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.
Simple Fix (Score:4, Interesting)
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:The Problem: They're in Massachussets (Score:5, Interesting)
Explain the success of Germany then?
The real issues (Score:3, Interesting)
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 (Score:5, Interesting)
I'm a small business owner (I created OpenBeam: http://www.kickstarter.com/projects/ttstam/openbeam-an-open-source-miniature-construction-sys [kickstarter.com]). 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 [reprap.org]).
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:Simple Fix (Score:5, Interesting)
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.
Vertical Integration (Score:4, Interesting)
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 (Score:4, Interesting)
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:Manufacturing in the US *is* hard (Score:5, Interesting)
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 [usitc.gov] 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 (Score:4, Interesting)
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:Spoiled Americans (Score:5, Interesting)
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.
Andy Grove (Score:3, Interesting)
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 [businessweek.com]
I'm surprised Slashdot is only just coming around to the issue just now.
Re:Spoiled Americans (Score:4, Interesting)
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...