MIT Report: U.S. Manufacturing Hits a Wall When It’s Time to Scale

2/28/13Follow @curtwoodward

Manufacturing isn’t dead in the U.S. But when it comes time to pump out products on a large scale, the pull of overseas economies and investors becomes too strong to resist.

That’s one of the conclusions from a group of MIT researchers tackling a wide-ranging study of the American production economy.

Their report aims to give a broad picture of the current state of manufacturing in the U.S., with an emphasis of how “production” industries ranging from heavy industry to biotech can compete in an era increasingly focused on intellectual heft and engineering prowess.

For one aspect of the study, which is called “Production in the Innovation Economy,” researchers looked at how non-software companies licensing technology from MIT fared in the wild from 1997 to 2008.

Those 150 companies represented a diverse range of sectors, including advanced materials and energy, biopharma, medical devices, robotics, semiconductors, and electronics. And for many of them, MIT officials found a pretty clear chasm when it came time to reach large-scale production.

Here’s how the rough timeline broke down: MIT says that “on the whole,” the 150 production companies it studied were able to get financing that bankrolled their early growth in the U.S.—sometimes for up to 10 years.

“But many of them, when they came to the stage of moving to full-scale commercialization, could not find finance in the U.S.,” the report says. “As many of them made the transition from venture funding to high-volume manufacturing, they eventually had to look for foreign investors and often moved abroad to manufacture their products.”

That’s just a preview of the findings from MIT’s big study, which is expected to publish its final results in a pair of books later this year. It’ll be interesting to track the research as more detail emerges, to see just how significant the exodus was for those companies being tracked.

It’s certainly a topic that many people are interested in lately. With January’s U.S. unemployment tally still above 12 million in the aftermath of the Great Recession, politicians, some businesses, and labor leaders are keen on making sure the U.S. has some form of manufacturing sector to call its own.

President Barack Obama is chief among those emphasizing domestic manufacturing jobs—from a legendary dinner roundtable with the late Apple CEO Steve Jobs (“Those jobs aren’t coming back”) to his recently outlined plan for $6 billion in manufacturing tax credits.

The U.S. is still the world’s largest manufacturing economy, albeit with China close behind, according to figures from the National Association of Manufacturers. And some very serious manufacturing work—hello, Boeing 787—is clearly better off being done at home.

But high-tech gadgets produced at huge volumes (the kind of things that made Apple one of the world’s most valuable companies) are run almost exclusively through overseas economies. And even tiny startups backed by crowdfunding are turning to premium factories in China to get their orders churned out—and let’s not forget overseas drug development.

If there’s a cure to be found, you could do worse than having 20-some MIT minds hacking away at a solution.

Curt Woodward is a senior editor for Xconomy based in Boston. Email: cwoodward@xconomy.com Follow @curtwoodward

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  • http://www.facebook.com/people/Matthew-W-Hall/1723611491 Matthew W. Hall

    I wouldn’t call any Chinese factories “premium”, but they are cheap. That is the important point.

    • Brandon Rinebold

      I think they mean “premium” by Chinese standards. There are some quite well-run factories there, they’re just outnumbered by the cheaper ones with quality issues and those quality issues stand out more.
      In fact, a lot of those premium products you use every day and are quite happy with are made in the premium Chinese factories.

      • http://www.facebook.com/people/Matthew-W-Hall/1723611491 Matthew W. Hall

        I don’t buy anything labelled ‘made in china’.

  • http://profiles.google.com/warthog0 Pressed Rat and Warthog

    Depends what you are making. It it’s heavy or scalable via automation it works fine in the US. But if it requires a lot of fiddly manual labor, overseas is better.

  • skyshoes

    I went to mainland China to a state of the art factory that was one hundred times larger than our factory in the states. In our small specialized industry we had at the time one of the largest factories in our trade. The factory bosses were all from Taiwan, hired because of their managerial skills and experience in running factories. No politics when it came to making money. The whole scenario was financed by the Chinese government.

    I mentioned to the head man that there were machines that would duplicate our product and he might want to invest in that.. He said ” No we want people to work”. He had five hundred employees and at that time I had twelve. He further explained that he had hired the most skilled workers in the area and had people streaming in from the hinterlands to work for him because he paid (for their economy) some of the highest wages around.

    Who’s economy is growing and who’s is dying. The twentieth century was the century of wars. The twenty first century is the century of economics. We in the US are still at war with each other, the clown congressman Cantor(R) wants to do away with the minimum wage.

    Our country is busy subsidizing billion dollar profit oil companies and lobbied up weapons and war plane manufacturers. China is producing everyday products and ending up with all the funds. Watch Wall Street, a company lays off 20% of its work force and its stock goes up. If I was talking to a US corporate head his response would probably be, ” We just want our workers to suffer”.

    • http://www.facebook.com/profile.php?id=536431528 Craig Naylor

      You nailed it.

  • http://www.facebook.com/adalberto.cervantes.rodriguez Adalberto Cervantes Rodriguez

    PEMEX, the
    oil Mexican government company can improve IT business in the States?

    PEMEX with
    the help of the Mexican Petroleum Institute has been invested millions of
    dollars in well-known American IT companies like Oracle, as a matter of fact;
    they started originating Oracle in the business of ERP and Data Base Company.
    PEMEX is the biggest company of Mexico with higher incomes than the Mexican
    Forbes richest men in the world together.

    The Mexican
    economy is not affected anymore by the American economy as it used to happen.
    The Mexican Government combined a planification process (from socialism and
    communism) with American and Mexican capitalist models. Mexico has more
    economists than China and India together, instead of creating technology they
    are doing the commerce of that technology using vast Free trade Agreements they
    already have dealing with them, their main market are North America and LATAM.

    PEMEX is looking
    to exploit oil from the deep water of its oceans, the problem is the
    technology, and they are not located in the States to have all the more capable
    vendors working in the design and implementation needed to do the production,
    it might be a Joint Venture. It is the
    right time because of oil prices and the American-Mexican economy to do that,
    Mexican communities in the States will be grateful to have this principal
    company worldwide located in the States for accomplished that purpose, mainly
    because it will recognized the strength of the Mexican economy now-a-days, and
    definitely increase the salaries among Spanish speaker in USA specially from
    Mexican origin.

    Besides
    that the changes in the population is USA turning to have more Latino people in
    some years, it is a great opportunity to do this business movement. PEMEX should make the effort trying to have
    better laws to protect Mexican heritage for worldwide illegal practices.

  • JBD

    In three words, “Right To Work.”

    {^_^}