When It's Time To Scale, US Manufacturing Hits a Wall

curtwoodward writes "MIT researchers looked at 150 of the school's spin-out companies in manufacturing businesses over a decade, and found many of them hit the same chasm: Once it was time to ramp up to large-scale production, they couldn't find domestic investors and had to go overseas. The bulk of the research will be published later this year, but it raises an interesting conundrum — if an MIT-pedigreed company has serious trouble ramping up production in the U.S., how much harder is it for the 'average' business that wants to grow? Is it even still possible to do high-tech manufacturing here — or should it be?" Intel seems to be doing OK with U.S. manufacturing, but they have the advantage of established operations.

Comments

Spoiled Americans

[Anonymous Coward]

Americans have no one to blame but themselves and their short sighted insistence that they be paid enough money to keep themselves in food, shelter, transportation and medical care here in America, rather than what it would take to do all of the above in Bangladesh.

Re:Spoiled Americans

[Runaway1956]

Yes - and no.

I'm getting to be a pretty old guy. I remember the initial rounds in off shoring. The steel industry was in trouble here, in the states. Companies were telling the unions, "We're going bankrupt, we need to renegotiate, we need to cut costs. If you'll take a small pay cut, let us get on our feet, we'll make it up to you. We need help, or we're out of business!"

How much of that claim was in good faith, it's impossible to judge, really. But, the portrayal was mostly accurate.

I'm the son of a steel worker. I heard the union men saying that "No one in the world can make steel like we do. Go ahead, take your plant to the Netherlands (or wherever), you'll be back in five years, looking for qualified steel workers!"

Well - plants were moved overseas - and they haven't come back. In fact, steel plants have been opened in third world countries, and they operate at a profit. Even little brown men and women from tribal towns in India can make quality steel. (Don't ask why China has such a problem, I haven't figured that out.)

Greed plays a big part in all of this, and the greed isn't all on one side, either. Where I grew up, EVERYONE had almost new cars, a boat in the yard, expensive stereo equipment - you name it. If it was new and shiny, if it was "fashionable", if it was considered "high tech", then all the union men had one, because they could afford it.

I thought my dad was wrong, when he refused to deal with the steel companies, and time has proven me to be right. Today, we only have a small fraction of the steel industry that we had in 1980.

Had the unions accepted a three percent pay cut and a reduction in benefits, most of those jobs would still be here. It's not like any union man was going to miss a meal by taking a three percent pay cut. They worked hard at the plant, but they were on easy street at the end of the work day.

The steel companies led the off shoring of American manufacturing out of necessity. Other manufacturing industries sat back, watched, and followed suit.

We'll never get back what we have lost, and it all came about because steel workers were greedy.

Re:Spoiled Americans

[pnutjam]

Why would the jobs still be here? The companies probably would have ended up like hostess, always coming back to the table with their hand out. A cut might have delayed things by afew years, but a couple of unions caving in would not have changed the last 50 years. The owners might have made afew more bucks.

Re:Spoiled Americans

[Austerity Empowers]

"Why should I invest money here, when it requires me to realize a taxable gain and bring it to the US, when I can leave the money overseas and invest it in a manufacturing plant that makes me even more money?"

Re:Spoiled Americans

[rve]

Go ahead, take your plant to the Netherlands (or wherever), you'll be back in five years, looking for qualified steel workers!

How can a US based company ever compete with a low wage, low cost of living country like the Netherlands, where employees aren't entitled to any benefits and will work 12+ hours a day for a basic meal?

Re:Spoiled Americans

[Anonymous Coward]

You _seriously_ need to read "And the Wolf Finally Came: the Decline and Fall of the American Steel Industry".

Cooperation at some places like J&L was genuine and in good faith.

At others such as Wheeling Pitt and US Steel, not so much.

(In the case of Wheeling Pitt, workers cooperated with WHX & Ron LaBow and lost everything)

The one thing they both had in common? For the most part, they both failed.

Don't get me wrong, in some places steel survived, but only because management wanted/needed/planned for it years in advance.

(ie US Steel knew in the 70's they had to cut capacity, and that the Mon Valley would only have one hot side when the dust cleared. Yet they told the workers it was their fault: for not meeting new quotas, for wanting COLA, for wanting workman's comp when injured on the job or electing the Homestead Five)

A good primary example is ET and Irvin survived even though workers wouldn't budge. Some even said go ahead and close it like the others. It survived because it had perviously been selected by management for modernization and they actually did follow through.

