In a world of escalating international trade tensions, concerns about American manufacturing prowess can be boiled down to a few simple questions:
Q: Why doesn’t Apple build their computers and iPhones in the USA? After all, didn’t Apple announce plans for a massive expansion of its presence in Austin, Texas?
A: Apple has not announced any plans to manufacture iPhones in the USA, and the new jobs in Austin are in engineering, R&D, operations, finance, sales, and customer support, but nothing in manufacturing.
Well then, you might ask:
Q: Didn’t Foxconn (the Taiwanese cell phone manufacturing giant who recently inked a contract with Apple to build high-end iPhones in India) announce a $4 billion manufacturing plant in Wisconsin?
A: At this time, it’s unclear what Foxconn plans to do; their original plan was to manufacture flat screens at the new Wisconsin factory, but then they announced the jobs would be in research and development – only to recant that announcement after pressure from the White House.
What’s going on here?
The answer is that it’s just not that easy to establish a new manufacturing eco-system from scratch (or re-establish one that has been lost to offshoring).
To illustrate this point, the New York Times recently investigated why Apple’s attempt to build more high-end computers at their facility in Texas went awry. Their report, titled A Tiny Screw Shows Why iPhones Won’t Be ‘Assembled in the U.S.A.’, lays the blame for Apple’s woes on the lack of an established network of mid-tier industrial manufacturing suppliers capable of ramping up production of key items (in this case a small screw) on short notice.
Unfortunately, this shortfall in American industrial manufacturing suppliers is not new.
For Want of a Nail
For want of a nail, the shoe was lost.
For want of a shoe, the horse was lost.
For want of a horse, the rider was lost.
For want of a rider, the message was lost.
For want of a message, the battle was lost.
For want of a battle, the kingdom was lost.
And all for the want of a horseshoe nail.
Proverb dating back to 13th Century
Tim Hutzel and David Lippert of Hamilton Castor & Manufacturing highlighted the problem of finding American suppliers for their manufacturing business in their keynote at The Assembly Show in Chicago five years ago. (To learn more, read their book, Bringing Jobs Back to the USA, Rebuilding America’s Manufacturing through Reshoring.)
Can Germany’s Mittelstand Companies Inspire a Rebirth of Mid-Tier Manufacturing Firms in America?
Given the success of Chinese manufacturing, wouldn’t it make sense to try to understand and copy their approach here in the USA? The short answer is probably no. While it’s useful to identify and implement Chinese best manufacturing practices, Chinese demographics, economic conditions, and political systems are generally too incompatible with ours.
Yes, as a command economy, China can implement sweeping industrial policies changes, such as the massive industrialization of Western China. But this comes at a cost: For example, what American worker would accept government control over where they are authorized to live and work?
Instead, we might want to turn to Germany for inspiration. Despite paying higher wage costs than its Asian competitors, the German manufacturing industry drives one of the world’s most successful market-driven economies.
Their secret to success may lie in the 3.3 million small and medium manufacturing companies in Germany, collectively known as the mittelstand.
Let’s take a look at four characteristics of mittelstand companies: Education across Generations, Connections and Relationships, Geographic Concentrations, and Innovation, to see how they could help inspire an American Renaissance in manufacturing among mid-tier companies.
1. Education across Generations
The apprenticeship system is alive and well in Germany where it’s a formal part of the vocational education system. Mittelstand companies take the training of young workers very seriously to ensure a smooth transition of skills and knowledge from one generation to the next.
Here in the US, there is renewed interest in apprenticeships, yet they are not available everywhere. In regions lacking manufacturing companies with apprenticeship programs, Makerspaces at vocational schools can step in to fill the gap by providing hands-on skills to young prospective workers to encourage and teach them about the benefits of a career in manufacturing.
Formaspace manufactured the furnishings at the popular Makerspace at the Arizona Science Center in Phoenix that hosts 400,000 visitors each year.
2. Connections and Relationships
Like the famed keiretsu companies in Japan or the Chaebol business conglomerates in Korea, German mittelstand manufacturing companies place a lot of value on maintaining close relationships with their customers as well as their employees. Many of these companies are family-owned*, maintain a low profile, and strive for employment stability and longevity in their communities.
This is in marked contrast to some of the worst practices of American-style manufacturing companies, such as poorly executed leveraged buyouts (which in some cases has led to the demise of manufacturing in heartland communities, such as Lancaster, Ohio), counterproductive industrial relations, and factory shutdowns in favor of offshore manufacturing.
(*Even BMW, while far too large to be considered a classic mittelstand firm, retains significant family ownership.)
Here at Formaspace, we follow these same principles in managing our own business. For example, we source at least 95% of the materials (including steel) used to make furniture at our factory headquarters in Austin, Texas, from local suppliers.
3. Geographic Concentrations
Another hallmark of German mittelstand companies is their tendency to create regional manufacturing eco-systems revolving around a particular industry segment. As an example, you probably haven’t heard of Herzogenaurach in Bavaria, but this town of 23,000 people is home to both Puma and its sporting goods archrival Adidas. Creating and supporting a regional industry focus is a good thing: it not only increases the talent base (by drawing in more prospective workers), it also establishes a deeper set of connections, which, in turn, leads to faster rates of innovation.
Of course, manufacturing hubs are neither new nor unique to Germany. Here in the US, Detroit is the traditional hub of the automobile industry, though Tesla has been establishing another auto manufacturing hub in the SF Bay Area. Biotech and Pharma manufacturing have long traditions in the New York and Boston Metropolitan areas; Minneapolis is known for medical devices; and Western Michigan and the Piedmont of North Carolina are long known their furniture manufacturing operations (along with a cluster of Amish wood furniture producers in Northeast Ohio).
