Made In Usa

THE CASE FOR MANUFACTURING IN AMERICA

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It got to be something of a regular event. In the early months of 1982, Xebec chairman and chief executive officer Jim Toreson would stretch out in his Sunnyvale, Calif., office and listen as the visitors from Southeast Asia made their pitches. Hailing from such low-wage havens as Taiwan and Korea, they would lay out elaborate offshore manufacturing schemes that, they promised, would turn Toreson's eight-year-old disk-drive controller company into the next high-growth superstar of Silicon Valley.

On the surface, the argument seemed so simple. Given Xebec's well-developed engineering and marketing capabilities, Toreson could use offshore manufacturing to ramp up his production, taking full advantage of both low-wage labor and a grab bag of tax holidays, low-interest loans, and other government largess. Most of his competitors seemed to be doing it -- the faster he followed suit, and the better off Xebec would be.

"The temptations were tremendous," recalls the 42-year-old entrepreneur, who has steered Xebec from $14.7 million in sales in 1981 to $158 million in the fiscal year ending in September 1984. "But as an engineer and an American, the whole thing made me sick. It implies we can't make anything in this country anymore. It just created a sense of challenge in me to prove everything they were saying was bullshit."

Wounded national pride aside, Toreson was thinking strategically as well. For too long, he believes, American entrepreneurial companies have relied on continued technological breakthroughs to fuel their long-term growth. Yet "the distinction between being a commodity producer and high tech doesn't exist in our world anymore," Toreson says. "You have to be both or you can be neither. The question is, How do you maintain your edge? It's not enough to be brilliant marketers or designers. You have to combine good product technology with the best manufacturing technology. You need the one-two punch or you'll end up, in the long run, as consultants to the Japanese."

Determined to avoid that fate, Toreson decided to bet Xebec's future on a radical new idea: staying home. Although profits have declined due to the current shakeout in the microcomputer marketplace, Xebec is now spending some $30 million to implement an onshore manufacturing strategy. Toreson directs a far-flung operation that includes two highly automated factories in Nevada, another in Pennsylvania's Lehigh Valley, a major computer-aided design center in Reno, Nev., and $20 million worth of the latest generation of IBM robots. His long-term goal: to turn Xebec into a billion-dollar company by the end of the decade.

"At some point," he says emphatically, "Americans have to take up the Japanese challenge in mass production and with high quality. We have to stop this tendency to say, 'Screw it, let the dumb Japanese or dumb somebody elses do the manufacturing.' The problem is, they usually turn out not to be so dumb."

THE FAST TRACK TO NOWHERE

As a disk-drive controller company, Xebec competes in one of the most volatile sectors of the turbulent high-technology marketplace, and as a result, the company's production problems might seem something less than typical. But if you examine Toreson's reasoning carefully -- and in particular, his ideas on how to manufacture successfully at home -- the broad impications of his decision become clear. The future of all American manufacturing, and, perhaps, of the American economy itself, may hang on the kind of choices Jim Toreson had to make.

This is not to suggest that Toreson is part of any back-to-the-U.S.A. mass movement. While a handful of other leading entrepreneurial companies (such as Micron Technology, Tecstor, and Apple Computer) are pursuing strategies similar to Xebec's, there is little evidence that the decades-long trend toward offshore manufacturing is slowing down. In fact, most small American high-tech businesses seem increasingly resigned to a future in which they will serve, in the words of one Hong Kong engineering manager, as "prototype shops" for more efficient offshore producers.

"You do what you do best and let us do what we do best," suggests George Koo, the Chinese-born president of Microelectronic Business International Inc., an equity investment firm in Mountain View, Calif., that actively solicits American companies for Taiwanese high-tech manufacturing ventures. "Americans are great at inventing and marketing products, but we are the ones who know how to manufacture well and cheaply. The people in the Far East are better. They have more of a work ethic and work longer and harder than you do."

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