UNION CITY, CALIF. (May 12, 10 a.m. EDT) — Industry advocate Paul Appelblom founded injection molder Jatco Inc. in 1976 and serves as the firm's president and chief executive officer.
He became chairman of the Washington-based Society of the Plastics Industry Inc. board in June 2002 and, pending a routine re-election, is expected to continue as chairman through December 2004.
Plastics News correspondent Roger Renstrom interviewed Appelblom in his Union City office April 23. Privately held Jatco employs 175-300 and has annual sales of less than $20 million.
Q: In early 2001, I interviewed you about Jatco adding a Battenfeld multicomponent manufacturing cell. What has been your experience with the cell so far?
A: The machine and the manufacturing cell have worked flawlessly. We have not achieved our anticipated return on investment, but that is primarily attributable to the downturn in the economy.
Q: When did Jatco feel the downturn?
A: The initial part of 2002 started very strongly. We were about 20 points ahead of our plan, but in July we were struck with the economic malaise that seems to be pervasive. We ended the year ahead of plan, but that malaise appears to be continuing into the initial part of 2003.
Q: What do you see as the major cause?
A: A lot of it is attributable to the lack of confidence by America in the economy, derived from the accounting malfeasance, the Iraq war and terrorism threats. The American people need to regain a degree of confidence to reverse the malaise.
Q: How is Jatco faring?
A: We were profitable last year, have a good balance sheet and are not in any type of economic distress.
Q: What differentiates a survivor in the plastics industry from a firm not keeping pace?
A: A company with a strong balance sheet can take some economic hits and still survive. That doesn't happen overnight. It is something you put together as a moderate-size company.
Q: What is your approach?
A: The best defense is a good offense. You'd better react quicker than the other guy, whether it is restructuring internally, downsizing or developing more aggressive marketing. If you are a follower, it is harder to survive.
Q: What guides Jatco?
A: We establish a business plan looking out multiple years. We try to define the directions, whether that be proprietary products, large machines, niche molding or whatever. About 20-25 percent of our business is proprietary, and we continue to develop new lines.
Q: What microelements are important?
A: Time-to-market is everything.
Q: What steps has Jatco taken?
A: We have expanded our sales and marketing focus. Five people handle sales for proprietary and custom molding, and I spend most of my time in sales and marketing.
Q: You are being more aggressive?
A: Much more aggressive. We believe that will afford us the ability to survive through any economic downturn.
Q: In addition to the economy, what issues face the industry?
A: Natural gas/energy and foreign competition.
Q: How do you read the natural gas issue?
A: Natural gas is a primary feedstock for a lot of resins. If this feedstock is not available, our industry will suffer. The federal government must develop an energy policy with an understanding of the realities of life — that the United States is a net importer of natural gas and reliant on external sources.
Q: The energy situation in California reaches deep. Is it a quagmire?
A: A quagmire is an apt description. Recently, Senate Bill 888 was introduced to re-regulate and re-establish the [utility] monopolies. A lot of people think that is the right answer. I personally don't. You have already gone down the regulation road. The utilities have sold off their power generation. How do you reverse all of that? It is not possible.
Q: How did we get here?
A: The administration — even before the [Gov. Gray] Davis administration [starting in 1999] — made some gross errors in dealing with the power crisis at its inception many years ago: the lack of building of new power plants; the lack of forecasting of requirements. The boom, which has suddenly become a bust, caused us to consume considerably more power, but we were not planning our distribution or generation systems.
Q: What needs to occur?
A: The restructuring within the [California] Public Utilities Commission was timely. Michael Peavey as chairman has the background to put things in perspective. The CPUC should not be politically appointed, but it is a total political body and has no judicial oversight. The whole process needs to be rethought.
Q: Is there a near-term solution?
A: There is no magic switch. This is [something requiring] a long-term solution. People within the state have to make their choices as to how they are going to address their individual circumstances.
Q: What options exist for California plastics processors?
A: Cogeneration for power is one avenue. Another is to relocate to a municipal utility district within the state, and a third is to leave California. The manufacturing environment in California is difficult and is more costly than elsewhere in the United States.
Q: Can you elaborate on cogeneration?
