Major manufacturing and high tech employers close, leave Spokane

Since 2001, dozens of major companies have closed or significantly downsized their Spokane operations causing a loss of an estimated 20,000 high paying jobs (the estimate came from an old Spokesman-Review news article).

I estimate that about 70% of the job losses were due to moving factories and design centers off shore. Another sizable contributor is outside companies buying local companies and then shutting down the Spokane facilities or scaling the operations down. Some of this is related to the recent economic down turn but much is also related to huge changes in how companies do business – and offshoring.

(Update: This comment to an SR news story suggests the problem was that the local Agilent division was poorly managed and not building world class products. The comment after that one says the same thing. This could be due to local culture issues which might have plagued many of these firms – obviously, its not just Agilent that was lost here. More on our local culture and how that might not lead to creating world class products is here, here, here, here, here, and here.)

What happened – as explained on the “Start Here” page:

During previous recessions, national corporations sought to reduce their costs. One way they could do that was to move their manufacturing and related design engineering to a lower cost city some where in the U.S. – like Spokane. Recessions benefited cities like Spokane. But by 2001, as a new recession took hold, national and world-class companies had a new option – moving jobs outside the U.S. Consequently, the low cost of living in Spokane and its low wages, which were marketed as benefits of moving to Spokane were now usurped by cheaper locations off shore.

How Bad Were the Losses?

These two charts add context and put the losses into perspective

Important notes – Keytronics’ peak was in the mid 1980s, before moving all manufacturing to Mexico. Kaiser went from (news reports) of about 4,400 to 600 to 700 at Trentwood. Eggheads peak was in the late 1990s. The others peaked since 2001.

The blue column represents the “past” job total while the red column represents the “present” job total of the firms shown. We know that the blue bar should be 6,000 workers taller than it is, for example, and we know that we have not captured all newer jobs created in the red bar. However, from the Employment Security Department’s official data, there is a gap of at least 15,000 fewer jobs than a decade ago which confirms that the relative proportion of jobs shown is not far off the mark.

The next chart is the official ESD total of non-farms job in Spokane County. This chart is used to corroborate that the preceding data is “in the ball park”. As you can see from the chart and data table, about 15,000 jobs are missing from the peak.

(The number of farm jobs in Spokane is small. The ESD chart does not include active duty military and the self employed.)

List of Companies Closing in Spokane in Recent Years

Tracking job losses is very difficult. When a business closes, the closure is only sometimes covered by the local media. If the closure is covered by the media, they always report the most recent headcount, not the peak headcount. This means that when, for example, Itronix closed in 2009, this was reported as a loss of 380 jobs. But the company had been scaling back from some time from their peak of 450. Consequently, the reported job losses almost always understate how many jobs have been lost. Where possible, the peak employment numbers are provided so we can gauge the actual impact.


PLEASE: 
If you have better numbers than the ones shown below, please leave a comment with that information. The numbers here come from either old news coverage, sometimes from former employees, sometimes from comments current or former employees have posted online. The numbers could be off. Again, if you have better sources, please leave an update in the comments. Thank you!

