The Future in Plastics

By James Flanigan

Aug. 29, 2002 12 AM PT

The Bush administration has been preoccupied with helping the U.S. steel industry, but its impact on the economy is minuscule compared with the manufacture of plastics. In Southern California, making plastics is very big business, employing 70,000 people among six counties between Ventura and San Diego.

In this region alone, plastics account for almost $15 billion in annual output from 1,800 plants making parts for medical devices, components for electronics and automobiles, housing for industrial machinery and packaging for consumer goods. And plastics are a business with growth and opportunity as new uses are found for plastic materials.

But plastics also are a business at the crossroads of the global economy. Small to medium-sized companies in California and elsewhere are threatened by low-wage competition from Asia and Latin America but manage to hold their own by innovating products and manufacturing processes.

Many plastics factories in Southern California used to make parts for aerospace defense contractors, and some of that work remains here. But the region’s factories also turn out highly engineered products, including medical devices, cell phone casings and construction parts such as polyvinyl chloride pipes and fixtures.

And they do the work more efficiently every day. At a facility of United Plastics Group Inc. in Anaheim, employees have learned how to use new and faster machinery to “go from a prototype to full production parts in four to six weeks where it used to take 12 to 16 weeks,” says Tom Opielowski, the plant manager.

The field of plastics keeps evolving as major chemical and plastics firms--Dow Chemical Corp., DuPont Corp. and General Electric Co.’s GE Plastics division--develop stronger materials and plastics that can withstand greater heat or cold.

“New products and processes keep coming. Few people realize that fuel tanks on airplanes are made of plastics now,” says James Swartwout, chief executive of Summa Industries, a Torrance-based manufacturer of plastic parts.

Thanks to advances in materials and manufacturing equipment, the plastics industry can do things it couldn’t do 10 years ago, such as make very tiny parts for instruments used in microsurgery or thin-walled components that allow computers and cell phones to be light in weight yet hard enough to contain and protect powerful microprocessors.

United Plastics, a company with 11 plants nationwide plus facilities in Mexico, China and Britain, is typical of today’s industry. United’s Anaheim plant, which employs 250 people, produces cell phone casings and medical device parts to exacting specifications as well as simpler products such as plastic bottles and packaging.

And it competes with low-wage areas of the world.

For example, the labor costs involved in an injection molding plant in Mexico are only one-ninth of such costs in a U.S. plant, says Anurag Roy, a researcher for Frost & Sullivan, an industrial consulting firm. But costs of machinery, raw materials, electricity and transportation are cheaper in the U.S., so the labor cost differential doesn’t mean that production automatically moves to Mexico. So adjustments are made.

“Anaheim can share jobs with our sister plant in Tijuana,” says Chuck Villa, executive vice president of business development at United’s headquarters in Westmont, Ill. The company also has just opened a plant in Suzhou, China, to supply packaging and parts to manufacturers of cell phones and other electronic goods that have moved production to that country.

The globalization of plastics production differs from the pattern of most industries. The United States runs an $8-billion trade surplus in plastics, largely because the U.S. ships resins to most of the world. But as makers of computer parts and electronic devices move production to China and other countries, suppliers of plastic parts follow them, as service suppliers follow their clients. As plastic

parts are low-priced, it is uneconomical to ship them long distances.

One of the most successful U.S. plastics companies, Nypro Inc., of Clinton, Mass., established its first overseas plant 20 years ago and now has 28 plants worldwide, but gets two-thirds of its $600 million in annual sales in the U.S. Nypro has plants in San Diego and Tijuana that share production across the border.

So the U.S. plastics industry remains vibrant, employing 2.4 million nationwide--far larger than steel and most other manufacturing industries. And the industry continues to grow 3% a year, innovating products and new forms of organization and financing.

United Plastics, for example, is a company that has been put together only in the last three years by Aurora Capital, a private equity investment firm based in Los Angeles and headed by attorney Gerald Parsky, a former U.S. assistant secretary of the Treasury.

Parsky says he and his partners in Aurora are confident of earning returns of 20% to 30% a year over five to seven years in the plastics industry. Their strategy, taking a page from Nypro, is to own plants around the world to supply local manufacturers. It has built United to a company with $300 million in annual revenue.

United is making sizable investments to earn those returns for Aurora. It has just opened a technology and development center at the Anaheim facility, which used to be an aerospace supplier named Southern Plastics Molding. Having acquired a plant in Suzhou, United is looking for a facility in Eastern Europe.

Aurora is not alone in seeing opportunity.

“We think it’s a great business,” says Swartwout of Summa Industries, which makes plastic parts at plants in Corona and Ontario and in Tennessee and Mississippi. Summa, which will have about $115 million in revenue this year, makes lenses and reflectors for the lighting fixtures you see in Home Depot and other warehouse retailers.

It’s a good niche business because the “plastic reflectors are large and not easily shipped from other countries,” says Swartwout. “Nonetheless, the cost pressures are enormous.”

Why then are plastics a vibrant business? “Because we can constantly develop new products for customers,” Swartwout says.

The plastics industry, which employs 147,000 in California, may not be the first industry that comes to mind when people think of business in this state. But considering that it’s a manufacturing industry that relies on basic chemistry and adroit development of technologies and new products, and that it is integrally involved in the global economy, plastics are a natural for this region and this state.

Maybe the Bush administration should pay attention to the health of the plastics industry; it’s more important than most.

(BEGIN TEXT OF INFOBOX)

We’re No. 1

California ranks No. 1 in terms of the number of people employed in the plastics industry and ranks No. 2 in value of shipments. About half of the 147,000 plastics jobs in the state are in the Southland.

Number of people employed in the plastics industry

California -- 147,000

Ohio -- 123,900

Michigan -- 111,700

Illinois -- 99,100

Texas -- 97,500

Pennsylvania -- 80,700

Indiana -- 74,300

New York -- 62,300

North Carolina -- 58,700

Wisconsin -- 53,300

Value of shipments, in billions