A: The state has eliminated any standby charges if a processor chooses to use cogeneration, and the public utilities cannot charge any standby charges so long as you have it in place by December 2004. If a cogeneration facility is under 1 megawatt, the state will not charge any exit fees, and if it is over 1 megawatt, there will be 1-2 cents per kilowatt-hour in exit fees.
Q: What are other California issues?
A: Workers' compensation insurance rates have gone pretty much out of sight. [Jatco has] seen increases in rates of approximately 50 percent over the last 12-18 months. We have started to look at whether or not it is viable to do self-funding.
Q: What keeps business in California?
A: Despite the higher costs, there still are 34 million people in California, and the state continues to be a mega-consumer of products. That makes it viable for certain products to continue to be manufactured here.
Q: How can manufacturers level the playing field in California?
A: To address the multitude of issues, manufacturing industries as a whole — not just the plastics industry — need a united approach to talking and becoming involved on the political side. We must teach the Legislature in California that business is truly the engine that pulls the train. Without business, there will be no 34 million people in California unless they are working at McDonald's. We as an industry have an obligation to take charge of our destiny. We have to let our voice be heard.
SPI in the West and the California Film Extruders and Converters Association have joined the California Large Energy Consumer Association as board members. These two parties are actively participating with decision-makers on the CLECA board, truly a watchdog of the CPUC, to be able to lobby both the political side and the regulatory side to ensure the interests of our industry and all industry are represented and heard loudly.
Q: What about foreign competition?
A: I believe we will see more foreign companies at NPE [June 23-27 in Chicago] than ever before. These companies — suppliers of capital goods, molds and resins — will come from throughout the world, not only from China. Globalization of industry will continue. It is not totally to the detriment of American industry. It is a reality that we have to address on an individual and collective basis.
Q: How does China fit in?
A: The Chinese have to be held to the terms and conditions of their World Trade Organization agreement. If they are not doing so, their feet must be held to the fire.
Q: What downsides exist?
A: We can't be an isolationist country and throw up barriers to trade. Reasonable trade is paramount to the future of America's economy.
Q: How else can domestic manufacturers level the playing field vs. low-cost foreign competitors?
A: We have to develop unique niche markets — medical or certain electronics or certain kinds of insert molding or large-machine molding — that allow us to produce products at lower cost.
Q: Is that feasible?
A: Not always. I had a houseware company come in here recently [for a job quotation using] a 400-ton press. I thought we were very competitive. He turned around and said, “In Poland, we are buying [use of] a 450-ton machine with an operator for $14 an hour.” I had no response to that.
Q: What does that tell you?
A: In the end, the great equalizer becomes cost of freight. The person who is going to be truly successful in America will come up with a unique product — perhaps a proprietary product — and ship it from here to China. The cost of freight from the United States to China is one-fourth of the cost from China to the United States.
Q: Because of container availability?
A: That is right. They are sending most [containers] back empty. So if they can get $500, it makes them very happy.
Q: What other trade issues exist?
A: Resin has become much more of an international commodity, and there are some issues. We import certain resins from Europe and pay a 6.5 percent [U.S. customs] duty. If that same resin was shipped into China, they wouldn't pay anything.
Q: How can a firm globalize?
A: Development of strategic relationships on an international basis affords the opportunity for foreign companies to actually produce product here domestically. We have to look outside the boundaries and stop continually looking in. We have to look for these opportunities on a global basis.
Q: What is your experience here?
A: We have done this for many years. Our three largest customers are either foreign companies or domestic subsidiaries of foreign companies.
Q: What is your industry overview?
A: Plastics as the fourth-largest manufacturing industry in the nation is undergoing dynamics most people never thought they would see. The whole structure of corporate America has changed dramatically with the roll-up scenarios, the technology bubble, 9/11 and terrorism. Within the plastics industry, we have to provide security for our resin installations.
Q: What does the future hold?
A: The dynamics seem to almost be ever-increasing. Technology is exponential and builds upon itself. Going from where we are to where we ought to be sometimes just happens overnight. The technology takes the whole world and makes it smaller. It draws us all together.
Q: How does SPI fit into your life?
A: SPI has worked very hard to make being involved much more manageable from the standpoint of moderating — and reducing — the number of national meetings. They use phone conferencing and try to coordinate meetings so if you have to travel, you don't only do it for one function.
Q: What does the industry need?
A: We are one industry. We need to speak with a collective voice. If we do that, we could move mountains.