For the most part, vertically integrated producers are gone; mini mills have ruled.

Far as big manufacturing and such, as long as companies have access to mobile work forces (ie not captive ones) wages will primarily control where they will go as labor is the biggest expense in general.

Unfortunately you just can't live in the US for 8000/yr, have a family, be debt free, save for retirement (you think there will be a pension, social security? ask the pensioners who worked for Bethlehem Steel after ISG raided the pension just like WHX and tossed them to the PBGC after a life time of work), have children and try to provide a better opportunity for those children.

Seriously read the book; Hoerr doesn't just make random statements and claims, he has the references to prove it. Read the foot notes after you finish each chapter.

He and his family are from Tube City; he even worked in the National Works to put himself through school...

Re:Spoiled Americans

[Anonymous Coward]

1: If management can't sit down with the unions and show them the books, then they deserve no quarter and the company should sink.

2: http://minerals.usgs.gov/ds/2005/140/ds140-feste.pdf

1964 is when the market for pig iron capped out; it coincides with the 1st clean air act and that is when off-shoring really began. During that time the unions and steel companies couldn't come to an agreement, and congress continuously stepped in and mettled in their affairs. In 1981 is the shipped tonnage literally halved within a year due to the real estate market crash. We had a crappy market in the 1980's and nobody wanted to invest, and as real-estate was in the shazbot, nobody was building steel structures. In 1990 the Clean Air Act was passed and that put the cork in the pooch so to speak; you've got to burn a lot of coke to make steel.

3: http://market-ticker.org/akcs-www?get_gallerynr=2000

Interest = Inflation + Margin + Risk.

GDP, adjusted for debt emission, is net zero. For the last 60 years.

2% year over year inflation is an exponential equation.

Inflation is caused by issuance of debt.

When Inflation is high, to maintain reasonable interest one must either reduce margin, or increase risk. The entire US market does not want to invest in domestic long-term projects because of three reasons:

A: When the government decree's it has defacto power to do anything and thus its power is unlimited, and it in fact does things like re-order the debt structure of GM and screw people who thought they were secure in their investments, businesses realize there is an increased risk in the market. At least in china if they can pay off the right people they can be secure in their investments. This is especially bad when the government commits fraud.

B: At some point in credit expansion, people begin paying off current debts with new debts. This is where the exponential function starts and moves upwards from. Once it's established, your investments get forced into higher risk classes because there is literally no way to reduce margin further. At some point inflation pushes risk to an absolute value and you lose.

C: If you buy a bunch of material and labor and really invest in a company, someone, usually an exec or another investor, is going to turn around and figure out a way to asset strip that material and labor for their own personal profit.

So, to answer your question as to why it all happened, this has absolutely fucking nothing to do with poor managers coming hat in hand with tounge-in-cheek to unions asking for a small reduction. It has everything to do with rabid environmentalism (We double our energy use every 7 years all off of petrol, why the fudge can't we do Thorium Nuclear and use current to process metal? Aah, NIMBY), out-of-control government and banks, and managerial and union failure.

Re:Spoiled Americans

[Pecisk]

" The steel industry was in trouble here, in the states. Companies were telling the unions, "We're going bankrupt, we need to renegotiate, we need to cut costs. If you'll take a small pay cut, let us get on our feet, we'll make it up to you. We need help, or we're out of business!""

And you take their word for it? You know when company goes bankrupt, no one actually tells you about it. It just happens. I really smell fish here. I would really like to see numbers of that company on that year. It feels more like "we wanted to increase profit for shareholders".

I can agree that unions sometimes can be very stubborn, because of previous workers experience, which is usually not so pretty. However, there are lot of smart people usually, so "they just were greedy" is oversimplification at best.

Re:Spoiled Americans

[RabidReindeer]

It's not?

We're trying!

Re:Spoiled Americans

[Grishnakh]

It seems to me the unions, when presented with situations like this ("we'll make it up to you"), need to demand a contract where the union workers will profit somehow if the company does turn around and regain profitability, rather than just relying on good faith.

Re:Spoiled Americans

[BVis]

Yeah, greedy workers! How dare they expect to share in the company's successes! They should just take the scraps they're given and be happy about it. The executive's summer homes don't buy themselves, after all.

The jobs didn't go overseas because the steel workers wanted too much money. They went overseas because management felt they were entitled to obscene profits, and didn't care whose lives they ruined in the process. We're not talking about paper pushers here, we're talking about steel workers working a brutally hard job in an extremely dangerous environment. Why shouldn't they make enough money to support a comfortable lifestyle for their families?

