[Mb-civic] The Global Economy's 2-Way Street James Flanigan

[Michael Butler]

http://www.latimes.com/business/la-fi-flan29aug29.story

JAMES FLANIGAN

The Global Economy's 2-Way Street
 James Flanigan

 August 29, 2004

 Don't we make anything in America anymore?

 That's a frequent, not-so-rhetorical question when talking about a
manufacturing sector that has shed a net 3 million jobs in the last four
years.

 More and more, we hear of U.S. companies making things in China and India
and other far-flung places. The statistics are formidable: U.S. industry
invested $151 billion overseas last year, according to the Commerce
Department. It's an easy factoid to wring our hands about ‹ and for
political candidates to seize upon.

 But to really understand what's happening with the global economy, it's
important to remember that the flow of investment is not one-way.

 Foreign companies poured $29.7 billion into the U.S. last year. And
cumulatively, foreign-owned U.S. factories and office buildings, oil wells
and distribution centers are now equal in value ‹ at $2 trillion ‹ to the
overseas assets owned by U.S. firms. Xenophobes may recoil. But these
investments sustain and create jobs for Americans, and they boost U.S.
output.

 At times, foreign owners do something even more remarkable: They help
preserve the legacy of some of the most storied names in American industry.

 Beginning in 1903, when it won a large contract from General Electric Co.,
Ingersoll Milling Machine Co. rode the ups and downs of the larger economy.
The Rockford, Ill., company boomed during World War I by building 50-caliber
machine guns, flourished through the 1920s by serving the auto industry, and
then nearly collapsed during the Great Depression.

 But Ingersoll rebounded during World War II, and in 1953 it built the
largest milling machine anywhere ‹ 133 feet long and 500 tons. In the late
'50s, the Rockford plant stood among the most modern machining shops in the
world.

 By the '60s, the company was eyeing opportunities abroad ‹ a reminder that
the notion of a "global economy" was hardly invented yesterday. Ingersoll
helped build a cutting-tool plant in West Germany and erected a factory in
England. Later, it bought up two German firms.

 But over time, Ingersoll faltered, beset by management turmoil and a heavy
diet of debt. Last year, it landed in U.S. Bankruptcy Court.

 And who swooped in to pick up the pieces? A trio of companies ‹ one from
Italy, one from China and one from Israel.

Camozzi of Italy, which bought Ingersoll Machine Tools, has already returned
the operation to profitability. It didn't do that by laying off workers but
by adapting its machining products to different uses for makers of aircraft,
automobiles and heavy construction equipment.

 "We make the product fit you, just as a tailor in Milan will make the suit
fit you," says Tino Oldani, who heads the Rockford operation for Camozzi, a
35-year-old family company based in Brescia, in northern Italy's renowned
industrial region.

 Recently, the company secured a contract to supply Boeing Co.'s Wichita,
Kan., plant with machine tools for production of the 7E7 jetliner. In turn,
Camozzi Ingersoll is looking to hire more skilled machine designers and
engineers, which would increase its payroll of 230.

 So why does Camozzi want to make things in the U.S. when American
manufacturers are complaining of high costs and fleeing?

 As Oldani sees it, the U.S. offers an excellent supplier base ‹ one
efficient and reliable enough to offset cost advantages offered by cheaper
locales overseas. To that end, he has spread subcontracting work to many
small firms around Rockford.

 Yet he's also worried about how long this supply chain will remain strong.
Every time a big U.S. company moves production out of the country, he warns,
"they are killing thousands of these small subcontractors."

 Oldani, who came to the U.S. 21 years ago and started his own machinery
distribution firm, also frets about corporate America's preoccupation with
short-term financial results and its lack of focus on long-term issues such
as properly training its workforce.

 "We don't run our business by CFOs," he says. "Myself and the Camozzi
family are not planning to make a lot of money and get out of here. We are
investing in young engineers, and our present growth is dwarfed by the
unavailability of talented personnel."

 Of course, foreign investors don't all have the same agenda.

 Consider Dalian Machine Tool Group Co. of China, which took over Ingersoll
Production Systems, a maker of automotive equipment. Why did one of China's
largest auto parts manufacturers, with about $400 million in revenue,
acquire a troubled $50-million enterprise in Rockford?

 "Frankly, for the technology," says Phil James, head of the U.S. operation.
"We are transferring technology back to China to help Dalian" prosper.

 For some, the specter of sending know-how abroad is perfectly frightening.
They look at it as if it's a zero-sum game, with the U.S. losing everything
and gaining nothing. But the reality is that Dalian Ingersoll is expanding
in the American heartland, where it supplies General Motors Corp. and Ford
Motor Co. The company has added 80 employees in Illinois and Michigan ‹ and
it's determined to grow much more.

 "China imports $4 billion a year in machinery, but the U.S. gets only 6% of
the business," James notes. "That's pathetic, and we can do better."

 Finally, there's Iscar, which purchased Ingersoll Cutting Tools. Iscar,
headquartered in the Galilee region of Israel, boasts metalworking outlets
in five U.S. locations as well as in 51 other countries. In Rockford, it has
increased sales and employee numbers.

 Understandably, the city fathers of Rockford have welcomed their foreign
investors. When Camozzi bought the last bankrupt segment of Ingersoll in
October, the local congressman, Rep. Donald A. Manzullo (R.-Ill.), hailed
the newcomers for putting "many Rockford workers back on the job while
providing tremendous opportunities for others in the future."

 Manzullo has no intention of letting anti-foreign sentiment kill his
district's golden goose.

 Last year, as complex legislation was being prepared in Washington to
respond to European Union objections over U.S. export subsidies, a clause
was inserted to deny favorable tax breaks to foreign-owned companies
operating in the U.S. Manzullo led an effort to have the provision removed.

 Meanwhile, to attract more foreign investors, Rockford is trying to hold up
its end of the bargain. It opened a center called Eigerlab for teaching
advanced machining. The idea is to foster new companies that can supply
bigger firms relocating to the area. One of its fledgling companies,
Atometric Inc., is developing micron-size machines for use in biomedicine
and computer systems.

 The firm is led by the former engineering vice president of Ingersoll
Milling Machine. "The world has changed," says Tom McDunn, another former
Ingersoll executive who is running Eigerlab. "And we have to change with
it."

 What are we making in America today? We're making the transition to a
global economy that's truly seamless.

 *


James Flanigan can be reached at jim.flanigan at latimes.com.




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