  • Agilent To close in fall 2010. Fromapproximately 2,000 to zero workers [including temp, contract, consulting and vendor] (Source is old SR news article quoting former HR manager). Moved manufacturing to Ireland, hardware engineering to Malaysia, software engineering to Korea.
  • ISC, founded locally, went public, and then was acquired many times by Bunker Ramo, Wang, Olivetti, Getronics, KPN, CompuCom, etc – off shored software development to India, and the Spokane office was closed in 2009. At its peak, they had a 305,000 sq ft building and 46 acres of land. They once had over 700 employees around 1990 (confirmed), and I have one unconfirmed report they had 2,000 at their peak (I have no idea about that – its possible considering the building and 46 acre site but I could not find a verified employee count for the peak years).
  • Software Spectrum. Moved to Plano, TX and other locations. Was told that 300+ workers let go.
  • Itronix Bought by General Dynamics in 2007, and then closed in 2009, and moved the work but not most workers, to Florida.  380 workers (or 450 from the peak), a very few of which, such as sales, work out of their homes. Total jobs lost: 450 from peak in 2007. (Those numbers came from SR news reports. Another report I saw said they peaked at 520.)
  • Vivato Wireless Closed 2005, 120 workers let go. Wrong technology – too expensive.
  • Isothermal Systems Research/SprayCool Founded 1988. Electronic cooling systems. Had over 250 200 workers (mostly engineers) at its peak. UPDATE MARCH 2011: ISR has closed its doors, out of business (Update May 2011 – Source that provided that was wrong.). At one time, their HQ was in Clarkston, WA but when they sought funding, the VCs told them that would not work to be in a remote location like Clarkston, so they moved to Liberty Lake. Spraycool has since been bought by Parker Aerospace and the Liberty Lake facility was down to 40 workers as of March 2010 and same number in 2011.
  • Egghead Software. Bankruptcy in 2001. They were a chain of retail software stores in the 1980s and 1990s and moved tech support to Spokane in 1994, and the whole company in 1996 to “reduce costs!”. At their peak, they had over 500 workers in Spokane including admin, corporate, marketing, tech support, IT services. But hackers accessed their customer database and they never recovered from that. Plus, the concept of retail software stores was losing viability.
  • Packet Engines Founded by Bernard Daines, sold to Alcatel which moved manufacturing to Canada in 2001, then software to India, then laid off the remaining 100 engineers in 2003. Closed in 2003. May have accounted for 400 workers total.
  • Columbia Lighting560 workers laid off from peak employment in 2002. Founded in Spokane in 1898. Bought by Hubbell, CT in 2002. Closed half of plant in 2003. Closed entire plant in 2008. Admin moved to South Carolina; all manufacturing moved to Mexico. Spokane plant was “old” and “inefficient” (except another press release from Columbia Lighting called the Spokane plant “state-of-the-art”.) One half of the work force received early retirement option with full benefits.
  • Kaiser Aluminum Mead, closed– Bankrupt in 2002.  Loss of 2,000 jobs. Closed Mead works, established in 1940. 2470 workers impacted. (Some news reports said “about 2,000 workers” but the numbers were confusing and this might have referred to unionized workers only – another report said there were about 465 non-union workers – 2000 + 465 is almost 2470 reported in the news). Left 600 at Trentwood (as of 2005) for a loss of 1800- 2,000 jobs overall.  Kaiser filed for bankruptcy in 2002, which got them out of their pension obligations, their liability for asbestos claims and a court order to make good on back pay owed to workers.  Causes: Finance industry-Maxxam-Hurwitz,  management and and questionable union issues leading to a lengthy strike, electricity rate increases, inefficient plant competing with newer off shore facilities (except in 1986 it was “one of the most efficient in the world”), 9/11 impact on Boeing sales, explosion at another Kaiser plant outside the area, and that Kaiser made $485 M selling its Bonneville power contracts and said it may use the funds to purchase overseas facilities. Kaiser was the largest industrial operation in Spokane and its collapsed impact both workers and thousands of pensioners in the area.
  • Metropolitan Mortgage, Metropolitan Investment Securities, Summit Securities , Western United Life Assurance, Old Standard Life Insurance, Old West Annuity and Life – Bankrupt. Financial and mortgage fraud. Pioneered no documentation loans, etc. Over 600 jobs lost. According to the State of Washington, this industry had average wages here of $93,000 per year in Spokane!
  • Columbia Paint & Coatings. Bought by Sherwin-Williams in 2007. Closed Spokane operations (the former HQ of CP&C since 1974) in 2009. 50 jobs.
  • VisionTec, high tech contract manufacturer. Closed in 2004. 50 jobs lost due to offshoring the work.
  • United Coatings. Closed. Moved plant elsewhere. Had been founded in Spokane in  1919.
  • Pine Lodge Correctional Center for Women. Closed 2010. 100+ jobs lost.
  • Pristina Pine (wood products). Closed in 2008. 115 workers laid off.
  • Empire Health Services – lay off of 130 workers in Feb 2008.
  • Cascade Aerospace. Closed, sort of, July 2010. Cascade Aerospace received $2 million in government grants and loans to open an airliner servicing operation at Spokane International Airport. But just 17 months after opening, Cascade Aerospace decided to sell the facility and leave Spokane. The original aircraft maintenance facility was expected to have employed 600 people while the buyer expects to employ just 50.  In order to cut costs to airlines, Cascade Aerospace looked for rural cities with low wages and selected Spokane because “Overall, it’s a very hardworking, blue collar-type community that still has a great work ethic and friendly people“. The new, smaller business will focus on customization of airliners for use as personal and business jets. The Cascade facility was a boost to the Community College aviation worker training programs by providing local area jobs. Further, the airport itself spent $1 million to upgrade facilities for the new business (more here). Details of the original lease agreement are here.
  • Other – Spokesman-Review – large layoffs spread out over many years. Spokane Mental Health. Spokane Regional Health. K2 Goldmine (Curlew), plant near Addy, Pristina Pine (wood products) , Providence (44 in 2009, 174 in 2004), Harpers, Inc of Post Falls, 118 in 2002. Construction industry has likely lost thousands of jobs in the past two years.