Receiving good wages/benefits for hard work isn't greedy, it's the "American Dream", or at least that's what it used to be. Now, the "American Dream" seems to be "get other people to work hard and keep the profits for yourself." These companies will wish that they'd kept the well-paying jobs here once nobody can afford their products.

Simple Fix

[CanHasDIY]

Just switch your focus to manufacturing things that either can't be made in/sold to/bought from other countries (like cryptography software).

Or maybe guns. Americans love American made guns.

Re:Simple Fix

[flyneye]

The mistake made here is that scaling production is a GOOD thing. We have seen endless examples of Mega corps. tanking and taking employees and investors with it. The secret, good ol' fly will share with you is; keep it small, specialize,shun investors and if your product is worthy you will live like a king. Complete control is impossible on a large scale and only breeds asshats dropping resume' on your desk reeking from useless degrees, boring accomplishments and assbackward statistical management techniques that wouldn't even appeal to a $cientologist with a warehouse of half built gizmosensors.
        Small house craftmanship is the way to live and work if you want the American dream. You can keep your deadlines, heart attacks and useless ranks of management siphoning your value and devaluing your product. I will also reiterate "FUCK INVESTORS", if they really wanted to make money, they would do what you are doing and put their money into themselves. If they can't do it at that point, they didn't DESERVE any money because they can't HANDLE money and would've only contributed to the problems of the world caused by themselves anyway. Darwin and Bob were both right about Normals; "survival of the fittest" and " if you act like a dumbass, they'll treat you as an equal".

Re:Simple Fix

[TopSpin]

I think guns are a protected industry in the US. I'm pretty sure that we're not allowed to import foreign made guns for sale.

We import many, many foreign guns. There are limits, however. The US doesn't allow Norico (the largest small arms manufacturer on Earth, a Chinese company) to import. Also, foreign small arms must get through the ATF points system which limits what can be imported. Also, there are tariffs. Most other imported finished goods have no tariffs.

The result is that although there are large numbers of imported small arms, the limitations and extra costs to importers allow domestic manufacturing to be viable. Thus, we have companies like Ruger and Smith and Wesson; big, successful manufacturers that build most or all of their products in the US. There are also a plethora of small manufacturers.

Domestic small arms manufacturing is among the best evidence that applying some resistance to imports allows domestic manufacturing to thrive.

Re:Simple Fix

[peragrin]

a company needs investors. The trick is Wall street isn't about investing it is a gambling addiction.

Seriously for one month make all trades last for a minimum of 1 hour. and watch the volume dry up. As Day trading bankers actually have to invest in companies instead of gambling.

Re:Simple Fix

[Anonymous Coward]

I think you'll find they are surprisingly selective about exactly which government regulations they want to reduce.

Re:Simple Fix

[Nidi62]

Most firearms owned in the US are actually made in the US, including foreign brands. Walther is now made by Smith and Wesson, my Sig Sauer was made in New Hampshire, Glock is made in the US. There are Federal laws that require many weapon types to be made 90% out of American-made materials or assembled in the US(this comes into effect primarily with firearms such as AK-47s). As far as I know, most of the weapons we import tend to be AK/SKS type weapons (mostly Chinese in manufacture) and brands such as Beretta(Italy), Taurus (Brazil-they actually bought the rights and machines to manufacture 92 modeled firearms) and Bersa (Argentina). But most "foreign" guns are actually American made.

Re:Simple Fix

[pubwvj]

"a company needs investors."

Not really. That is a common mythconception. Grow slowly and borrow instead of getting investors. That means you benefit more from your innovation. There is no better place for you to invest your own money, and time, than in your own creations where you have control.

Re:Simple Fix

[icebike]

"a company needs investors."

Not really. That is a common mythconception. Grow slowly and borrow instead of getting investors. That means you benefit more from your innovation. There is no better place for you to invest your own money, and time, than in your own creations where you have control.

But you have pretty much written off "Scaling Up" when you take this approach.

It may be a better long term practice for small business that wants to remain small business, but it is not a solution to meeting demand
or or any of those other things that you typically expect when a product becomes popular and widely available. Its fine for a family business, more suited to the service industry than to manufacturing.

