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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.
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.
"First they came for the slanderers and i said nothing."
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.
Table-ized A.I.
Explain the success of Germany then?
Table-ized A.I.
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.
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
Not just Germany, but nearly the entire rest of the western world. Canada and Australia are good example.
I prefer the "u" in honour as it seems to be missing these days.
Yea, with a username of CncRobot its probably a good guess I would have no idea what a CNC Router could do.
"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.
Sig Battery depleted. Reverting to safe mode.
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.
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.
Cheap storage VM.
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?