US Manufacturing and China Innovation

1. MIT conference (The Future of Manufacturing in the U.S) explores the complex state of the US manufacturing industry which is showing signs of revival.

The United States added about 50,000 manufacturing jobs this January alone, the largest monthly gain since 1998. Companies such as Ford Motor Co. have moved overseas plants back to the United States. And high energy costs (which make global shipping more expensive), along with rising foreign wages in some industries, have provided reasons for companies to consider relocating their factories in America.

In this regard, “the situation is different than it was in the 1990s,” when the flow of jobs seemed only to move away from the United States, said David Simchi-Levi, professor of civil and environmental engineering and engineering systems and co-director of MIT’s Leaders for Global Operations (LGO) program, which hosted the event. About 43 percent of firms in one survey, he noted, would consider moving their factories back to the United States.

To be sure, manufacturing has seen major job reductions in the United States: from 18 million jobs in 2001 to 12 million today. Even so, the sector still accounts for 70 percent of private-sector R&D spending in America and 90 percent of U.S. patents issued today.

In addition to government incentives, Jimenez said, U.S. manufacturers must “build leadership in manufacturing innovation” themselves. As he detailed, Novartis, in collaboration with MIT researchers, is working to develop a new system of “continuous manufacturing” that would dramatically reduce the time it takes to produce commercial drugs.

It remains to be seen precisely which areas of technological research will provide the biggest platforms for economic growth. Olivier de Weck, an associate professor of aeronautics and astronautics and engineering systems at MIT and executive director of the Institute’s ongoing study of Production in the Innovation Economy (PIE), listed a series of promising research topics, including lightweight materials, flexible electronics, pharmaceuticals, rapid prototyping — such as 3-D printing — and the use of recycled materials for manufacturing.

2. EETimes – Despite its emphasis on “indigenous innovation,” China’s real competitive edge remains in what China watchers call “second generation innovation” that combines existing technologies and products with growing manufacturing prowess.

Dan Breznitz, a professor of international affairs at Georgia Tech, told a congressional panel that “core technologies and novel product innovations are still rare and difficult to achieve in China.”

Breznitz and other experts speaking at a hearing Thursday (May 10) on Chinese efforts to become an “Innovation Society” nevertheless warned that the perception that China eventually “will hit a wall” is misguided. China “can innovate. It may take them 20 or 30 years [to overcome barriers to innovation], but that doesn’t stop them from destroying us economically,” warned Daniel Slane, a member of the U.S.-China Economic and Security Review Commission. “China is coming, they are coming here to open up their factories here in the United States…so the hole just gets deeper.”

Some analysts also predicted that South Korea’s economy would eventually hit a wall. “The last time I checked, South Korea was still going strong,” Breznitz added. “We should not rely on China failing” in its innovation drive despite the “unbelievable” failures of its central government. One reason is that China’s provincial and municipal governments “are doing everything in their power to make the system work, sometimes against the wishes of the central government,” he told the commission.

Assuming that China cannot succeed at innovation would be a strategy that assumes weaker competition and that the US and global companies can adopt conservative adjustments.

Chinese leaders understood that there were many U.S. solar panel startups “yet no one here is willing to [invest in] production facilities, and they grabbed it. It’s a classic market failure,” Breznitz said. “The financial system in the United States is not built any longer to do that” despite the fact that sectors like cleantech remain critical to U.S. national security.

Making matters worse, Breznitz warned, U.S. companies “are sitting on the biggest war chest [of cash] in history and yet they don’t invest” in U.S. manufacturing.

The US has to solve the problems and barriers against being able to rapidly ramp up and scale production facilities.

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