You also run the risk of leaving the door wide open for competitors, some of whom will be using your inventions, but none of whom you will have the money to fight, because you insist on growing slowly. It doesn't matter if you are seeking to replace the College Yearbook, and end up creating Facebook, or seeking a better PDA and end up creating the iPhone. If you don't scale quickly and massively, you will lose your market to the next guy who will go all in. Just ask Palm or Psion or My Space.

You have to scale, or forever remain a niche product. Tesla is facing this test as we speak. DeLorean failed it.

Re:Simple Fix

[g1powermac]

As a business owner myself, I do agree with this, to a point. There are times, especially if you are a manufacturer, that you desperately need capital to just keep up with the ever growing orders. And if you ever get decent publicity, you could be screwed very quickly as you won't have nearly enough inventory to supply the massive increase of demand. And when that happens, a couple of things can occur. One would be that because you can't supply demand, a hole has opened up ready for a competitor to take over. Or, maybe worse, people lose interest in the whole concept of the product because they just can't purchase it. The other problem comes when you throw all the money you have at making more only to find out that still isn't enough. But, you're so strapped up in debt that you literally now must produce more to pay the debt, but you can't because you ran out of money to make more. You end up forcing yourself to go bankrupt even though you have lots of sales.

However, this all hinges on one very major assumption: that the product being sold has the potential of being widely popular where you could easily see exponential growth with just a little marketing, whether expected or not. A true niche product probably has very little possibility of going mainstream and so it can grow at a much slower rate and at possibly higher margins. Just take a look at niche software products like Adobe's stuff or any point of sale system. The prices are high, and especially for the point of sale stuff, not that complicated in features. Like what my one computer science professor always said, the money is in the niche software, and this goes for all markets as long as its a true niche serving a real need. Stuff that isn't widely known but serves a general need is not a niche, it is just starting out.

Very light on content

[Gr8Apes]

RTFA, and am still left with a host of questions. The linked article is about as informative as the summary (unusual, how'd that happen?) and as bereft of any real information. The core issue though, the lack of an American manufacturing base for consumer goods, should worry everyone. I mean, dog food made in China? Why?

Re:Very light on content

[sycodon]

I'm betting it all comes down to government regulatory barriers. Financial, zoning, environmental, etc. And to be clear, the barrier will be costs, not refusals, like that idiot in Chicago that used his power to threaten Chick-fil-a.

Re:Very light on content

[LordLimecat]

You do realize that the US still leads in manufacturing right? (as of 2009)
http://www.cbsnews.com/8301-505123_162-36742134/manufacturing-surprise58-the-us-still-leads-in-making-things/

Its possible that China has passed us in the 4 years since that graph, but being #2 in the world and only slightly behind a country 4 times our size is hardly a "serious problem", particularly when we dwarf the next closest competitors.

Re:Very light on content

[Anonymous Coward]

It is a problem as long as people think it is. The big problem is that people want to make jobs, and the backbone of the US used to be manufacturing goods. Now that citizens need jobs and a lot of them, it is easy to push for more manufacturing. Some of the jobs are very technical and the skill level goes down to uneducated levels, so it hits a wide spectrum of skills.

Personally, I do think that handmade goods or even goods made in the US are typically made to a higher standard (more durable, better components, etc), but the group think of citizens is to buy a lot and throw things out when they are still useful. This idea needs to change if higher quality manufacturing is to make a strong come back.

The US should look into future technology manufacturing that can be done in a large amount with easy to get components. If the US could make energy cells without rare-earth minerals (I consider them a liability) and export them (charged with renewable energies), there could be a market at least in Europe. Reliable, portable, and cleanly made high power energy cells will be required not only here but also for space technologies.

At the very least, the US is the best at aerospace technology. We should emphasize that more and get resources beyond that of other nations (asteroids as an example). First to claim gets the rights, if other nations complain, tell them to get up there too themselves.

Manufacturing

[phantomfive]

The US produces something like 18% of the world's GDP. It's silly to say the US can't manufacture things. There are problems with labor-intensive manufacturing, but manufacturing overall is still something that's done in the US.

But that is not even the point of the study. If you read the article, it mentions that at least some of the companies stayed in the US to do manufacturing (the article doesn't give numbers, it says "often they moved out of the US for manufacturing"). The problem they had was they couldn't find investors in the US. They had to find foreign investors. Sometimes they found foreign investors and managed to stay in the US for manufacturing, but there is the assumption that foreign investors encouraged manufacturing out of the US as well. THAT is what this study is about, not a poorly-informed speculation on the decline of US manufacturing.

