A tiny shed behind a $45-a-month apartment in Palo Alto was the humble birthplace of the Model 200A audio oscillator. That invention, courtesy Bill Hewlett and David Packard, put Silicon Valley on the global tech innovation and manufacturing map.
But that was way back in the 1930s. The Bay Area is a different world today, where you'd need to cough up hundreds of dollars a month just to rent a parking space. In fact, the present-day challenges of doing business in the region have triggered a variety of changes in the way companies operate there. One major change is the disappearance of giant manufacturing facilities hiring thousands of blue-collar workers.
This doesn't mean that the Bay Area is turning away from manufacturing altogether. Rather, it's witnessing the evolution of a new kind of manufacturing unit – one that makes specialized, high-quality components and has less than 50 people on its payroll.
Hundreds of such small, specialty outfits have cropped up in the nine Bay Area counties. They account for most of the manufacturing jobs in the region, and are being seen as the only solution in the face of sky-high real estate and labor costs.
"No manufacturer will compete on cost here. They will compete on quality, on customization and innovation," says Sam Liccardo, Mayor o f San Jose. "We're never going to be a predominantly manufacturing town, nor do we want to be. We just want to make sure that the manufacturing ecosystem is a healthy one so it continues to grow here."
Meeting new demands:
As a tech innovation hub, the Bay Area has always had a need for logistics services and other forms of manufacturing support. In the last five years, this need has grown into a burgeoning demand for robotics, automation, artificial intelligence and other emerging technologies that can bring cutting-edge ideas to life. Businesses that provide these services have been moving to Silicon Valley to be close to their new-age tech clients who're designing everything from electric vehicles to specialty medical equipment.
One such business is Germany-based Kuka Robotics. At its 9000-square-foot facility in Fremont, the company offers custom robotics demos, brainstorming and on-demand training services to potential clients from the automotive and electronics industries. In the words of Pete Bremer, Operations Manager at Kuka Robotics: "We needed to be here. Customers want to be able to interact with the robot."
A string of other high-tech contract manufacturers have recently set up shop in cities like San Jose and Fremont. According to Christina Briggs, Fremont's Deputy Director of Economic Development, their objective is to get their foot in the door by establishing a small presence close to not just their potential clients but also their competitors.
What does this mean for Bay Area cities?
Bay Area cities are bracing themselves for a new age of innovation that is already setting in. A lot of them are developing innovation districts that don't hesitate to break zoning conventions.
Fremont is a characterizing example, where both offices and manufacturing facilities (like Tesla's auto plant) exist within the same neighborhoods. The effort is already paying off. Over 850 manufacturing companies are now located in the city and a fourth of its workforce is employed in manufacturing. These numbers aren't very far behind San Jose, which remains the biggest manufacturing hotspot in the region housing 1200 companies and offering 65,000 jobs.
As high-tech companies of all typologies vie for an address in cities like Fremont, competition for space has skyrocketed. According to a JLL report on California manufacturing, more than a fourth of under-construction projects in the region are pre-leased.
This race for space has driven up real estate prices in major manufacturing hubs, forcing companies to move further inland. Except that cities like Livermore have become just as pricey as Fremont, and even the likes of Tracy and Stockton are quickly getting there. Plus, they come with the added baggage of traffic.
"What used to be a 40-minute commute is now a two-hour commute," says Rock Mangan, President and CEO of RK Logistics Group, a warehouse and logistics provider based in Fremont. "Everything you gain in real estate costs, you give up in transportation costs."
Building a strong supply chain:
For companies like RK Logistics, one way to stay afloat is to work with a mix of established companies and smaller startups that are still ironing out their supply chain issues. According to Mangan, new companies are often caught unawares when their sales start taking off and they're faced with unexpected logistical problems. In such situations, businesses like Mangan's can help by connecting these companies with supporting infrastructure in nearby cities.
This kind of ‘matchmaking' is something that the Bay Area Urban Manufacturing Initiative has also been focusing on. The basic idea is simple – when a startup finds itself growing too quickly to operate out of San Francisco, it can find help just a few miles down the 880 corridor instead of going overseas. This creates a strong supply chain in the region while also boosting job growth.
The challenges don't end here, of course. One big area of concern is the nationwide shortage of skilled workers. With a high percentage of manufacturing jobs going unfilled, companies will have to turn to tech for alternatives. Think customized robots, AI, and other tools that can step in when human expertise isn't available.
For now, we can't be sure of what the future holds. What we do know, though, is that it'll ask for a degree of innovation that we've never seen before. And for those who'd like to blaze a trail for a new era of manufacturing, showing up in Silicon Valley now may not be a bad idea.