Editor’s note: Before all of our Power Breakfast events, we bring the panelists to the Business Record for a pre-event meeting on the topic and to banter through potential questions. We always leave that meeting wishing we could have invited our entire audience into the room with us to hear the informal discussion. So we decided this year to host a series of what we are calling Power Roundtables, and invited members from a variety of industries to have a discussions about the trends, opportunities and challenges they are facing as we head into 2014. We recorded each conversation on video, which can be viewed on our website. Not only did we get a variety of story ideas for 2014 and beyond, but we also had our reporters pull out some key takeaways and observations from the discussions. For our third roundtable, we hope you enjoy this inside look at the opportunities and challenges that are facing Iowa’s manufacturing industry.

- Chris Conetzkey, editor of the Business Record

Skills & training are big concerns

Much of the discussion revolved around education and workforce issues. A lack of highly skilled workers is the top concern. Iowa’s manufacturing industry is trying hard to get young people excited about manufacturing, which already faces a big gap in finding people with the technological skills needed on the factory floors. One program that generated a lot of buzz with the panelists was Elevate Iowa, a new initiative led by the Iowa Association of Business and Industry with the state’s community colleges to raise the image of manufacturing to reflect its high-tech reality. 

Skilled labor is the single-largest constraint that Ryko Solutions Inc. faces in expanding its manufacturing capabilities in Iowa, said Steve L’Heureux, Ryko’s president and CEO. And right now, 60 percent of the employees at his company’s Grimes plant are over 55 and many are nearing retirement age. Recently, Ryko committed to doubling its fabrication department’s production capacity through laser technology, but has found it difficult to find the advanced machinists and welders with the skills to handle sophisticated laser tools. The company, which currently budgets $1 million per year on training, plans to double that to $2 million in 2014, L’Heureux said. 

According to Rob Denson, some of the highest-demand skill gaps are in industrial maintenance - people who can keep high-tech machines operating - as well as all types of information technology positions. Any skills related to information technology are critically needed, DMACC’s president said. Welding and training in process controls jobs are other hot areas.

DMACC is working with manufacturers to find ways to more quickly upgrade the skills of existing workers, and many companies, among them Deere & Co., Accumold and Vermeer Corp., have established tuition assistance programs to provide students a job while they’re going to school, Denson said.

Strike when they are young

Andy Hansen, factory manager of John Deere Des Moines Works, said it’s important to let students know about manufacturing as a career option at an early age. Hansen told a vivid story about how he was captivated by manufacturing at a young age. In fact, he could recall the exact date – June 26, 1963 – when he decided as a 10-year-old visiting the Ankeny Deere plant on a field trip that he wanted to pursue a career in manufacturing. “We need to sell manufacturing and inspire people to see manufacturing in their future,” he said. “You don’t have to have a postgraduate degree to have a solid middle-class life. We haven’t sold that to kids in high schools and middle schools.” 

We asked: What are the biggest threats to the industry?

Mike Ralston 
President and CEO, Iowa Association of Business and Industry

“Perceptions of manufacturing are still skewed in Iowa. All across the state, people still think of manufacturing as dark and dirty. It’s a very clean, high-tech environment that provides high incomes.”

Steve L’Heureux
President and CEO, Ryko Solutions, Inc.

“At the federal level, there are literally dozens of trade agreements being negotiated between countries to reduce the resistance of trade between countries and regions, and the United States is not participating in virtually any of those. We need, at the federal level, much greater participation to make it easier for us to be able to export our products to other markets. There are some very exciting markets right now that are difficult to get into with our manufacturing base here in the States, and it’s because our federal government, particularly the Commerce Department, is not actively engaged in a lot of these trade agreement discussions that are taking place.”

Andy Hansen
Factory Manager,John Deere Des Moines Works

“I believe that the biggest threat we have to our competitiveness are educational scores that are dropping compared to many other countries around the world. I think in math we’re 25th, and in reading we’re 17th. Also, there’s always a threat of protectionism from countries that we would like to export to, such as Russia.”