Re:Manufacturing

[sycodon]

Don't forget that investors look at more than just the product and the market. The look at the regulatory environment too because that can derail an otherwise profitable venture.

Re:Manufacturing

[Tablizer]

The US produces something like 18% of the world's GDP. It's silly to say the US can't manufacture things.

The US's Comparative Advantage is BS. BS bubbles, BS accounting, BS wars, BS political campaigns, and BS marketing. We get world investors to buy into fads, bubbles, ponzi's, and scams like no other country.

We don't need to make anything real when we have mastered fakery. Doing real things if for newbie countries.

Re:Manufacturing

[CanHasDIY]

Don't forget that investors look at more than just the product and the market. The look at the regulatory environment too because that can derail an otherwise profitable venture.

Yea, how dare those bastards make clean air and water for everyone priorities over profits for the select few!

Re:Manufacturing

[LordLucless]

Yea, how dare those bastards make clean air and water for everyone priorities over profits for the select few!

Because our pure-hearted regulators only ever do what's best for everyone, and never use their authority to line their own pockets, or stifle their friends' competitors.

Re:Manufacturing

[The Master Control P]

It's our fault the Chinese government permits corporations to poison their people, because Americans insist that our government not permit corporations to poison us?

I find your reasoning... flawed.

Summary is misleading as usual

[Anonymous Coward]

It's a matter of financing, not manufacturing capability. You should have worded it differently in the summary.

So what if they had the "MIT name behind them" (or any of those other overpriced big-name schools like Stanford or Harvard for that matter). Did they even consider that maybe their business plan and/or product sucked ass and investors here in the US knew better than to spend money on it?

where are they!!!?

[Anonymous Coward]

Where are all the Job Creators!! I hear so much about the favorable treatment they deserve.

Re:where are they!!!?

[Tablizer]

Where are all the Job Creators!! I hear so much about the favorable treatment they deserve.

Indeed. I just kicked a dude in the face. I helped create a job for both a surgeon and an orthodontist. It feels so good to be a job creator.

Re:where are they!!!?

[WindBourne]

They are taking their money to China and working with the communist.

Re:where are they!!!?

[DriedClexler]

If the government gave me a ton of free money, I could *totally* create jobs too, by going on a spending binge. Why doesn't anyone ever consider that solution?

Why doesn't anyone consider how fortunate the economy would be to give me free stuff?

Not Enough Information

[the eric conspiracy]

The US does very well with big ticket items or things that can be scaled by automation. The world's largest manufacturing facility is Boeing's main assembly building in Everett WA.

Where it gets dicey is when it can't be automated and a lot of manual labor is needed. Like assembling stuff like iPhones. Then the wage difference really bites.

The MIT story didn't give much detail but I bet a lot of these startups were making little gizmos like the iPhone.

Re:Not Enough Information

[K. S. Kyosuke]

Where it gets dicey is when it can't be automated and a lot of manual labor is needed.

Actually, the word "manufacturing" etymologically-wise, means precisely that: "manu facere", to make by hand. Perhaps a different neologism like "robofacturing" ought to be used instead?

Re:Not Enough Information

[WindBourne]

Actually, nearly ALL things can and should be made by robotics. And yes, that includes iphone. That is what they are working on right now, over in China.

Re:Not Enough Information

[AK Marc]

The labor is a small portion of the iPhone cost. Regulations are most of the cost difference between US and China manufacturing costs. That, and even if the costs were the same, Apple would still make them in China because it's the only place currently in the world where you can place an order for 10,000,000 widgets and get them on time and at the agreed price. In the US they just laugh at you, other places may take your money, but you won't get 10,000,000 widgets on time.

Re:What does it matter?

[CncRobot]

You will either own a robot, maintain a robot, program a robot, ask "would you like fries with that" or be unemployed.

Industrial robots are becoming much cheaper and easier to use. Within a decade I suspect everyone will know someone on their block with one, either a small CNC router or 3D printer. Pick and place robots to make complicated circuit boards are replacing old school line workers who could solder like they had a master's degree in it.

Re:What does it matter?

[LordLimecat]

Somehow the advent of the car didnt result in massive unemployment because of all of the laid-off buggy drivers, and construction equipment didnt result in massive unemployment due to no-longer-needed ditch diggers.

Technology advances, old problems are solved, and new ones are found. Lets not go full-scale luddite here.

Re:The Problem: They're in Massachussets

[Tablizer]

Explain the success of Germany then?

