A20 Economy & Business
EZ SU
KLMNO At the forefront in U.S., being lured abroad light bulbs from A1
called,arealmost entirelymade in China, though it was an engineer in theUnited Stateswho came up withthe breakthroughdesign. Now, as Lighting Science rapid-
ly expands its production of what is considered the next-generation technology, the company is being courted by China and Mexico. Aside fromthe enticement of low- er-wage workers, those countries offer significant cash incentives for capital equipment and labor, amounting to as much as $4 mil- lion, company officials said. The United States, by contrast,
has offered financing under the stimulusprogram,but theprocess has proved too cumbersome for the small company. Lighting Sci- ence is largely owned by Pegasus Capital, aprivate equity group. The incentives are “a game that
the foreign governments are play- ing, but theU.S. isn’t,” chief execu- tive Zach Gibler said. “Like any manufacturer, we have to look at our options.” As the United States seeks to
counter a decades-long drop in manufacturing employment, one of its key challenges is making sure that manufacturing — espe- cially in high-profit, high-skilled, high-wage pursuits — remains in this country. While the outsourcing of U.S. jobs is often discussed solely in
terms of the lowerwage rates else- where, manufacturers and other companies review a range of is- sues before choosing anewsite. Companies “run an analysis on
each location:What are the costs? How will it affect the supply chain?Whatarethepolitical risks. What are the operating costs? Whatkindofmarketaccessdoes it offer?” said Phil Schneider, a prin- cipal at the consulting firm Delo- ittewho advises companies on sit- ing decisions. “Sometimes it makesno sense to leave theU.S. In other cases, the market may be compelling somewhere else.” The United States holds an ad-
vantage in a number of respects, economic development officials said.Afactory here is in themidst of the world’s largest economy; a manufacturer can benefit from a culture of innovation, excellent universities and a well-trained work force; and the nation’s infra- structure of roads, ports and air- ports offers easy transportation. Moreover, the Obama adminis-
tration has taken additional steps toward curtailing the outflow of jobs, offering grants and loans to clean-energy and other green technology companies; pushing for a series of tax cuts for compa- nies to hire new workers and in- vest intheir businesses; andadvo- cating an initiative to allow com- panies to fully deduct capital in- vestments.
“A key aspect of President
Obama’s economicplanis encour- aginginvestmenthere intheUnit- ed States,” said White House spokeswoman Amy Brundage. “That’s why he passed the Recov- ery Act that is encouraging hun- dreds of billions of dollars of pri- vate investment which, among other things, has helped spark a domestic battery industry here in theUnitedStates.” But to succeed among increas-
inginternational competition, the
U.S.mustappeal tocompanies ina variety of ways, industry experts said, andit oftencomesupshort. The economic pressuresmanu-
facturers can face are intense. Lighting Science Group is racing against some of the giants in the industry — GE, Phillips, Sylvania —to create LEDbulbswith pleas- inglightatmoreaffordableprices. TheLightingSciencebulbs that
Home Depot are selling under its EcoSmart brand shine about as brightlyasa40-watt incandescent but use a quarter of the electricity andcouldlast adecade ormore. Each one costs $19.97, much
more than a traditional bulb but far lower than rival LED bulbs — one of the reasons the company was chosen by Home Depot. Maxik and his team of engineers havemade several innovations to the bulb, altering the way it is powered and cooled to maximize its brightness and minimize its
energyneeds andcost. “They came outwith one of the
highest-performing lamps and at about half the price of anyone in the industry,” said Bill Hamilton, vice president of merchandizing for Home Depot’s electrical busi- ness. “It’s taken the industry by storm.” The contest among the manu-
facturers now is to continue to whittle down priceswhile also de- veloping bulbs that canmatch the brightness of60-watt, 75-watt and 100-watt bulbs. LED bulbs today represent less than 1 percent of sales, but as prices come down that figure is expected to rise. “We make significant improvements every sixmonths,”Maxik said. The swift pace of innovation is,
infact,oneof themost compelling reasons to keepthe factoryhere in this beach town, where workers are paid between $16 and $22 an hour.With the factory nearby, en- gineers canmake alterations rap- idly, andlearnas theydo so. “The engineers need to react
quickly, and to make the changes as the product is being made,” Maxik said. “But it’s not just a matter of speed. If your factories are onanother continent, you lose know-how.” Another advantage of this loca-
tion,companyofficials said, is that the localworkforce isblessedwith technical skills arising from its proximity to Cape Canaveral.
PHELAN M. EBENHACK FOR THE WASHINGTON POST
FredMaxik, founder and chief scientist of Florida-based Lighting Science Group, shows a set of light bulbs made withLEDtechnology.
About 70 percent of Lighting Sci- ence workers once worked at NASAor one of the space agency’s contractors, company officials said. Even so, the company is also
moving to do more manufactur- inginAsiaandMexico,particular- ly on its product lines such as streetlights that are not evolving as quickly as the light bulb. It is working with contract
manufacturers inChinaandnego- tiating to lease a 65,000-square- footplant inMonterrey,Mexico. There, the wage rate is about a
quarter ofwhat it is in the United States, Gibler said, and the Mexi- can government is offering cash incentives to attract the company. The incentives on the U.S. side
are, by contrast, less appealing. The U.S. offered a $19 million stimulus bond that enabled the company to go to a lender and borrow money at a cheaper rate. But Lighting Science did not avail itself of the loan, because private lenders requiredunaffordablelev- els of collateral. Moreover, while the United
States and local officials are offer- ing other grants that Lighting Sci- enceGroupisapplyingfor, includ- ing one specifically for LED tech- nology, the process requires writ- ing proposals about future plans and comes with more strings at- tached. This is not an isolated case. In
the growing international contest to luremanufacturing plantswith incentives suchas those offered to Lighting Science, the United States is often lagging, industry experts said. Inthis country, the role of offer-
ing incentives is usually left to the states and municipalities, which
typically have far smaller budgets than the national governments they are competing with. More- over,while the states andmunici- palities can offer abatements on local taxes, theyareunabletooffer federal tax relief. “TheU.S. doesn’t usually target
industries with direct incentives,” said Schneider, the site consul- tant. “But the rest of the world does it everyday.” Despite the threat fromforeign
incentives, however, U.S. policy- makers are divided on the extent to which the federal government shouldcounter suchoffers. Critics say government at-
tempts to foster certain technolo- gies or industries in the United States puts bureaucrats in the un- tenable role of “picking winners” and invites complaints of political bias. Yet the steady decline ofU.S. manufacturing employment has left many worried that essential skills are leaving the United States,andthat thenation’svaunt- ed expertise for engineering inno- vationcouldbewithering. “Aswe’vedecidedtovacatevari-
ous areas of technology—saying, ‘It’s cheaper to build it there, lets move it away’ — we’ve created a vacuum” that weakens the na- tion’s capacity for innovation, Maxik said. “There’s so much interaction
between the manufacturing pro- cess and the innovation and in- vention process,” he said. And “as you startmoving themanufactur- ing process further and further away, youlose that connection. “We’re still very innovative.We
teach innovation.We understand innovation.But somepiece of that is slowlydrifting away fromus.”
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