Turning Small Companies Into Big Job Factories

Slowly, surely, economic recovery is taking root in Los Angeles. April job figures showed a 2% year-to-year gain, or about 77,000 new jobs. Much of this growth is fueled by small businesses. Of the 4 million private-sector jobs in the county, nearly half are created by companies employing fewer than 100 workers.

Nonetheless, the county faces a daunting challenge. Beginning early next year, welfare reform could force as many as 250,000 families to find a job. To accommodate them, the region must accelerate its economic expansion. But how to do it in an economy dominated by thousands of small enterprises, many of which are isolated and hard to reach or are unaffiliated with local chambers or trade groups? Small-business development programs and other support services are themselves fragmented, with no systematic way to reach their intended clients.

To make the connection between the regional economic recovery and job opportunities for low-income residents, Rebuild LA began a three-year experiment. Its central concept, known as “flexible manufacturing networks,” is based on the idea that cooperation among small firms can make them more competitive by enabling them to share information, resources and risks. By working together, they are able to achieve economies of scale that each company could rarely achieve alone. Cooperative ventures emerging from these networks can range from the joint purchasing of raw materials to common research projects or export consortia.

Limited in resources, small companies are often consumed by the daily demands of production. They seldom have time to learn about impending technological advances or emerging business trends. Networking not only helps them break out of this isolation by facilitating information sharing, it also enhances their capacity to learn and respond more quickly to changing market conditions.

When RLA launched the network strategy with urban manufacturing firms, it had few models to guide its work. Despite these limitations, however, it learned some important lessons about how to make the job connection between local businesses and local residents.

To span the divide between economic growth and urban poverty, development strategies must address both the demand and supply sides of the employment equation. This is not, however, an easy balance to strike.

Most economic-development initiatives emphasize either business growth or job creation. Business-assistance programs help companies modernize, secure financing or enter new markets. Community groups and training programs working with low-income residents seek to improve job prospects for the poor and unemployed. Each side is somewhat suspicious of the other, reflecting differences in priorities and values. Yet, employment opportunities hinge on the health and vitality of businesses, and businesses cannot grow without a work force skilled in new technologies and manufacturing.

To test the possibility of integrating the demand and supply sides of the network strategy, RLA worked with the apparel and furniture industries.

Apparel is an industrial staple of inner-city communities. It is the largest manufacturing employer in the Los Angeles empowerment zone and a major force in the county’s economic landscape. The industry is also a leader in women’s fashion. But despite its prominence, the apparel industry is at risk. Under pressure from low-cost competitors offshore and labor law-enforcement agencies, apparel-industry leaders realize their sector must become higher value-added.

To facilitate this transition, IBM awarded a technology grant to RLA and Los Angeles Trade Technical College, which the college used to set up an apparel technology-resource center. The college’s manufacturing curriculum now includes state-of-the-art, computer-aided design and production. Apparel workers can learn, via computer, to manage production data, including information on style changes, conceptual drawings, costing and measurements and send this information across town or around the world. With these new skills, apparel workers are in a better position to move up into higher-paying jobs.

At the same time, the Textile/Clothing Technology Corp., a North Carolina-based sewn-products consortium, was approached by Trade Tech to provide assistance in technology transfer. For the past year, its instructors have piloted a series of workshops to help companies modernize their manufacturing. Interactive classroom instruction on issues ranging from product costing to team-based manufacturing was combined with advice and technical assistance so that management and employees could translate the new knowledge into their operations.

In household-furniture manufacturing, RLA brought together a group of companies that spent a year assembling a design and manufacturing collaborative. The goal is to strengthen the relationship among design, manufacturing, marketing and distribution by involving a broad partnership of organizations. Design and vocational schools are working with nonprofit housing groups to develop multiuse furniture. Furniture-design students will translate their proposals into curriculum, which will teach trade-school students how to produce the designs. Furniture manufacturers will lend their facilities to the project, allowing students to construct prototypes and build the furniture. The prototypes will then be shown at different venues and in a variety of publications.

From this exposure, manufacturers hope to develop new lines of furniture, reach new markets and gain access to design and production talent. Students will acquire an array of skills, including hands-on experience working with potential employers. Workers will enhance their marketability by learning to work with new materials in different ways.

Each of these efforts required one to two years of work to bring them to this stage of development. There were no short cuts. Time and opportunity were needed to establish a level of trust between RLA and participating firms. If they were unwilling to work together or did not see the value of the efforts, the networks would not succeed.

In effect, RLA is striving to develop a culture of trust and cooperation. It wasn’t enough to bring together a group of companies in the same industry. Instead, a social milieu in which intercompany communication and cooperation could emerge had to be created.

In the past, this kind of collaboration was not recognized as an essential feature of economic development. In fact, measures to evaluate the success of various strategies concentrated on outcomes like the number of jobs created; they paid no attention to the conditions that affect the ability of businesses to create jobs. The network strategy addresses those conditions. And it can make available quality jobs for low-income residents.

It’s too early to weigh results. But the synergy arising from collaborative efforts can lead to a fundamental change in the character of economic relationships among small companies, and between companies and the communities in which they are located. This is systemic change in its most basic form, a process, unfortunately, that is still not understood by economic-development specialists.