American investors uninterested in manufacturing

[erice]

That is what TFA is really saying, not that America can not manufacture. That jives with my own experience. The US investment community is addicted to quick turn Internet services that can turn around in a matter of months. Startups that actually need to produce physical products are starving because investors don't want to put their money into projects that take millions of dollars and several years to break even.

What is interesting is that they are foreign investors willing to fund manufacturing. Some are even willing to manufacture in the US. So it is a US investor psychology problem not a global one.

The real issues

[WindBourne]

is that AMerica was a powerhouse. In addition, we had a LARGE R&D fund by the feds. However, starting with reagan, and being pushed with just about every president since then, we have quit investing into America. In particular, one area that is insane is that we have all of these free trade agreements, where it says that nations are not allowed to dump, subsidize, or manipulate their money. Yet, China is the worst one, and to this day continues to get worse with manipulating their money, dumping and subsidizing.

Until American politicians stand up and balance the budget AND then tell China (and others) that we will no longer allow them to cheat on the FTA, then we will continue our downhill slide.

Manufacturing in the US *is* hard

[Silicon_Knight]

I'm a small business owner (I created OpenBeam: http://www.kickstarter.com/projects/ttstam/openbeam-an-open-source-miniature-construction-sys). It is basically a small, nice version of an erector set, that is currently being used for building 3D printers. (See: http://reprap.org/wiki/Kossel).

US manufacturing is *hard*, for sure, for small businesses. In fact, the system is set up so that I'm better off shipping jobs overseas.

We buy our extrusions from a small mill in California, a family owned business. Our first batch was great. We made a small engineering change on the next batch and ordered the extrusions in October of 2012. We received the parts in early December, and the black anodizing was crap - it literally looks like it's been dive bombed by seagulls with diarrhea. We shipped back 700 of 2000 pieces for rework, and we still have not received it back. Meanwhile, I'm out of stock, I have thousands of dollars of backorders that I can't fill, and I still have no idea when I'll get replacement stock back in. And to make things worse, when we complained initially about the quality of the parts, the answer we got was literally "you're small potatoes, we don't have time for you"

Meanwhile half way across the globe, my injection molder (http://blog.openbeamusa.com/2012/05/18/behind-the-scenes-injection-molding/) is churning out parts, 50,000 at a time. He always delivers when he says he'll deliver. With UPS and Expeditors I can get goods landed on my doorstep anywhere from 48 hours to less than 3 weeks for ocean freight shipping. It costed me $1000 to ocean freight half a metric *ton* of parts, and it'll be here in 3 weeks. The reason for going overseas for injection molding is simple: The material we use is a high end glass-reinforced nylon and the only shops the US that can handle it are military and aerospace molders and they demand an incredible premium.

On top of all this, I currently import a bunch of motors, pulleys, bearings for my 3D printer kits, US customs requires that I file an individual HTS classification for each line item, and taxes me individually. I then pay my old coworker's kid $20/hr, which is a princely sum for a 14 year old girl, to do my packaging and kitting. However, If I paid some guys overseas $10.00 a day to do the same job, I can declare my imported goods as "construction toy set" and avoid paying import taxes all-together. Therefore, there are absolutely NO incentives for me to keep the packaging job in the US, except for the short flexibility between an engineering change and getting the change pushed through on the line.

When it comes to export, I'm equally screwed. Until I signed up with Expeditors, there was no easy way for me to export my shipment around the world. So while I have customers in the UK, EU, and NZ/AU areas, for the longest time I had to resort to USPS Priority mail to ship them stuff, and priority mail rates just went up. Surface parcel service was discontinued a few years ago during budget cuts, so unless you are a bonded importer / exporter, you really have no option of doing a low cost export. Meanwhile, I paid US$20.00 for a batch of parts for 2 day shipping for a crate of timing belt pulleys from Shanghai to Hong Kong. There are so many Chinese logistics company these days that shipping is incredibly cheap to move things around in China.

People don't realize that the world is getting a lot smaller these days. The other day a vendor returned an email quotation - 5 weeks after initial RFQ. I had already paid someone else and landed parts in that amount of time. A supply chain is only as strong as its weakest link and it seems like for small businesses there are just no good options for manufacturing.

-=- Terence

Re:Manufacturing in the US *is* hard

[DigiShaman]

And this is why we need a simplified tax code. All our problems with running a business these days is all the red tape of excessive rules and regulations. I'm not suggesting getting rid of some minor regulations, but damn our nation has its hands tied.

