Technology development and deployment are important because manufacturing has become a technologically-driven endeavor. Our ability to compete in manufacturing is dependent upon the quality and the sophistication of our human resources, manufacturing facilities and equipment. In the recent past, we allowed our manufacturing equipment and facilities to deteriorate relative to our foreign competitors.
It is indeed a bitter pill to swallow that the U.S. was failing in the development and commercialization of new manufacturing technologies. As the recent Nobel Prize awards attest, our scientific base is still unparalleled in the world. We have the support of the Federal government and the strength and vitality of universities to thank for this state of affairs. We also have a strong and vital network of federal labs and a distinguished groups of not-for-profit R&D facilities contributing to the nations store of knowledge. Even with this scientific base, however, we have not learned to master yet the” art of knowledge utilization and technology transfer. In effect, the scientific knowledge produced by our universities and labs has benefited other nations, at least as much, and arguably more, than it has helped us in the recent past but it seems to be correcting.
We have assumed that the pursuit of basic knowledge, and the publication of scientific results, are ends in themselves and are the only responsibilities of the basic science community.
Unfortunately, today’s economic realities seem to argue against this blissful and naive view. We must create more effective structures and incentives to link basic science to applied research and ultimately to commercial product development. Since one phenomenon of today’s world is the rapidity of change we must move toward the above a lot more swifter than we are currently doing. There are some emerging programs to do just this. In the past fifteen years we have witnessed a tremendous growth in the incidence of cooperative research relationships and other institutional arrangements between universities and industrial partners. Some of these arrangements include novel intellectual property and patent agreements, new ways for industry to fund and support research such as R&D limited partnerships, and a willingness to share facilities and personnel across institutional boundaries.
I strongly support these activities at MIT and the University of Michigan that began sometime ago. I would urge other universities to accelerate cooperative arrangements with industry. I would also encourage experimentation in the creation of “hybrid” organizations that explicitly bridge the gap between the university and the industrial community. The former Industrial Technology Institute of Michigan was designed for this purpose. It was to be an example of such a bridging/hybrid organization. Unfortunately, State and internal to the Institute politics put an end to the Institute as it were designed. There is nothing inexorable or natural about the process of technology development and commercialization. We simply must become more aggressive and proficient at it.
Turning now to the issue of technology dissemination and technology transfer, unfortunately, I think we have a classic case of a market failure. The structure of U.S. manufacturing confounds the deployment of technology. U.S. manufacturing is composed of a large number of relatively small firms producing a wide variety of products, within a highly complex structure of economic and technological interdependencies between suppliers, original equipment manufacturers, and equipment vendors.
In my experience and understanding American manufacturing has been a “mom and pop” industry. Over 70% of U.S. manufacturing establishments have fewer than 100 employees, my estimate. The average size of U.S. special tooling and machining shops is about 30 employees, which is about one-third the size of their average Western European counterparts. With smaller size comes fewer financial and human resources to adopt and utilize technology. Of course there are exemptions, i.e., Delphi and Visteon, and several others. These are large corporations but poorly managed over the years and have not been able to take advantage of the above.
Looking at the rate at which new manufacturing technologies are being adopted and implemented, we find with some striking results. Based on my own experience for newer, particularly computer-based technologies, the rate of adoption is between 5 and 10 times greater in plants with 250 employees or more when compared to plants with less than 50 employees. Smaller plants find it difficult to compete with larger plants on the basis of cost or quality.
However, smaller plants make up the bulk of our supplier base. Major customers of these plants, namely original equipment manufacturers, have chosen an easy solution to reducing component, sub-assembly and tooling costs which has dire consequences for the supplier base and for our economy as a whole. These firms are outsourcing much of what they used to buy from U.S. firms to Korea, Taiwan, Mexico, Brazil and other nations. In some cases, the only portion of the manufacturing process which remains here is final assembly of the product. This solution may make short-term sense for the individual company, but has deadly long-term strategic implications for both the firm and the nation.
These firms are willingly giving up a major portion of our technological expertise to other firms and other nations. These firms are unwilling to initiate manufacturing innovations to increase manufacturing competitiveness. Most firms are following the same strategy as their Japanese competitors, who have established plants in the U.S. which are shells for the assembly of parts and components mostly produced offshore. The Japanese, however, use this strategy to retain their technological expertise and innovative capability. They retain the base of the pyramid.
We need to increase the technological and innovative capability of small- and medium scale firms rather than moving this capability offshore. There are two major solutions to the dilemma. One is for large original equipment manufacturing companies, such as the auto makers to pay greater attention to the modernizing and upgrading of their supplier base. For too long, large companies have looked at their supplier base only in terms of procurement relationships. Cut-throat cost competitiveness between multiple suppliers has limited the willingness and ability of suppliers to improve their production technology.
There are a few interesting exceptions to this situation. Some U.S. firms are emulating their foreign competitors and developing highly structured and reciprocal supplier relationships. Customers are demanding qualification of suppliers for quality and on time delivery, while providing longer-term contracting, assistance and training in technological upgrading of supplier equipment and facilities.