Total, including next section, over 13,000 jobs lostnot including smaller lay offs. From February 2008 to April 2009, an additional 2,000 manufacturing jobs were eliminated here. As of June 2010, there were 4,000 fewer jobs in Spokane County than one year ago – all other top 11 MSAs in the state added jobs during this period.

Companies We Still Have, Including Those with Large Layoffs

  • Telect – went from 1,360 local workers at peak but off shored almost everything to Mexico, Brazil, Poland or moved the work to Plano, TX for “lower costs”. Has about 200 80 workers remaining at Liberty Lake ((April 7, 2011, Journal of Business, page A17), which is still the HQ. Sold their 220,000+ sq ft building to Itron and downsized to 16,000 square feet. In April 2011, they announced they would move to a 27,000 square foot facility.
  • Itron – moved all of their manufacturing to Minnesota and offshore locations. Sold their software division and moved it to Seattle. Spokane is now an administrative office (marketing, admin, customer service, finance, some R&D). 458 employees.
  • Keytronics – moved manufacturing to Mexico, retained admin office in Spokane Valley.
  • World Wide Packets Founded by Bernard Daines, sold to Ciena, which apparently ended WWP products and replaced with a product testing organization in Spokane Valley. Design engineering is mostly done in San Jose, CA.
  • Next IT – laid off 25% of workers in 2008. Remains based in Spokane with an estimated 150 employees and their business seems to be doing well now.
  • F5 Networks – Hardware design. Has US facilities in Seattle and San Jose. According to a 2007 news paper article, they then had 62 employees in Liberty Lake and hoped to hire a dozen more.
  • Purcell Systems makes outdoor enclosures (low tech) for cellular base stations. Employed 155 people in 2007. All Board members now live in the SF Bay area. Rumored to be scaling down due to end of cellular tower build out – big management re-org in Dec 2009. Appointed an executive as COO who was experienced in “restructuring companies”, establishing new leadership and strategy. Company has not issued a press release since Feb. 2008, stopped going to trade shows in 2009, but will be at one in Oct 2010. Not really sure what’s happening here – could be normal re-organization activities.
  • Servatron – locally founded. Circuit board manufacturer. About 100 workers.
  • US Motion – locally founded in 1998. Makes mechanical encoder systems. Had about two dozen workers in 2007/2008.
  • Scanivalve – locally founded in 1955, creates high tech temperature and pressure sensors (officially “estimated between 20 and 49 workers” by a business intelligence report).
  • Honeywell Electronic Materials – once had 800 employees at 48 acre plant site in Cheney and Spokane Valley. The Cheney plant was closed and sold to a cardboard box maker. According to this web site, they employ 439. Updated September 2011: 300 employees.
  • INHS IRM – locally founded. About 300 employees in network admin, tech support/help desk, system analysis, primarily a systems integrator providing health care info systems to 30 hospitals in WA, ID and 4 in CA. Operates one of the largest patient medical records systems in the country. Provides numerous services to health care providers, including information management through their IRM division. Currently involved in law suits with CHS over who owns the license to use Meditech, the outcome of which could have large impacts. Is currently doing a trial of using Medilinks from Mediserve as a possible replacement for Meditech software. Medilinks is hosted on a Mediserve server, not INHS server, and apparently help desk calls go to Mediserve.
  • Critical Logic – A Burlingame, CA company that open a Spokane office in 2007 with 4 people. They now have 9 employees. This is a software testing business that provides outsourced s/w testing services.
  • AdvantageIQ – provides outsourced services for multi-site commercial facilities management.
  • Cyan Worlds – Mead, Wa. Creator of Myst and Riven. Laid of much of there staff by 2008. Seems to be living off of royalties from past products, recently finding a distributor for their “classic” Myst and Riven games which were amongst the top selling PC games in computer history (and great games too!). Only new product is Myst for iPhone, and its free, a giveaway. They also have Myst Online, which is free and has a Paypal donation button. (Confirmed that they are now a very small organization focusing on mobile game applications. They should do well within that space but it is a challenging niche of low priced apps.)