Re:Manufacturing in the US *is* hard

[TopSpin]

I file an individual HTS classification for each line item

The HTS is a fascinating bit of work. For people that don't know, the Harmonized Tariff Schedule is a US government published document that classifies just about every conceivable good and assigns tariffs, duties, etc. It is huge and is now only published in electronic form.

As the parent wrote, most finished goods in the HTS are 0% tariff. There are many things in the HTS with tariffs, but if it's a finished good it is usually exempt from any cost whatsoever. Some exceptions include small arms and autos; the UAW negotiated a 25% domestic value-add requirement in the '80s if foreign manufacturers wish to avoid tariffs. That one requirement is the sole reason that all auto manufacturing hasn't evacuated the US. Today there are dozens of foreign owned auto plants in the southern US writing paychecks to thousands of US workers because of that law.

No other nation is as import friendly as the US. Unless your nation has imams and muftis actively operating uranium isotope centrifuges in a bunker somewhere then you too can export to the US tariff free. You can wreck the environment to whatever degree you wish, abuse, neglect or contaminate however many people you want and it won't even slow down your goods as they get whisked into the US.

That's what domestic manufacturers and the US working class have to compete with for 80% of all finished goods in the US.

Re:Manufacturing in the US *is* hard

[characterZer0]

You should look into setting up a Foreign Trade Zone. That would let you bring stuff in without paying duty, do the assembly and kitting locally, and then paying duty on the finished product instead of what you imported.

Re:Manufacturing in the US *is* hard

[Anonymous Coward]

"On top of all this, I currently import a bunch of motors, pulleys, bearings for my 3D printer kits, US customs requires that I file an individual HTS classification for each line item, and taxes me individually. I then pay my old coworker's kid $20/hr, which is a princely sum for a 14 year old girl, to do my packaging and kitting. However, If I paid some guys overseas $10.00 a day to do the same job, I can declare my imported goods as "construction toy set" and avoid paying import taxes all-together. Therefore, there are absolutely NO incentives for me to keep the packaging job in the US, except for the short flexibility between an engineering change and getting the change pushed through on the line."

Very interresting insigt.
Honestly i agree that the laws about this should be changed, but i have to bring up a BIG issue about this:
With globalisation it has become much easier to make products in low wage countries and then sell them in hihgh wage countries. your example is yet another proof of this.
The problem arrises when too many companies, like today, who create stuff in low wage countries expect to sell them in high wage countries. In the end we end up with no buyers in high wage countries as too much of the production have moved overseas and then what? People in the low wage countries probably cant afford to buy the stuff with a wage of 10$ og less and hour and noone in the high wage countries cant afford it because they have lost their jobs to the the low wage countries. Doesnt we end up with a system where worldwide demand will plummet, and by that company profit and living standard across the board?

Re:The Problem: They're in Massachussets

[WindBourne]

Not just Germany, but nearly the entire rest of the western world. Canada and Australia are good example.

I'm that guy on my block

[Leuf]

I think you have no idea what a cnc router can actually do. It's not a black box where you put wood in and a bureau comes out the other end. You aren't going to 3d print a bureau either. A low end cnc is actually crap for production work. It simply doesn't have the rigidity or capacity to replace the other tools in my shop by any stretch of the imagination. And the parts that come out of it still require a great deal of further work just to get to a part which is still a long way from a completely assembled piece of furniture. It's just another tool where there are many other specialized tools that beat the pants off of it for a great deal of operations.

Re:I'm that guy on my block

[CncRobot]

Yea, with a username of CncRobot its probably a good guess I would have no idea what a CNC Router could do.

Vertical Integration

[pubwvj]

The trick is vertical in-house integration. That is what our family has done with our businesses. The more we do in-house the more control we have the lower the costs and the more money stays in our pocket. This gives us better resilience for surviving and even thriving through economic downturns. Own the tools of manufacturing as much as possible.

Re:American investors uninterested in manufacturin

[radtea]

Startups that actually need to produce physical products are starving because investors don't want to put their money into projects that take millions of dollars and several years to break even.

If it ever does (break even). Scaling up is an incredibly high-risk business, because some things just don't scale.

In Canada we recently opened a national chemical engineering facility (http://www.greencentrecanada.com/) that is specifically aimed at helping researchers scale chemical processes that work at lab-scale (grams) to industrial scale (kilograms to tonnes). There are plenty of things that just don't work outside of the lab, and new processes in particular are often invented by experts who are the only people in the world who can make them work successfully.