China has been among the most aggressive adopters of the geographic concentrations strategy. While the Shenzhen economic area north of Hong Kong is widely known as a hub for electronics manufacturing, there are many lesser-known cities known for specific industries, such as Yiwu, where many of world’s small commodities (such as plastic Christmas decorations) are manufactured for export to the West.
As we’ll see in following sections below, US state and city governments, manufacturing industry advocacy groups, and educational institutions have begun to understand the need to work together to build and maintain regional manufacturing hubs focused on a particular industry sector.
4. Innovation as Key Competitive Advantage
German mittelstand manufacturing companies traditionally played a significant role in driving German product innovation and quality – one of its key competitive advantages and selling against products from low-wage countries, such as those in Southeast Asia. Yet economic observers believe the situation now may not be all that rosy, due to increasing alarm bells going off in that mittelstand companies may lack the expertise to keep up with innovative software-based technologies, such as artificial intelligence (AI) and machine learning, that play a key role in the next stage of manufacturing technology, Industry 4.0.
This may be a touch ironic. As we look to Germany for ways to increase our manufacturing base, the German government is drawing up plans to catch up with American (and Chinese) innovations in AI and other software tools through a massive investment of up to €3 billion between now and 2025.
(Thanks in no small part to Tesla Motors, America currently also leads German automotive manufacturers in the transition to electric vehicle technology – though the domestic auto industry is bracing itself for an onslaught of the next generation of European-made electric vehicles, which should start hitting these shores in 2020.)
The bottom line is that American innovation and product design and development appear to be strong and can only be strengthened through the increased use of startup accelerators aligned with manufacturing companies.
A Plausible Recipe for America Manufacturing Success?
Let’s summarize our observations into a usable action plan.
- Makerspaces provide an important introduction to the skills needed for a successful career in manufacturing. The industry should encourage building Makerspaces at public libraries, primary and secondary schools, community colleges and vocational institutions, as well as 4-year and graduate level colleges and universities.
- Apprenticeships help transfer important technical skills from one generation to the next, helping to create a stable and talented workforce for the manufacturing industry.
- Community Colleges and Vocational Tech Institutions should continue to deepen their partnerships with the manufacturing industry by creating joint training programs (such as apprenticeships) that can lead to a successful career in manufacturing.
- Business Startup Accelerators and Incubators can help grow their local economies by supporting projects that will lead to more manufacturing in this country. In addition to facilities supported by local agencies, educational institutions, and governments, manufacturers themselves are also now starting create their own business accelerators to increase their access to a pool of talented workers.
Finally, let’s take a quick survey of what’s happening across the nation in different manufacturing industries. Many of these ideas are already at work.
Additive Manufacturing Initiatives
The trade Association known as America Makes is working to help grow the market for additive manufacturing in the USA (also commonly known as 3D printing). Manufacturing boosters in Youngstown, Ohio, see this new technology as an opportunity to build a regional additive manufacturing cluster to help revive the fortunes of communities that once held a prominent place in the automotive manufacturing supply chain.
Apparel Industry Revival
While much of the apparel manufacturing industry has moved offshore to low wage countries (such as Vietnam), there are signs of a domestic fashion manufacturing revival taking place in New York City as well as non-traditional fashion hubs, such as Philadelphia and Detroit. For example, Bob Bland is the founder and CEO of Manufacture NY, a fashion incubator in the Garment District of Manhattan, who hopes to create a new apparel industry based on small batch, on-demand manufacturing.
Food and Beverage Manufacturing
There’s a surprising amount of activity around business incubators supporting new food and beverage manufacturing startups. Ramya Sriram has created a list of 10 notable ones around the country, including initiatives created in partnership with leading brands, including Nestle, Carlsberg, Chobani, Marriott, and Land O’Lakes. In Hartford, Connecticut, the former home of Swift frozen foods has been transformed into a food manufacturing incubator. There are also a large number of incubator programs around the country supporting farm producers.
Manufacturing Companies in the Emerging Green Economy
Business incubators for green technologies of the future are sprouting all over the country. For example, David Dussault has created a new manufacturing center for turbine and hydroelectric technology in upstate New York, not far from where GE was founded over 125 years ago. In New York State, LC Drives recently received a $500,000 investment from NYSERDA to help scale its production of ultra-efficient electric motors. Meanwhile, in Miami, Florida, the new EcoTech Visions incubator is helping create new businesses around renewables and other sustainable products.
Biotech and Pharma Incubators Proliferate Across US
Genetic Engineering and Biotechnology News counts 65 Biotech and Pharma incubators across the country. Many of these are located in the traditional pharma and biotech research hubs in San Diego, the SF Bay Area, Boston, and Washington DC.
Johnson & Johnson has been very aggressive in creating pharma startup incubators. Its JLABS branded facilities include two locations in San Francisco, one in Cambridge (across the Charles River from Boston), one in San Diego, and another in Houston (located within the Texas Medical Center, the world’s largest medical complex). Nearby Rice University has plans to transform 16 acres in downtown Houston into a new innovation incubator, dubbed The Ion, to create a new “innovation district” in the heart of the nation’s fourth-largest city.
We’re excited to see these developments taking place now and hope to see continuing signs of a renaissance in American manufacturing during the coming years as a result.
Get Ready for the Future of Manufacturing with Formaspace
If you can imagine it, we can build it, here at our factory headquarters in Austin, Texas.
Today’s leading manufacturing companies choose Formaspace for custom furniture solutions that make their factory, warehousing, and shipping operations more efficient.
Four out of five of our industrial customers are listed on the Fortune 500, and we can count over 350 colleges and universities among our satisfied clients, including nearly all of the Ivy League schools.
But we also specialize in helping new startup companies and small to medium enterprises (SMEs) that want to work more efficiently.
How can we help you? Speak with your Formaspace Design Consultant today to find out how we can work together.
