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.

Manufacturing

[phantomfive]

The US produces something like 18% of the world's GDP [seekingalpha.com]. 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.

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?

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: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.

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: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/ [time.com]