When It's Time To Scale, US Manufacturing Hits a Wall 268
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.
where are they!!!? (Score:3, Insightful)
Where are all the Job Creators!! I hear so much about the favorable treatment they deserve.
Not Enough Information (Score:4, Insightful)
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:Very light on content (Score:3, Insightful)
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:Manufacturing (Score:3, Insightful)
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 (Score:5, Insightful)
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:What does it matter? (Score:4, Insightful)
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:Very light on content (Score:0, Insightful)
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.
Good for you. Of course, by 'betting' you mean you have found a way to interpret this article in line with your existing political viewpoint. It's not a bet in a conventional sense as you're not actually going to lose anything if you are wrong, and it wouldn't even change your mind.
American investors uninterested in manufacturing (Score:5, Insightful)
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.
Re:Simple Fix (Score:4, Insightful)
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 (Score:4, Insightful)
I think you'll find they are surprisingly selective about exactly which government regulations they want to reduce.
back that up a second (Score:2, Insightful)
Re:Simple Fix (Score:5, Insightful)
"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:Manufacturing in the US *is* hard (Score:2, Insightful)
"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?
Didn't you listen to Mitt (Score:2, Insightful)
Re:Simple Fix (Score:5, Insightful)
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.
Re:Manufacturing (Score:4, Insightful)
I find your reasoning... flawed.
Re:Spoiled Americans (Score:5, Insightful)
Re:Spoiled Americans (Score:2, Insightful)
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.