Six Ideas to Boost Manufacturing SMEs' Competitiveness

June 13, 2014
Small-to-medium size firms offer the potential to boost US manufacturing employment, but need more support to facilitate hiring and adoption of advanced technologies.

Encouraging skills education, connecting companies in the supply chain and exposing smaller firms to advanced technologies are among the six “innovative, non-partisan, and actionable ideas” proposed by a University of Virginia commission to create manufacturing jobs in small- and medium-size firms.

The commission report, “Building a Nation of Makers,” states that rebuilding the American Dream “must begin with the longtime engine of middle-class jobs: American manufacturing.” It notes that while overall manufacturing employment fell from 21 million in 1972 to 10 million in 2010, the share of jobs provided by small- and medium-size manufacturers during that period rose from 29% to 45%.

“Even in the rubble of the Great Recession, SMEs were one of the few sectors of the American economy to thrive,” the report states. “Further, approximately 90% of the inputs used by multinational corporations come from SMEs, providing further incentive to dedicate our national attention to supporting this vital sector.”

The recommendations of the commission focused heavily on education and innovation. U.S. businesses cannot stay competitive in the global marketplace without innovation, Haley Barbour, co-chair of the commission and a former governor of Mississippi, said at the press conference announcing the report. He recalled a conversation with a professor at Mississippi State University who told him businesses in the state had three choices. “They can innovate, they can emigrate or they can evaporate.”

Barbour added that the professor said innovation in manufacturing requires a “workforce that can deploy and efficiently run the innovative technology that is changing the manufacturing floor on an almost monthly basis….”

Illustrating this point, Barbour recalled a visit to an Alcoa facility in northwest Mississippi that had been open for 30 years. The average employee had worked there for 18 years. While visiting with employees in a break room, one said to him:

“You know, governor, not one piece of equipment on the floor today was here when I started 22 years ago,” he said. Barbour said he drew from that encounter the understanding that plants stay open and competitive by constantly retraining their workforces and improving their skills.

Four of the commission recommendations deal with education. Evan Bayh, former governor of Indiana and co-chair of the commission, said that was “no accident.”

“Today you get paid for what you know,” he noted, adding, “Our comparative advantage is in innovation – how do we do things faster, more productively, more cost-efficiently than anyone else on earth. So it is how we enable those small- to medium-size manufacturers to innovate and continue to be at the cutting edge that we make our recommendations.”

Six Recommendations to Accelerate Innovation

The six recommendation produced by the commission, part of a University of Virginia Miller Center series of reports on rebuilding the American Dream and sponsored by the Howard and Abby Milstein Foundation, include:

1.Talent investment loans to expand human capital – Government-backed talent investment loans will give SMEs the capital to hire the workers necessary to expand their businesses, as well as to up-skill these new and current employees. The commission said the loans should be guaranteed by the government, offer low, fixed interest rates and could offer a “one-year, interest-free grace period on loan payments so that savings can be directed toward growth activities.”

2. Upside-down degrees to connect classroom learning with on-the-job learning – Upside-down programs allow students to transfer accredited technical training, work experience, military training, or community college coursework as credit toward a bachelor’s degree. The commission said existing programs focus primarily on liberal arts and recommended that the concept be expanded to include business and engineering programs.

3. A skills census to build a more efficient skilled labor force – A regular survey of employers to determine current and projected skills needs – commissioned by state governments, with data freely available to the public – will allow businesses, policymakers, and educators to tailor their programs in real-time in order to forestall projected imbalances between skills and employer needs. The commission cited the success of Denmark’s Flexicurity program which regularly surveys employers to assess employment needs and then uses the research to tailor training programs.

4. A national supply chain initiative to fully map America’s manufacturing ecosystems – This will allow businesses and policymakers to cost-effectively fill gaps in the existing infrastructure and keep up with rapid changes around emerging technologies. Building a “reliable and fully mapped” supply chain, the report stated, could help “narrow the gap between small and large firms in productivity, input costs, process innovation, access to foreign markets, and other critical drivers of growth.”

5. Up-skilling high school students with expanded technology and engineering certification programs – All students should have the opportunity to acquire a certified technical skill before graduating high school. The commission said the program would be similar to advanced placement courses but allow students to “demonstrate proficiency in a skill area and transfer the vocational certification to an employer rather than an educational institution.”

6. A “big trends-small firms” initiative to diffuse the latest technologies to manufacturing SMEs – This initiative, implemented through the Commerce Department’s Manufacturing Extension Partnership, will connect small and medium-sized manufacturers with the latest innovations such as robotics and advanced IT systems, helping ensure that they remain competitive.

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