The skills required for scaling up are very different from those required for discovery, and having something like this were there is a specific group of experts in scaling up is a godsend to university spin-off businesses, and adds a level of reassurance to investors that simply couldn't exist otherwise.

Re:The Problem: They're in Massachussets

[arfonrg]

"Germany (much like Spain) had a chronic unemployment problem, a result of a labor market that was too highly regulated and offered too much protection for workers. German policymakers began to change the system back in 2003 with a series of measures that made the labor market more flexible and encouraged greater participation in the workforce."
TRANSLATION: They weakened the unions....

"Germany is making BMWs, not Chevys. If you’re making a BMW and charging so much for it, you can manufacture in a high-cost environment and still make a nifty profit. If you’re making a Chevy, which to a greater degree competes on price and doesn’t have a strong brand reputation"
TRANSLATION: They manufacture high-profit margin stuff.

"German management also just seems more determined to find ways of staying profitable while still manufacturing in Germany. The chairman of power-tool maker Stihl, Bertram Kandziora, told me that U.S. companies “don’t try hard enough to keep production inside the country.”"
TRANSLATION: Germans try NOT to reward offshoring.

Read more: http://business.time.com/2011/02/25/does-germany-know-the-secret-to-creating-jobs/

Re:The Problem: They're in Massachussets

[AK Marc]

Nobody uses the term in the original meaning anymore. You do realize that the page you linked to classifies Finland and Sweden as 3rd world, and Iran as 1st world, right?

Didn't you listen to Mitt

[rsilvergun]

it's wrong to feel entitled to food, housing and health care. Seriously. He said this. And the worst part was it wasn't news. The only news was 47% of Americans felt slighted when they should have felt horrified.

Beretta = Maryland

[oneiros27]

One of my friends from high school lived in a house across the highway from the Beretta factory in Accokeek, Maryland:

https://maps.google.com/maps?q=Benelli+USA&hl=en&ll=38.649305,-77.036712&spn=0.013155,0.021586&cid=4117604210822074107&gl=US&t=m&z=16&iwloc=A

Google lists it as 'Benelli', which is owned by Beretta, but the road is 'Beretta Drive'

Andy Grove

[Anonymous Coward]

Didn't Andy Grove famously write a few years back about how scaling up innovations into mass production was a serious obstacle which was bleeding jobs and product ideas overseas to countries more efficient at this?

http://www.businessweek.com/magazine/content/10_28/b4186048358596.htm

I'm surprised Slashdot is only just coming around to the issue just now.

The biggest issue:

[MtViewGuy]

The US income tax code based on Title 26, the Internal Revenue Code, actually discourages savings and capital investment in the USA. I mean, look at what is wrong with our tax code now:

1. 30,000 tax lobbyists--HALF the lobbyists in Washington, DC--fighting for every scrap of a tax loophole. And you get political corruption on a huge scale over this.
  2. The result is a tax code so complex that it makes James Joyce's "Finnegans Wake" almost easy to read in comparison. Even the IRS can't figure out much of the tax code!
  3. The sheer complexity means exorbitant yearly compliance costs, estimated by some economists to be around US$430 BILLION per year in 2012 (and climbing fast in each subsequent year).
  4. It also encourages the outsourcing of millions of jobs, thousands of factories, and hundreds of corporate headquarters for tax avoidance reasons.
  5. It results in (by some estimates) around US$15 TRILLION on American-owned liquid assets sitting in "offshore financial centers" and other foreign banks for tax avoidance reasons (care to explain all those "banks" in the Cayman Islands, Bahamas, British Virgin Islands, and so on?).
  6. Government uses the tax code as a political instrument to favor or punish political constituencies as little as ONE taxpaying entity.
  7. Because the IRS needs to know intimate details of personal and business financial records in tax return filings, there are potentially serious issues with invasion of privacy.
  8. The IRS assumes you're guilty of tax evasion, and you end up having less rights than most common criminals!

This is both economic and political insanity, and explains why Apple just about builds all of its product line from Chinese suppliers. Maybe it's time to seriously look at unprecedented income tax reform such as the no-loophole flat tax Steve Forbes proposed in 1996 or the FairTax income tax replacement proposal (H.R. 25/S. 122) to finally make business income taxation extremely business-friendly so it encourages businesses to set up or expand operations in the USA.