Is Exporting the Answer to What Ails U.S. Manufacturing?

I wonder why more SMMs haven’t made the move to product development, ownership and exporting when there’s so much to gain in emerging markets.

 

Last month, I wrote that the U.S. needs a sound manufacturing policy that must include less tax and regulatory burdens on small- and medium-sized manufacturers (SMMs). This is where innovation and new jobs are created—if we’re going to redefine ourselves, let’s let those that redefine best do the redefining.

Let’s say I get my way, and there’s a manufacturing policy in place tomorrow—one that frees up these great minds and ingenuity to put us back on the road to manufacturing dominance. What does that look like? The old days?

If you think about where we’ve been as an industry, we had the great luxury of manufacturing in and for the strongest economy the world has ever known. We employed and served a consumer base that recognized and could afford quality. It was the perfect storm.

Today, we are seeing a shift of our consumer base toward appreciating low costs for many products as much as quality. Also, simplicity, frugality and spurning credit are in vogue. As these shifts take place, there are also opportunities. And these opportunities can’t, and shouldn’t, lead us back to our old ways.

During each of my most recent visits to China, I’ve noticed something extraordinary—there is an emerging appetite within the Chinese culture for Western (and U.S.) brands. Stores that sell Western brands have lines of patrons waiting to get inside—often just a few feet from street vendors that sell like-labeled counterfeit products. Prosperity there and in other Asian countries is creating consumer markets that may well exceed our own.

I believe that perfect storms are brewing in China and other foreign markets, and that they offer SMMs in the U.S. a path toward prosperity and dominance as exporters.

I’m not sure we’re equipped to make the changes to the kind of exporting I’m talking about. In my lifetime, the U.S. has mainly exported mass brands overseas—like Coca-Cola, Pepsi or Ford—or we’ve exported the manufacturing of products overseas for resale back into the U.S. consumer market.

What I envision is U.S. SMMs that have been traditional fourth or fifth tier suppliers in massive supply chains now creating and owning their own products. I see them selling those products (along with their intellectual property) to larger OEMs with the expertise to export, or owning patents outright and manufacturing for export themselves.

A recent survey of manufacturers by ThomasNet shows that 70 percent of U.S. respondents say they’re instituting new sales tactics, like pursuing new industries or new sales channels. But I’m not sure this is where the real opportunities are. Survey participants identified medical and aerospace as the industries they’d most like to break into. Do we really think there’s enough room in those markets for everyone, or will they become more commoditized with lower margins and fiercer competition?

The dollar is weak and getting weaker. Most analysts expect it to stay that way—or drop further—in the near term. The U.S. government is in the process of forming that elusive manufacturing policy, and it does include the National Innovation Marketplace—an initiative to give SMMs the wherewithal and help to create, own and export products to foreign markets. If we can avoid value added taxes and lessen the burdens on business to grow and innovate, these could all equal our own perfect storm to unleash our manufacturing ingenuity on those markets that want our products anyway.

It’s a long road, and change isn’t easy. Refocusing a business on a new path takes guts and a lot of hard work. But I wonder why more SMMs haven’t made the move to product development, ownership and exporting when there’s so much to gain in emerging markets.

Have you made this sort of change your goal? Has your company begun to explore or institute this kind of change? If you have, I’d love to hear from you. If you haven’t, why not?