Pelco to begin some manufacturing in China

Company officials say layoffs aren't contributing factor.

January 21, 2010 

A day after laying off about 100 manufacturing and support workers at Pelco's home plant in Clovis, company officials disclosed plans last week to begin making some products in China by this spring.

The timing of the developments is coincidental, dictated by the realities of a changing global marketplace in the video security business, Pelco officials insist. But some in the Valley worry that one of the region's largest private employers may pack up and move to foreign soil.

"I wouldn't be surprised, over the next few years, if all of Pelco's manufacturing moves outside the U.S., whether it's to China or Mexico," said Tara Brady, who worked in sales for Pelco from 1997 to 2005. Brady, who now works for a health-care company in Oakland, was among readers who posted dozens of comments on fresnobee.com in response to coverage of the layoffs.

Such fears are unfounded, said Herve Fages, Pelco's director of global marketing.

"There is no link whatsoever" between the layoffs in Clovis and manufacturing in China, Fages said. "We are not in the mindset of shutting down in the U.S. and going to China."

Clovis Mayor Harry Armstrong bemoaned the layoffs but said he trusts Pelco is making "a good business decision" to preserve the remaining 1,800 jobs the company has in his community.

Pelco, owned by French conglomerate Schneider Electric since 2007, makes video cameras and other equipment for the security and surveillance industries worldwide. Fages said Pelco decided about 1 1/2 years ago to start manufacturing in China to take advantage of explosive growth there. "It's something that doesn't start overnight," he said.

Pelco's China manufacturing plans were first mentioned publicly on the industry Web site securitysys-temsnews.com, in an interview with Fages posted Jan. 14, the day after the Clovis layoffs.

The market for video security gear in 2010 is likely to be weak in the U.S. in the aftermath of a two-year recession, but it is expected to boom in China, "and that's not something we can serve from the U.S.," Fages told the Web site.

The Chinese government imposes an import duty of 30% on closed-circuit TV cameras and equipment shipped into the country, Fages told The Bee this week. Shipping products overseas adds another 5% to 7% to the cost of American-made products.

"Now our product is 37% higher in price than something manufactured in China, and we cannot compete like that," he said. "We have two options: Either we don't go there, or we manufacture locally."

The Chinese market cannot be ignored, because of its tremendous potential for large-scale projects, Fages added. Those include airports, bridges and other infrastructure programs that require video security and surveillance gear.

As part of its worldwide footprint for sales and service, Pelco has offices in Shanghai, Shenzen, Beijing, Chengdu, Xi'an and Chinese-controlled Hong Kong and Macao. It also has offices in Taiwan, South Korea, Singapore and Japan. Pelco also established a warehouse in Shanghai in 2008 at a Schneider Electric facility.

The new production line will open by April inside a Schneider Electric manufacturing plant in the city of Wuxi, near Shanghai, Fages said. But compared to Pelco's large Clovis campus, its Wuxi operation will be small - about 20 to 30 employees.

The Wuxi assembly line will manufacture some of the same products as those made in Clovis, Fages said. But its smaller scale reflects the distribution of Pelco's sales around the world. North America continues to represent 60% of the company's business, Fages said. Europe, the Middle East and Africa makes up about 25% of worldwide sales, and Asia represents about 15%. China now makes up more than half of the Asian market, Fages said.

The layoffs in Clovis, however, are due to a combination of increased manufacturing efficiency and product demand in its primary market. "Our business in North America has been challenging over the past 13 to 18 months," Fages said. "We have to realign the size of our company to recognize that.

"If tomorrow our business in America grew like it used to be, we'll be hiring in America," he added. "We have done layoffs here, but in China we need to hire people to be more aggressive. … We look at where the growth is and adjust where there is potential."

Steve Hunt, a longtime security industry analyst in Chicago who writes the blog securitydreamer.com, said he believes Pelco's moves are reasonable.

"The fact that Pelco is continuing to see greater efficiency in operations is no surprise in light that growth hasn't increased dramatically to support the operational costs," Hunt said. "They've been making these steps both before and after the Schneider acquisition.

While Hunt didn't specifically address manufacturing in China, "the extent to which Pelco can use the global Schneider infrastructure will help them immensely."

Armstrong, the Clovis mayor, said he understands Pelco's reasoning for the layoffs, even if he doesn't like the effects on his city.

"Everybody is cutting, and unfortunately it happened here," he said. "I think they're trying to protect what jobs we do have.

"Yes, we're sad to lose those jobs that were lost," he added. "But if it makes the unit stronger and gives it better footing in this economy, then it's a good business decision."

Brady, the former Pelco employee who remains in touch with friends who still work there, said she sees the logic behind the Asian effort.

"Given the global economy, it doesn't surprise me that they would want to have some sort of manufacturing in China," she said. "I completely understand doing that, especially for products sold in that part of the world."

But, she added, the timing of the layoffs in Clovis and expansion in China "opens the door" to fears about relocating the company, even if that's not in Pelco's plans.

"That says a lot about the current management of the company," she said. "Either plant the seed and let employees know about China earlier, or do better public relations," Brady said. "It's the appearance of the whole thing. … What is that doing to the morale of the employees?"

Fages insists that the future of the Clovis plant is secure. "We're looking at our consumption in China and want to have the capacity to grow [there] … but there is nothing about shifting one business to another."

The reporter can be reached at tsheehan@fresnobee.com or (559) 441-6319.

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