There are additional small and niche market tech companies. At some point I will try to track down some of them and update this list.

What Happened

The largest job losses were caused by:

  1. Off shoring
  2. Local firm bought by an out of area company and then closed or moved elsewhere.
  3. Bankruptcy and/or fraud.

The common element in each of these is that it became more cost competitive to do the work somewhere other than Spokane. This is obviously true for (1) and (2), but is also true for (3). This also fits the thesis offered by Littleon, CO which concluded that recruiting firms from elsewhere will result in firms coming for lower costs – until somewhere else is cheaper – and always results in a boom bust cycle.

As manufacturing moved offshore, there was no longer a need to do high value design engineering here – in fact, in all cases, the design engineering followed manufacturing by just a few years, giving the lie to the offshoring proponents claim that we just need to move higher up the value chain.

The trend – except for government, health care and education – is to conduct only lower valued work in Spokane. World Wide Packets became Ciena and replaced high value engineering with product testing. Critical Logic is a Silicon Valley based company, but has a small (9 person) office in Spokane Valley doing software testing (lower value than software engineering).

Overall Economy

  • Numerous large employers have left Spokane in recent years
  • No significant new employers have formed or come in to town to replace these high value jobs. Manufacturing was 8.6% of workers in 2005, but accounted for 11% of wages.
  • The major promoted comparative advantage of the area is low wages.

A consistent message promoted by Spokane leadership for decades is that Spokane is a great place to do business because of a low cost of living or low cost housing. This appears in press releases going back years.

Housing cost is a near perfect proxy for the wages in an area – low cost housing means low cost wages. When companies say they are opening a facility in Spokane because of the region’s “low costs of living”, they are referring to low wages which are usually the main “low costs” that appeal to an employer. In effect, local leadership promotes Spokane having a comparative advantage of low wages .  As of 2001, Spokane had the highest poverty rate of the top 11 MSAs in Washington.

As the high paid, moderately skilled manufacturing base collapsed, Spokane area leaders have switched horses – several times since 2000 – and today view the future as centered on health care, government, education and retail services. Currently, 37.7% of all workers are employed in health care, government or education (According to the Washington Employment Security Department)– which compares to typically 25% or less in other areas except Pierce County at 39% (which includes the huge Fort Lewis army base and McChord AFB) and Olympia (state capital). 60% of Spokane’s health care costs are reported to be paid for by the government (directly for employees and pensioners or Medicare/Medicaid) – consequently, nearly a third of the area’s income derives from taxpayers. Strange.

Spokane is today viewed as a regional services center providing health care, education and retail services to a wide geographic area. The State of Washington has passed several laws that mandate these categories (primarily) are the future of Spokane.

