-funded nanotechnology research center and IBM's (IBM) headquarters nearby, Malta has a healthy population of top engineers who are suited to this highly skilled work—which is part of the appeal for the company. (You try depositing a layer of chemicals that is one atom thick on a chip.) The jobs will pay well for the 1,300 people who will work there when the Malta factory opens in 2012. Dennis Mullen, chairman of the Empire State Development Corp., says his agency expects the project to create three or four times as many jobs outside the plant. - Ian King
THE COSTS DON'T WORK
When Bill Watkins took over Bridgelux in January, he hoped it would bring hundreds of jobs to the chip factory the company had just bought in Livermore, Calif., 40 minutes east of Silicon Valley. Bridgelux makes electronic lights based on the same light-emitting diodes that illuminate laptops and some flat-panel TVs—a technology that is expected to displace Edison's incandescent bulb as the core of the $100 billion-a-year lighting industry. All Watkins needed, he said, were some big customers, such as state or local governments, to commit to buying enough Bridgelux LEDs to get the business off the ground.
So far, Watkins has made "zero progress" on getting help for his Made in the U.S.A. plan. While senators, state officials, and utility executives talk about job creation, none has offered contracts that would allow him to add to the small crew of workers at his Livermore factory. Instead, he plans to move ahead with projects in China, India, Malaysia, and other places Bridgelux has been offered deals to retrofit streetlights or office buildings in exchange for creating local jobs. One Asian country—he refuses to say which, for fear of imperiling negotiations—offered to pay 80 percent of his workers' salaries for the next decade, along with a tax break, low-interest loans, and free land for the plant. Nothing in the U.S. comes close. "I think Bill's given up on the idea of volume manufacturing in the U.S.," says longtime friend Eli Harari, CEO of memory-chip maker SanDisk (SNDK).
Watkins has seen this movie before. Until January 2009, he was CEO of Seagate Technology, the world's largest drive maker. To maintain profits in the face of falling prices, the company outsourced thousands of low-wage production jobs and, more recently, research and development positions. He had hoped Bridgelux would be different. With some minor incentives—such as a 10% premium over rock-bottom prices in a few big municipal contracts—he thinks Bridgelux could gain enough volume to compete with anyone. He would like to invest $150 million in the Livermore factory, in addition to $50 million already invested, and nearly triple its staff, to more than 350. The obstacle, he believes, is politics. While Americans want jobs, they want their low, low prices even more: "I'm going to spend the next year trying to find someone that is willing to pay to have something made in the U.S." When Watkins tells foreign government officials about his plans to boost American manufacturing, he says, "They laugh. Everyone knows the costs don't work."
Of course, Watkins isn't willing to mortgage his company's future for pure patriotism. He expects sales to double, to more than $60 million in 2011. "I want to create jobs here for my own personal reasons, but at the end of the day it doesn't matter," he says. "I can make Bridgelux successful wherever the jobs are." - Peter Burrows