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From the Desk of Jack Healy

Where Does Manufacturing Go in the New Economy?

By Jack Healy, Director, Manufacturing Advancement Center, jackh@massmep.org

The Nov. 20, 2006 issue of BusinessWeek asks, “Can Anyone Steer This Economy?” The premise of the question is based on the fact that US imports of goods and services will soon exceed what Americans now pay to the federal government and somehow this has overwhelmed Washington’s ability to control the economy. The article concludes that “the idea of a National Policy may be fundamentally out of date in Global Markets,” and “Washington is no longer the center of the economic universe.”

Perhaps, but either way, with such news comes awareness of the tremendous amount of wealth that the US manufacturing community produces for this country, along with realization that we cannot survive as a world economic power without the contribution of manufacturing. A statement released by the US Bureau of Economics notes that in 2005 manufacturing was at an all time high, contributing $1.4 billion dollars in value-added to our economy.  The US manufacturing sector alone is the world’s seventh largest economy. This should reinforce the importance of manufacturing to the thousands of people who currently think that it is either an unimportant sector or that it can be replaced by services.

Unfortunately, the growth in manufacturing has not been universally shared. The New England manufacturing community, with the exception of Vermont, has lagged. This is in sharp contrast to the rest of US manufacturing which has increased the value of its shipments by 7.28% between 2001 and 2004.

New England’s Manufacturing Value of Shipments Comparison by State
Years 2001 to 2004

Connecticut - 4.14 %
Maine - 9.35 %
Massachusetts - 4.15 %
New Hampshire - 9.05 %
Rhode Island - 1.96 %
Vermont +11.04 %

New England’s poor performance undoubtedly has more than one cause, but the primary reason has been the relentless pursuit of cost cutting in response to the demands of OEMs and mature markets without a counterbalancing push for innovation. While New England manufacturers have survived the last few years by cutting operating costs, they appear to have placed their “Yankee Ingenuity” on the back burner. As a result, they are finding it difficult to survive without reinventing themselves. Manufacturing has always been an industry of renewal and today is no different from the past.

Manufacturing: An Industry of Renewal
Renewal in this context is best described as the “Maximization of internal innovation capabilities, in all aspects of the business.” This means systems, processes, markets, as well as products. The twin goals of productivity and innovation should be the guideposts for any business; they are essential to manufacturing. As the above numbers indicate, a manufacturer that achieves profits by downgrading or cutting internal innovation should realize that they are really sacrificing their opportunities for a future.

But the results in New England do not have to be this bleak. Three years ago the Maine and Massachusetts Manufacturing Extension Partnerships (MEP) embarked on a Dept. of Labor Training Program that assisted 87 New England manufacturing client companies; the focus of the program -- maximizing internal innovation and productivity capabilities. This was accomplished by showing 1,847 different client company engineers how to support internally developed technologies. We made extensive use of external educational providers such as universities, colleges, and national laboratories.

The initial economic results of an independent IMPLAN Economic Impact Survey, which surveyed about 35% of the 87 companies participating in the program, show that these companies have:

  • Created or retained 1,018 jobs that would have otherwise not existed
  • Experienced increased and retained sales of  $30.4 million
  • Spent $36.8 million on new investments
  • Experienced $7.7 million in cost savings

All of this, and we’ve only received results from 31 of the 87 companies.

The BusinessWeek article places this achievement in perspective by noting that “despite US prominence in medical research, the pharmaceutical, biotech, and medical device industries have added only 19,000 workers in five (5) years.”  The MEP Innovation clients are projected to add or retain over 2,000 direct impact jobs by the completion of the final economic survey period a mere one (1) year from now.

The Economic Multiplier
If you add the economic multiplier to the above numbers, you can project the effects of economic activity beyond just our client firms. Increased sales by these companies require that they increase purchases of intermediate goods and services from other companies, in turn, generating additional demands of their own. The supplying companies, in turn, generate additional demands of their own. In this way, the dollar expenditures for final demand can be traced back to all of the affected industries in the regional economy.  In addition, the income from the new jobs generated by the client companies and supplying firms result in increased demand for goods. Each of these effects, in turn, generates subsequent, although diminishing, ripples throughout each of the states’ respective economies.

The sum of these direct, indirect, and induced effects demonstrates how quickly and effectively manufacturing can produce wealth for both a state and a region.  The total Economic Impacts on the State Gross Product for the outputs indicated above is $148.3 million dollars for Massachusetts and $28.2 million dollars for Maine. Not bad for just a small manufacturing program!

Manufacturing in the New Economy
So, where does manufacturing go in the new economy? It goes to building bridges with universities, colleges, and national laboratory programs that can re-skill the workforce and leverage innovation and commercialization opportunities within the industrial community.  This is not an easy journey, but it is one that has a good payout.

As described by Sally Maher, Vice President of R&D, Smith & Nephew Endoscopy, “The MEP Innovation Program encourages companies to find technology that they don’t have and bring it in-house to increase the competency of its own staff, and that’s exactly what happened at Smith and Nephew Endoscopy.” When this happens as it did in Smith and Nephew, we end up with innovative manufacturers who have the ability to compete in the new economy. This is in stark contrast to those companies who attempt to compete on price alone, more often than not a losing proposition over the long run.

Find out more in BusinessWeek’s, “Can Anyone Steer This Economy?

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