Cost reduction can only go so far in solving America’s manufacturing problem. As globalization continues to increase competitive pressures, manufacturers will reach a limit to cost reduction and operating efficiencies. At some point, finding a new customer and market is a better solution than continuous price reductions. This is the next big challenge facing American manufacturing.
So what can we do?
To compete in the future, small and midsize manufacturers (SMMs) must change the focus from the internal processes to the external customer environment. American small and midsize manufacturers have a big advantage over their foreign competitors — the domestic market. We are close to the U.S customers and markets and have led the world in innovation and services.
SMMs must go on the attack. This means adapting a market or external orientation and changing the organizations from being a defender- to a prospector-type organization. It will mean learning methods to profile the best customers, find new markets, select the best sales channels, develop new products, offer new services and change to an organization that can find the new opportunities.
I know what you are thinking — this is not what manufacturers do. We make high quality products at low costs and deliver them on time. We are very good at tangible things like milling, drilling, assembling, engineering machine tools and factory efficiencies. Markets, customers, and competitors are analog, intangible, and forever changing. It is hard to anticipate what they want or need.
Yes, these assertions are all true. But it is these customers who are driving globalization, forcing price discounts, sourcing foreign suppliers, demanding new products and services, and ultimately, the people that pay you and your employees. They are the keys to survival but there are good customers and bad customers just as there are growing and declining market segments. So the next step in globalization is to adopt an external focus and find the customers and markets where you can make money.
SMMs have proven they are adaptable and resilient time and time again. We will have to adapt again — let’s get on with it.
There are tremendous opportunities for those manufacturers who can adapt to the new economy. In fact, even with the decline of U.S. Manufacturing, there are still opportunities to grow, create new products, access new markets and create jobs.
As old industries dwindle and large customers evolve to adapt to globalization, your company will be part of this change. That can be good news, as many new industries, hundreds of new market niches and thousands of new applications will emerge. There are always opportunities in chaos.
Here are 7 reasons why manufacturers should be more optimistic about emerging opportunities:
1. The Promise Of New And Growing Industries — There are going to be many industries that continue to decline and perhaps some — like semiconductors, apparel and shipbuilding — will never come back. But there are other industries that are emerging and evolving that will provide new opportunities for manufacturers in the future. Among those industries are many technology industries — manufacturing in areas like biomedical devices, nanotechnology, nano-manufacturing, informatics, biotechnology, pervasive computing, analytical instrumentation, cyber security, data storage, micro electromechanical systems, robotics, specialty metals, supercomputing, tissue engineering and electro-optics.
There is a good chance that some of these technologies might blossom into high growth industries. There is an even better chance that many of the new technologies will evolve into technologies that can be used by SMMs in developing new products
2. Traditional Industries — Most of the plants in traditional industries are not leaving the country. There will be ongoing changes to plant production lines to increase performance and to handle all of the changes caused by new products. For instance, in the food industry there are thousands of packaging changes that result in thousands of opportunities for new applications, equipment modifications and new machine designs. New applications mean thousands of new market niches.
3. The Asian Countries Are Not Invincible — Remember in 1980 to 1985 when manufacturers began believing the Japanese were invincible? They were higher quality, lower priced and seemed to be taking market after market away from us. Then they got into economic trouble and suddenly, they were less than the powerhouse we had envisioned.
Today, we are all living in fear of the new Chinese juggernaught and they are taking products and markets away from American Manufacturers. But they already have problems with energy, resources, banking, and litigation. In their relentless drive to keep their costs low they are now experiencing quality problems — serious quality problems with food, toys and many other consumer products. There are also reports that these quality problems are beginning to show up in industrial goods like parts going back to U.S. assembly lines that are supposed to be just in time. In this situation, the original unit costs the Chinese predicted do not look so good. If these trends worsen, China is a hot economy that might implode.
4. New Services Will Be Needed — Along with all of the opportunities for innovative new products, there will be a demand for new services. Customers don’t need just new products; they also need new services from small manufacturers. There are opportunities to sell new services such as design, start-up, training and education, on-site maintenance, repair, emergency, financial, trade-in, dismantling, consignment and a host of other services.
5. International Markets — Everyone, including the Europeans, is coming to our markets, but American manufacturers on the whole don’t seem to be interested or ready to compete in international markets. We have been spoiled for a long time — doing business in this giant U.S. economy — and haven’t had to market internationally. The time has come, and we need to look for international opportunities.
6. Products Coming Back To America — I am sure that once the smoke clears on the stampede to China, many companies will find out that quality, delivery and legal problems will make the total cost of outsourcing to Asia not worthwhile. At minimum, large companies will find it wiser to split production between U.S. and foreign suppliers in case the foreign supplier can’t deliver what was promised.
7. Market Proximity — Companies also will find out that close proximity to the customer is more important than unit costs. This is a partial reason Japan and other nations build manufacturing plants in the United States to serve our markets. We have a proximity advantage.
Contrary to the doom-and-gloom scenarios brought on by the tightening grip of globalization, American manufacturers can compete in the new economy and against foreign competitors — but not as we competed in the past. To find the new market opportunities, we must change our companies and go on the attack. The most fundamental change will be adapting the company to the new demands of the marketplace. This is not a matter of simply hiring some extra sales people or spending more money on promotion. Becoming market-oriented is changing the company from an order taker to an order maker.
Michael P. Collins is president of MPC Management, a manufacturing consulting company, and the author of the book, “Saving American Manufacturing.”