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Maryland's old-line manufacturers are adapting or giving way to companies that use innovation to offer specialized or unique products.

THE BALTIMORE SUN

For Maryland's once dominant manufacturing sector, 2005 will be another in a string of years that have witnessed the shrinkage of old-line factories that once formed the core of American industrial might and the rise of technology-driven makers of products that can't be replicated by overseas competitors because they are unique or top secret.

Next summer, Baltimore will lose one of its landmark factories when General Motors Corp. closes its 70-year- old van assembly plant on Broening Highway, ending a years-long campaign by state and local officials to persuade the automaker to produce a new vehicle there.

The closing of the plant, which once had 7,000, will leave 1,100 workers without jobs at a time when U.S. manufacturers are likely to remain under stress from high oil prices and intense competition from China, Mexico and other countries where labor is cheap.

"That will almost complete the transition from old, traditional manufacturing to a new, modern era of manufacturing," said Aris Melissaratos, secretary of the state Department of Business and Economic Development.

That transformation dates to the 1950s, when manufacturers, including General Motors and Bethlehem Steel Corp., employed one in three Marylanders. Manufacturing employment peaked at 283,000 jobs by 1967, but the ratio of workers tied to the sector had dropped to one in four by that year.

Today, about 144,000 Marylanders work in manufacturing, accounting for about 5.6 percent - or slightly more than one in 20 - of the 2.6 million jobs in the state, according to the Department of Labor, Licensing and Regulation.

The jobs that remain tend to require advanced skills, resulting in higher average salaries. And fast-growing startups and increasingly profitable government contractors are taking the place of struggling old-line industries, economists and state economic development officials say.

As GM shuts down, a vaccine maker is just getting started in Frederick, and two biotechnology incubators are under development in Baltimore. Scores of small to medium-sized manufacturers are carving out a niche selling their inventions to consumers, while defense companies and entrepreneurial scientists are sopping up government dollars as they churn out new technology for the war on terrorism.

In the long run, some economists say, those sorts of projects will overshadow other recent headline-grabbing developments, such as the announcement last month that Dreyer's Grand Ice Cream is beginning a $180 million expansion and modernization of its Laurel plant that will create 300 jobs.

In addition, a new cabinet-manufacturing plant will employ up to 500 in Cumberland, and an accompanying lumber mill in Garrett County will hire 250.

"American Woodmark, Dreyer's, those are high profile, but that's not where the real growth is," said Anirban Basu, chief executive officer of Sage Policy Group, an economic and policy consulting firm in Baltimore. "It's in the manufacturers that are pretty small or pretty unique and can't be replicated by the Chinese."

Examples on the consumer side include companies such as Performance Cruising Inc. of Annapolis. In many ways, the sailboat maker represents the promise and the peril facing Maryland's new wave of niche manufacturers. The company's founder, Tony Smith, recently developed a triple-hulled sailboat that could double the company's current sales of about $9 million a year and complement his successful line of high-end cruising catamarans.

Unlike other trimarans, Smith's boat can fold up, allowing for easy towing or use as a motorboat capable of speeds reaching 20 knots. Unfolded, it's a lightning-fast sailboat.

"We had to invent our own method of construction to produce the fiberglass parts to keep the weight down so that it can easily be towed behind the family car," he said.

Smith says there's nothing else like it on the market, but he is struggling with government red tape as he prepares to expand his production line. His competitors in Europe and Asia don't face the same labor costs or regulatory burdens that U.S. producers do.

In China, wages are 64 cents an hour, Smith said. In Hungary, they are less than $5 an hour. In Annapolis, labor costs are $30 an hour. And higher oil prices have pushed up Smith's costs for the oil-based resin used to make fiberglass hulls.

The falling value of the dollar has made it easier to sell his boats internationally, but it is also pushing up costs for engines and other parts purchased from overseas suppliers. Every day is a battle to compete in the global market.

"China worries me to death," he said. "I have to be a hell of a lot smarter than them" to compete.

Technology and innovation give small manufacturers an edge, Basu said. Prospects are especially bright for companies that capitalize on Maryland's government-funded research laboratories and proximity to the Pentagon and other federal customers.

Examples include TVI Corp. of Glenn Dale and Emergent Biologics Inc., a unit of Emergent BioSolutions of Gaithersburg.

TVI struggled through bankruptcy a decade ago, but its sales soared in 2001 when it began converting its line of high-tech tents sold to the Pentagon into portable, instant decontamination units that can be used after a terrorist attack to treat people exposed to radioactive "dirty bombs" or biological agents. Revenue has climbed to $37 million from $4 million in 2001. Employment has grown from about 30 to 160 today.

"When we started out, people were thinking this might be a flash in the pan, but we've had steady, substantial growth for the last three years," said Richard Priddy, president of TVI.

Emergent BioLogics is building a plant in Frederick to produce a vaccine against anthrax, another potential terrorist weapon.

Both companies are benefiting from an explosion in government contracts that is driving demand for skilled workers.

"The manufacturing of old - the blue-collar jobs - that probably will continue to disappear," Basu said. "The small ones replacing them are not blue-collar jobs. They require substantial education, software experience and science."

There is a future for Maryland's traditional blue-collar companies, Melissaratos and other business leaders said. But their industries must transform to survive.

GM is closing its Broening Highway plant in response to competition, but its smaller Allison Transmission unit in White Marsh is highly automated and capable of competing globally, he said.

The former Bethlehem Steel has undergone a similar transition. The steelmaker's assets were bought out of bankruptcy by investor Wilbur Ross, who combined them with the remnants of LTV Steel Corp. to form International Steel Group.

Ross announced in October that the company, which employs 2,500 at its Sparrows Point mill, will be merged with Netherlands-based Mittal Steel Co. to create an industrial powerhouse with sales of $31.5 billion and 165,000 workers.

The transformation was made possible by steep concessions from labor, but analysts and company officials expect the jobs to remain secure as a result of the transactions. The company has been helped by China's heavy demand for steel and other raw materials.

"It's probably the strongest market for steel in the last 20 or 30 years," said Charles Glazer, a spokesman for ISG.

International demand for the company's steel is strong as spending on appliances and construction drive sales, he said. One of ISG's Pennsylvania plants supplies armor plating used on military vehicles in Iraq.

David Huether, chief economist for the National Manufacturers Association, expects continued growth in the sector next year. U.S. corporations are sitting on more than a trillion dollars of cash, and they are starting to spend it on new equipment and goods, he said. At the same time, the weak dollar is making it easier for foreign buyers to buy American products.

"That is going to be the basis for pretty strong demand for manufactured products," he said.

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