What is in this article?:
- Over last 5 years, much greater recognition of importance of manufacturing to US economy in Washington
- Improvements in US manufacturing have more to do with economic fluctuations than policy actions and could be temporary
- Continuing need to strengthen "industrial commons" in United States
- Close proximity of manufacturing design and production important element in innovation
- Reshoring is occurring in "fits and starts"
Willy Shih is still worried. Five years ago, the Harvard Business School professor and his colleague Gary Pisano wrote that “restoring the ability of enterprises to develop and manufacture high-technology products in America --is the only way the country can hope to pay down its enormous deficits and maintain, let alone raise, its citizens’ standard of living.”
But when IndustryWeek asked Shih to assign a grade to our nation’s efforts to reverse the impact of decades of manufacturing offshoring and lost production capability, he answered, “C-.”
Shih certainly isn’t all doom and gloom. He says there is much greater recognition of the problem now in Washington and among manufacturers than in 2009 when he and Pisano wrote “Restoring American Competitiveness” for the Harvard Business Review. “That’s very important progress,” he notes. “Until you recognize a problem, you don’t have much chance of addressing it.”
He points to the promise by Walmart to source more merchandise from U.S. manufacturers as a positive sign. Walmart has pledged to spend $250 billion on U.S. products over the next 10 years.
But Shih remains concerned that much of the recent improvement in manufacturing has not come from policy changes designed to make the U.S. a more attractive location for manufacturing but from changes in the economic environment that have made competitors less attractive.
For example, wage inflation in China and wage stagnation in the U.S. has taken away some of the benefit of labor arbitrage.
Another factor, he says, is the rising cost of transportation for manufacturers which has driven a transition from air to ocean freight and increased the amount of inventory in supply chain pipelines stretching from Asia to the U.S. That is causing some companies to bring manufacturing back to the U.S. or Mexico to serve the domestic market.
Those trends have contributed to auto manufacturers such as Honda, BMW and Daimler increasing their footprint in the U.S.
Manufacturing also has benefitted from the energy boom in the U.S. caused by fracking, turning the nation from an energy debtor to a leading oil and natural gas producer, and making the cost of energy much lower than for U.S. competitors in Japan and Europe.
“We recall [in 2007] when GE sold off their plastics and engineered materials group to SABIC because we didn’t have the oil here and that is such a big component of the cost,” said Shih. Now, major chemical projects are underway or planned in the U.S. because it has become a low-cost source for feedstocks.
While all this is consequential, says Shih, it has been a case of overseas locations becoming less attractive. He cautions, “Those negatives can turn relatively quickly.”
Shih said some industries such as consumer electronics are likely gone from the U.S. He said the country needs to focus on industries that could be at risk.
“We are still very strong in aerospace but we are coming up on a wave of retirements of a generation of aerospace workers,” he said. “Do we have the talent in the pipeline to maintain our strength there?”
Shih is also concerned about the biotechnology manufacturing sector. There is a mentality among venture capital firms, he said, not to make these products but to have companies “get through phase 1 and phase 2 trials, monetize it, sell the company and let somebody offshore do it. That is not good for the long term.”