21st Century Manufacturing The Role of the Manufacturing Extension Partnership Program (2013) / Chapter Skim
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2 U.S. Manufacturing in Global Context
2 U.S. Manufacturing in Global Context
Pages 29-44
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From page 29... ...
economy. Recent data from the Census Bureau indicates that firms with fewer than 500 employees account for 99 percent of firms engaged in manufacturing.2 However, while small firms with fewer than 20 employees account for almost 75 percent of all manufacturing firms, they have only 9.1 percent of total manufacturing employment, compared with almost three-quarters of manufacturing employment generated by larger firms with at least 100 employees (see Figure 2-1)
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From page 30... ...
Over the long run, as NIST MEP points out in Figure 2-2, this growing gap means that SMEs will certainly face increasing competitive pressures.4 Other changes have occurred as well. The globalization of the world economy means that even small manufacturers have the need to become more agile and better marketers as they seek a niche in lengthening supply chains.
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From page 31... ...
economy, supporting millions of additional supply chain jobs across the economy. A Major Source of R&D Manufacturing companies in the United States represent 12 percent of U.S.
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This export surge helped create 600,000 jobs nationally in 2010, even while the rest of the economy was shedding them."10 Linkages to Innovation A strong manufacturing sector is also of central economic importance because of its strong linkage to innovation. Susan Helper and Howard Wial report that 22 percent of manufacturers introduce new processes to increase productivity compared to just 8 percent of non-manufacturers.11 U.S.-based manufacturing also helps to sustain an "industrial commons," a term that describes the complex and enduring partnerships among manufacturers, universities, technical colleges, firms, research institutes, financing entities, and other links in the supply chain.12 Recognizing the importance of U.S.-based manufacturing for sustaining a robust innovation ecosystem, recent reports by the President's Council of Advisors on Science and Technology have 6 See the Council of Economic Advisors, 2013 Economic Report of the President, Chapter 7, March 2013.
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America's logic chip-design industry, which includes companies like Qualcomm, Nvidia, and Broadcom, relies almost entirely on silicon wafers fabricated in Asian foundries, while Apple iPods, iPhones, and iPads are assembled in China by the Taiwanese firm Hon Hai Precision Industry. In such products, the greatest economic value is in software, microprocessors, and proprietary designs, while the hardware is generally comprised of standardized parts and assembled with standard production processes.
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They have sought to show that U.S. statistics may be overstating the gains in manufacturing productivity because they fail to reflect the value of imported inputs adequately in manufactured products and because they do not adequately account for the growing use of temporary factory workers.b They also note that gains in manufacturing productivity are unevenly distributed, with the significantly higher productivity in computer and electronics manufacturing masking the trends in other sectors.
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has also left the United States dependent on production facilities in other nations for a variety of strategic components and systems and high-tech materials.16 Recognizing this vulnerability, the director of national intelligence has announced the preparation of a National Intelligence Estimate (NIE) on the state of American manufacturing.17 Citing these considerations, a growing number of analysts argue that maintaining a competitive onshore manufacturing sector and the associated skilled labor and technical institutions are linked and essential for long-term 14 McKinsey Global Institute, "Manufacturing the Future; The Next Era of Growth and Innovation," November 2012.
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Shih, "Restoring American Competitiveness," Harvard Business Review, July-August 2009; and Ro Khanna, Entrepreneurial Nation: Why Manufacturing is Still Key to America's Future, New York: McGraw Hill, 2012. 19 For a review of current programs and policy focus around the world to support innovation-led competitiveness, see National Research Council, Rising to the Challenge: U.S.
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26 See Gregory Tassey, "The Manufacturing Imperative," in National Research Council, Strengthening American Manufacturing: The Role of the Manufacturing Extension Partnership, op cit. See also Gregory Tassey, The Technology Imperative, Edward Elgar, 2009.
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They believe that a robust domestic industrial base, which 27 For a review of leading national programs to advance innovation in manufacturing in Canada, Germany, France, the United Kingdom, and Taiwan, see Appendix A of this report. For a review of foreign programs to accelerate innovation, see National Research Council, Rising to the Challenge: U.S.
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From page 39... ...
Supply Chains As economies specialize in a particular tier of the high-tech supply chain, they begin to integrate backward along the supply chain, taking more value added from the Western economies, including the United States. As Gregory Tassey and others maintain, this "hollowing out" of supply chains has cost the United States dearly in terms of wealth creation, high-value jobs, and technology sales.
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For example, a 2010 study by Greenstone, Hornbeck, and Moretti showed significant productivity gains for firms due to the development of a new manufacturing plant in the area.35 A study by Lee Branstetter in 2001 showed that spillovers tend to be intranational, captured by the country in which the activity occurs.36 The MIT Production in the Innovation Economy study cited above focuses on the interdependence between production and innovation. Their initial task force paper states that "learning takes place as engineers and technicians on the factory floor come back with their problems to the design engineers and struggle with them to find better resolutions; learning takes place as users come back with problems." This is perhaps best illustrated by the decision of companies such as Intel or GLOBALFOUNDRIES to keep their design and some production facilities closely linked through co-location.37 32 See Gregory Tassey, "The Manufacturing Imperative," in National Research Council, Strengthening American Manufacturing: The Role of the Manufacturing Extension Partnership, op cit.
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At the same time, the surveyed firms cited a number of factors including lower energy costs and advances in manufacturing techniques that favor the re-shoring of manufacturing to the United States. 39 Recent years have yielded advances in hydraulic fracturing or "fracking" technology resulting in a significant increase in the supply of proven natural gas reserves and declines in natural gas prices.40 Advances in automation, additive manufacturing and nanotechnology also have the potential to shift the nature of manufacturing from "collaboratively discuss challenges -- there is no substitute for right next door." Remarks by Mike Russo, "Breaking New Ground: The New York Advantage." Presentation at the National Academies Conference on New York's Nanotechnology Model: Building the Innovation Economy, Troy, New York, April 4, 2013.
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44 For a comprehensive review of the rationale and potential of such a program, see the prepared remarks by Daniel Eugene Sperling of the National Economic Council, "Case for a Manufacturing Renaissance," at the Brookings Institution, July 25, 2013. 45 In addition to the pilot institute for additive manufacturing headquartered in Youngstown, Ohio, competitions have been launched to create three additional manufacturing innovation institutes with a federal commitment of $200 million across five federal agencies -- Defense, Energy, Commerce, NASA, and the National Science Foundation.
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3. Strengthening skills, communities, and supply chains to attract investment: This includes investing in a skilled workforce through a proposal to create an $8 billion Community College Career Fund and initiatives to strengthen manufacturing communities through a $6 billion Manufacturing Communities Tax Credit to help regions that are suffering job losses to attract investments.
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From page 44... ...
Given that a strong domestic manufacturing base is integral to sustaining innovation and maintaining global competitiveness in advanced technologies and critical to national security, the United States needs to augment its efforts to support U.S.-based manufacturing. The next chapters describe how the MEP contributes to this mission, and how it could be improved and expanded, based on this assessment and as well as learning from best practice lessons from leading applied research and manufacturing programs from around the world.
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