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Staying Afloat With R&D, Not The Lottery

Thu, 10/14/2010 - 8:12am
by Joel Hans, Associate Editor, IMPO

I’m a fairly avid listener of podcasts at work. They help me concentrate in the office, and, at times, they can be good inspiration for whatever I’m working through my mind at the time. I’ve been listening to NPR’s Planet Money podcast for a good six months now, ever since I heard their exposé on the recent collapse of our economy through the abuse and failure of subprime mortgages on This American Life. And while many have an antiquated view of NPR’s programming, much of it is exciting, relevant, and — believe it or not — exceptionally interesting.

So it was a pleasant surprise when two Planet Money reporters started talking about the state of American manufacturing. I, unlike the reporters, was not surprised to hear that the U.S. is still the world’s largest manufacturing economy (although I don’t claim to be more intelligent than either journalist), which is a figure that is supported by the National Association of Manufacturers (NAM) and the U.N. alike. We all know the rest of the story. While many manufacturers are struggling to make ends meet in this economy, there are others that thrive, expand, and shrug at the suggestion of a crippling recession.

In their report, Adam Davidson and Alex Blumberg visit two factories, one of which is suffering. The other is flourishing. And while it’s a generalization to suggest that all manufacturers are on one side or the other, it’s an interesting investigation into why certain American manufacturing companies are struggling more than others.

The first is what remains of a wooden button manufacturer, Buttonwood Corporation, that had prospered for decades, with the likes of Ralph Lauren making massive orders to sew onto custom-made suits. All of this, of course, happened before China’s cheap labor stepped in and offered a similar product for much less money. The plant — which is actually a small rented space in a larger facility, with a single employee — is run by a man who dreams of the expensive Italian machines that churn out buttons in Chinese plants.

Zierick Manufacturing, on the other hand, is flourishing as they build the small “connector” pieces that attach electrical components, such as resistors and capacitors, to circuit boards. And while one wonders — and the Planet Money crew asks this — why these simple connector pieces can’t just be mass-produced more cheaply by an overseas competitor, the answer is simple: research and development. Some of their employees are charged with developing a new, patentable idea for connector technology every few weeks. By staying on top of the latest and greatest, the company can easily outmaneuver its Chinese competitors.

While I did enjoy the report, it left me with one disappointment: part of their message, it seemed, was that certain manufacturers simply cannot survive. Companies working with “dated” products, like buttons, have no opportunity to properly compete with cheaper overseas competitors.

Is there not hope for the button manufacturers out there? I don’t think anyone can say that any given company is destined for failure based solely on their product category (unless, of course, they only produce something like cassette players…), and it’s hasty to abandon hope against China’s vast industrial efforts.

The key is R&D. By asking their employees to create new products on a consistent basis, Zierick Manufacturing can utilize the advantages American companies have over foreign counterparts, and that’s engineering prowess and an environment conducive to creative thinking. Their products don’t have to be revolutionary — they just have to be better than the previous iteration, and they just have to sell at a similar price compared to their elders.

Button manufacturers should be no different. When the button-maker lamented over the well-oiled and very expensive Italian button-making machines being used in China, I wondered, did he ever do a cost analysis of purchasing one for himself? Turns out he did, and they helped, for a while. The contention now is that while China was previously able to compete on labor costs, they now have cheap labor and world-class machinery. That may be true, but how many of the machine operators in the Chinese factory have the capacity to bring a new product to their bosses? As the owner of the company, and someone who had worked in buttons for more than 40 years, he should have been more than capable of innovating.

In my opinion, businesses fail because of their management, not because the market for a particular product has died. Any good company can hear the death toll of their flagship product for years, and if they haven’t done anything to retain or create business in another market, they’ll close, and I’ll say, “That’s capitalism.”

I don’t want to be too harsh on the owner, since he seems like a nice guy. I’d buy him a beer if I ever made it out to Brooklyn. But he admits his own defeat by saying, “I don’t have too much ambitions … I’d like to win that lottery that girl won the other day.” Planning the success of your four-decade-old company on winning the jackpot is no way to be a successful business owner. Like the hypocrisy of those who blame not winning the lottery for their failures, American manufacturers cannot lament the loss of business to overseas competitors while remaining stagnant. Now is the time for R&D.

Is your company placing hope on the lottery too? Or do you have a plan for innovation in the future? Let me know at Joel.Hans@advantagemedia.com.

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This video from MSNBC corroborates the story from Buttonwood Corporation, that many American manufacturers simply aren't interested in innovating.

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