Staying ahead

In this new global century, nations and regions are engaged in a fight – albeit peaceful – that will impact many generations to come. It’s a war of ideas and innovation, of agility and tenacity. It will take new thinking to stay ahead.

For several decades now, the assumption has always been that the U.S. and other industrialized nations will keep leading in knowledge-intensive industries while under-developed and developing countries focus on lower skills and lower labor costs. That's now changed. Many countries around the world now compete both with low wages and high tech, plus significant government subsidies and incentives.

Assymetric Motivation

In the global environment, there’s yet more asymmetry that’s causing financial investment shifts. Today’s world has three business/technology models:

1. U.S. businesses develop products with 60-70% gross-profit margins, and target revenue growth of $100 million to $1 billion. U.S. investment is simply not available for products with smaller margins and markets. Because of this, products developed in the U.S. are more complex and are targeted for large markets that can justify high investment and subsequent high overhead.
2. Other developing countries are growing rapidly through products that have intermediate complexity with smaller revenue growth and medium (40-50%) gross-profit margins. In India, there are exciting technology companies growing to $5-10 million within three to five years with medium complexity products, quickly developed. This level of success attracts high levels of investment.
3. China is unique in that it is government controlled, with target gross-margins of only 5-10% (margins that are considered too small anywhere else). Their primary objectives are local employment and market share. As a result, China has become the undisputed world leader in low-cost manufacturing of high-volume products. Also, China mandates disclosure of all intellectual property, demonstrating their long-term perspectives. By contrast, American and other outsourcers are giving away intellectual property and knowledge for short-term financial gain.

Outsourcing pandemic

One wonders what will happen to manufacturing knowledge and experience in advanced economies. The remedies require significant attitude changes. Our society must recognize that manufacturing and job creation are not the manipulations of evil corporations – that these are beneficial to society.

Automation is the result (not the cause) of job flight. The idea that manufacturing jobs are somehow "bad" has caused us to replace US jobs with automation. When people insist that there should be an embargo on job export, automation guru Dick Morley asks the question is, "OK, so you want some of your children to work in an assembly plant?" The usual response is, "Gosh, no!" “Well then,” asks Morley, “Whose children do you want working on the automobile assembly line?

Dick Morley insists that US jobs are not leaving – they are being driven out. No community in the US wants a new automobile assembly plant, a printed circuit board plant or a semiconductor manufacturing plant in the area. If manufacturing companies try to locate almost anywhere in the US, they are fined with high taxes, strict compliance regulations an infinite bureaucracy. These are NIMBY rules - "not in my backyard". In the meantime, the environmentalists are happy to see more trees, more green and non-polluting boutiques and shopping malls everywhere.

Says Dick Morley, “One of the other things we can do is make the factories look good – small, efficient and a glorious place to work. As an example, have a beer facility (Budweiser) in an adjoining town. Everyone likes to work there: it's clean and quiet, enclosed. The refinery, much like a coal mine, appears to be an intruder rather than a citizen of the society within which it exists; making the refinery, the pipeline, the factory and the process plant good citizens, rather than the adversaries, will help a lot.”

America needs to recognize that the manufacturing-based middle class is the nation’s backbone. It’s important to keep investing in jobs to upgrading factories, to be competitive in a global market. This doesn’t mean replacement of the old-style, labor-intensive manufacturing jobs; those have disappeared in the last century – like farming (which used to be some 30% of the population at the start of the last century, and is now less than 2%).

Automation Education

It’s evident that ISA’s “Certified Automation Engineer” does not mean any additional status or pay. Till that is corrected, the problem remains. One of the initiatives Dick Morley is working on is linking automation training with the education at MIT, Cal Tech and other well-known education centers, to derive additional status. This would have the advantage of being “brand connected”, and will eventually bring more status, and correspondingly higher compensation.

The lack of interest is that there's no money at the end of the engineering rainbow, as perceived by the student; there are no adequate teachers as perceived by the university; there's just no fun, no money and no reward for either the instructors or the students.

Talent & Innovation

It is significant that science and engineering professionals are dangerously absent from all levels of policy and decision-making in the U.S. Somehow, we have allowed lawyers and professional politicos to take over everything by default. As a result, government is manipulated by lobbying interests and the business climate becomes a political football. Among other ills, this has become a direct threat to our jobs and innovation tendencies.

The short-term financial mind-set must change. Business needs to realize that continual quarter-to-quarter increases in revenue and profits cannot be sustained with manipulation of work that is done elsewhere. Wall Street must stop manipulating company value by demanding short-term, quarterly financial performance. The media covers high paying jobs, seldom paying attention to society contributions.

Chinese secrets

Up past the proverbial catwalk was the instrumentation room, filled with old but serviceable displays, meters, recorders, switches and controls. I asked my host, an instrument engineer, where their process and controls information came from and he showed me; it was an old textbook, like one you might find at any swap meet in America. And then I looked at his library – there was Bela Liptak’s Instrument Engineers’ Handbook, first edition, midst other similar tomes and the usual collection of supplier catalogs.

I asked him, "Do you follow these textbooks closely, or do you develop your own variations?"

He smiled wisely, "Ah, we also have our own secrets..."

This was when I realized that most of the basic knowledge related to the industrial revolution – how to make steel, cement, plastics, or just about anything else – has already been widely disseminated. Anyone who wants to do it does it.

Losing the knowledge base

At this stage, recognizing the need for engineering expertise to keep equipment and processes up to date, some end-user companies have partnered with major automation suppliers to take complete responsibility for all automation systems. It seems like a mutually beneficial arrangement.

But, this raises many questions: How do you choose the primary automation vendor/partner? Simply select one of the major automation suppliers (from a handful of global contenders) and exclude bright, up-and-coming companies? Abandon the multitude of systems integrators and other significant suppliers of materials, instruments and equipment, to rely solely on one source? Will the relationship be profit based, or on a cost-plus basis? After settling on a primary supplier, internal engineering talent soon becomes non-existent; so, who will negotiate upgrades and contract changes? If the selected automation supplier flounders financially, how will the situation be corrected?

Competitive differentiation

Like that Chinese engineer, you need to say, "Ah, we have our secrets...!"

Related links:

The pursuit of Innovation

Automation plus Innovation Wins

Business Week – Outsourcing Innovation:

Cheaper, Faster, Better – The Productivity Race