Local leaders now seek a government funded medical school with hoped for spin offs from that to create a bio-science sector. However, without a comprehensive research university here, there will not be a growing bio-science sector. By comprehensive I mean not just health science focused – but doing research across a broad range of endeavors including health care, science, engineering, informatics, management and so on.

Perhaps a long term solution is to seek a comprehensive research university in the State’s 2nd largest metro area and to create a culture of innovation. Innovation, however, implies ambition, change and breaking rules – none of which seem to be desire in the local culture today. From a culture of innovation would come home grown businesses producing goods and services wanted by customers outside the area, bringing in money from outside.

The outside money flow in Spokane today is:

  • government/taxpayers to Spokane
  • Health care insurance and taxpayers to Spokane
  • Government funded education (EWU, WSU, SCC, SFCC, public schools) to Spokane
  • Privately funded education (Gonzaga, Whitworth)
  • Some manufacturing that ships to customers elsewhere
  • Some services
  • Retirement pensions, self funded investments, savings

The remaining sectors are often or mostly internal money:

  • Retail services
  • Local construction (except that done by non-local government)

You do not have a real economy unless you are engaged in trade and selling goods and services outside your area. Spokane is becoming a government dependant economy, which will approach 50% of the area jobs if the medical school and WSU health science expansion occurs in the future (both of which we all like too).

Spokane and Information Technology

When local leadership refers to “IT” or an “IT cluster” or Spokane having a strong information technology sector, I discovered they are often referring mostly to INHS as well as companies that no longer exist here but they don’t seem to understand that they have gone. They also tend to lump AdvantageIQ and other not really IT companies into the IT sector.

A quick way to see if a “cluster” really exists in Spokane is to go to web sites like Craigslist and compare the job openings between Spokane and Seattle or other cities. We may think we have a cluster but the absence of job openings compared to other locations suggests otherwise.

For the foreseeable future, Spokane will rely on government, health care and education, in that order, as the largest components of the local economy. High tech is gone, both in a literal sense and in a planning sense, and has morphed to “bio-science” and “alternative energy” (except the alternative energy cluster is now designated for the Tri-Cities).

Spokane has 33% more health care workers, per capita, than WA State, on average.

Miscellaneous

In a 2002 Spokesman-Review article, Avista Utilities notes that Spokane has seen the worst drop off in jobs in 20 to 30 years. In 2008-2010, Spokane saw 4x as many jobs lost as in 2001-2002. (Source: http://community.seattletimes.nwsource.com/archive/?date=20020805&slug=econspokane050)

In 2000, Spokane had the worst poverty rate of the top 11 MSAs in Washington, at 12.3%, rising to 14.5% in 2005.

Fastest growing age group in Spokane: Age 60 to 64.

Trivia – When the Spokesman-Review writes about layoffs or a company closing, they only report the most recent employment (e.g. 50 workers will be let go), and do not bother to mention that the firm may have employed 500 as little as 2 years prior. This sloppy reporting skews readers perceptions of the losses – and does not enable them to see just how bad the job losses are. Additionally, at least two companies, in closing their Spokane operations said they were doing so because their plants here were dated and inefficient. Yet the same companies had put out earlier press releases referring to their “state-of-the-art” or “best in the world” factories here. The SR apparently did not read their own past articles on these companies;  if they had they might have spotted the contradiction in the claim of “inefficient” plants being closed. In fact, “inefficient plant” seems to be a code word in Spokane for moving jobs to cheaper locations outside the U.S.

Urban Decay

Spokane is, as a friend observed, experiencing “urban decay” and the haves (government/healthcare/education – basically all government) and the low wage services (retail and hospitality are the next largest categories here). Vacant buildings, of which there are many, become vandalized. Empty lots fill with weeds.   The official name for this trend is “urban decay”.

Corrections?

All of the above information came from news articles or people who once worked at the plants involved, or occasionally, government reports or business intelligence reports. Its possible that their numbers were in error or my transcription of those numbers was in error. If you have better data or additional companies that have left or downsized or significantly increased their head count, please post a comment to this article. Thank you!

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