Rob Denson
President, Des Moines Area Community College

“Every sector is subject to competition. Within our college, we’re looking at what are the disruptive technologies that could impact our business. Iowa is pretty successful right now; we’re riding high. But there’s no guarantee that’s going to continue. Iowa’s education system was tops for years; now we’re not No. 1 anymore. What do we need to do to get it back up? I think the Legislature and the governor are doing the right things, but we need to get behind them to push it.”

What is Iowa doing well?

Internships: Internships appear to be a strong suit in many ways for Iowa, the panelists said. Ryko, for instance, used a state program that reimburses companies two-thirds of interns’ salaries to bring on five Iowa State University engineering students as interns, some of whom the company hired full time. Denson noted that DMACC has hired an administrator whose time is dedicated almost exclusively to expanding internship opportunities. 
Incentives: In terms of incentives, ABI’s Mike Ralston said the Iowa’s research activities tax credit and its single-factor formula for taxing businesses are two of the best incentives the state has for businesses in general and manufacturers in particular. The research activities tax credit can be applied to wages, supplies supporting research activities or toward 65 percent of expenses of contract research. The single-factor formula allows manufacturers to be taxed based just on their Iowa sales; some states factor in employment and physical plant as well as sales in figuring corporate taxes. 

Stability: Having moved to Iowa three years ago from Southern California, L’Heureux said he appreciates Iowa’s stability in an era when both state governments and municipalities elsewhere in the country are facing insolvency. “We don’t have a huge pension liability hanging over our heads,” he said on the December morning when Detroit’s bankruptcy and Illinois’ pension restructuring were in the headlines. “It’s run business-like, which I think gives us all more comfort as we look to grow jobs in Iowa.” 

Focus on keeping businesses here

It was clear from the conversation that Iowa economic development officials would do well to pay at as much attention to companies that are already in the state and are growing as it does to attracting megaprojects such as data centers and fertilizer plants. In comparison to the up to $100 million in incentives for the Egyptian conglomerate Orascom, L’Heureux noted that Ryko has only qualified to receive $25,000 in state internship grants. In that sense, “I’m not feeling the love,” he said. Additionally, the high marginal costs of growing market share in the United States are driving Ryko to look overseas for growth, L’Heureux said. He noted that his company had just made a difficult decision to build a 100,000-square-foot plant in Canada rather than the United States. “There were three primary drivers for that,” he said. “First was the labor constraint; they have a much larger pool of skilled labor in that market. A second factor was taxes; there was a huge tax advantage of doing manufacturing up in Canada versus the United States. The third was incentives. The state of Iowa is doing a nice job of making it a very business-friendly environment ... but the competition is fierce, and the incentives being thrown around to draw you to another market are really exciting.”

Quick hits

Globalization reality: 
Hansen: Deere makes highly sophisticated cotton pickers, yet most of the world’s cotton is still picked by hand. One of Deere’s machines produced in Ankeny can pick more in a day than a Third World cotton laborer will pick in his entire lifetime.

What’s really hurting American manufacturing:
L’Heureux: “For manufacturers, one of the largest issues that we have is that the American-based manufacturer is at about a 20 percent cost disadvantage compared with our competitors around the world. That’s driven largely by two factors: taxes and regulation. And that’s not talking about labor costs; the American worker today is enormously affordable. Labor is really no longer the big factor.”

It’s a small state after all: 
The panelists talked about how Ruster Sports LLC, founded by T.J. Tollakson, is a great example of a small, innovative manufacturer. Tollakson’s company makes high-tech carbon-fiber bicycles near downtown Des Moines. Turns out that T.J. Tollakson was in the same Cub Scout pack as Hansen’s son and that Hansen was the pack leader.

Scotty, beam me up: 

Hansen: “There are great opportunities, but logistics costs are not free. We don’t have a Star Trek teleporter yet.” 

Ralston: “It’s probably being worked on at DMACC.”

Hansen: “I’ll stop by this afternoon...”