Financial and Monetary Systems

Why the future of manufacturing matters

Erica Fuchs
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In June 2011, President Obama launched the Advanced Manufacturing Partnership at the Carnegie Mellon University in Pennsylvania, “a national effort bringing together industry, universities and the federal government to invest in the emerging technologies and skills that will support a dynamic domestic advanced manufacturing sector in the United States.” Since then, a pilot institute has been launched in nearby Youngstown, Ohio and competitions for three more institutes are under way. What, however, is really the future of manufacturing? Should the United States – or any nation, for that matter – want more of it and, if so, more of what and why?

There has been a profound shift in the way that goods are produced and where they are produced in the past three decades. While the United States’ Manufacturing Value Added (MVA) – the amount of value it adds to goods in the manufacturing process – has risen steadily, the size of the global value has been growing more rapidly. As a consequence, while the United States’ slice of the MVA pie is now about the same as China’s, its percentage of global MVA has been declining over the past decade. During this same period, the percentage of global MVA in South and East Asia – and China, in particular – has risen dramatically.

There are reasons for all nations to care not only about these overall trends but also, and more specifically, about what is manufactured where. The mechanics of production can be so different across nations as to change what products are profitable to make. Take car bodies and components for communications networks, for example. When firms in the United States shift production to China and other countries in South and East Asia, the most advanced technologies, which were developed in the US, are no longer profitable. This is due to differences not only in labour wages but also in yields, downtimes, materials, skills and the organization of production.

This had led companies to abandon producing the most advanced technologies in both cases, and in the case of high-tech communications components, to also abandon pursuing innovation in the most advanced technologies both overseas and in the United States.

At first glance, these results might suggest that the global shift of both demand and manufacturing towards developing nations would lead to less innovation globally. This need not, however, be the case universally. Take, for example, electric cars. Since 2009, car sales in China have exceeded those in the United States, the previous global leader. Understanding how to design competitive vehicles for China and other rapidly growing developing country markets will be critical to the sustainability of global car companies, to national security (through reducing dependence on oil) and to the global environment.

Given the economics of the automobile industry, the technologies designed to be sold in China are unlikely to be destined only for China. Interestingly, Chinese consumers may be more willing to pay for electric cars, and China may have the resources to create the infrastructure to support the introduction of this technology. These dynamics have the potential to lead to greater economic incentives and opportunities for electric vehicles globally.

In an ideal future, nations would take advantage of the differences in consumer preferences and local production characteristics to boost not only their own innovativeness and economic welfare but also innovation and economic welfare globally.

With growing interest in mass customization, the opportunities to tap into national (and local) differences may be increasing. The future of manufacturing and innovation need not depend solely on highly sophisticated machines, such as those whose development is being supported by the America’s Defense Advanced Research and Development Agency (DARPA) or National Additive Manufacturing Institute.

Indeed, in the past decade innovative techniques for dealing with low-volume, high-mix, rapid turn-around production – from LEDs (light-emitting devices) to medical supplies to printed circuit boards (PCBs) – have been emerging among suppliers in Guandong, China. In contrast to the current focus on sophisticated “additive manufacturing” and “adaptive make” in the United States, these Chinese companies, which supply US firms, have rely on the flexibility of a production line organized into “cells”, and a human workforce, instead of machines. At the same time, however, it seems likely that machines will produce the customized vaccines envisaged by DARPA, and the metal, laser-sintered components being envisaged by NAMII for aerospace and other applications.

The benefits for all nations will come from trading the innovative, customized products of the future that will come out of each.

Author: Erica Fuchs is Associate Professor, Engineering and Public Policy at Carnegie Mellon University. She took part in the session Strategic Shifts in the Manufacturing Ecosystem at the Annual Meeting of the New Champions 2013 in Dalian, China.

 Image: Employees are seen working on machines used to make auto parts in India REUTERS/Adnan Abidi.



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