An Economist View of the Third Industrial Revolution, Part I

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Over the last few months, I’ve written about a number of manufacturing innovation topics. These have included the amazing technology of Additive Manufacturing – including 3D Printing – and some of the possible revolutionary implications, a decision by Caterpillar to shift production from Japan to the U.S. and the reasoning therein, and the issue pertaining to Apple’s current use of low-cost labor to manufacture its products. Today, I’d like to recommend a recent issue of The Economist that touches on all of these issues and more.

Manufacturing: The Third Industrial Revolution is a special 20-page Manufacturing and Innovation Special Report in the 4/21/12 issue of the Economist that does an excellent job of informing the reader on the digitalization of manufacturing that is underway. In fact, there is so much good stuff in their special report that I’m only going refer to half of the articles in this blog, and will save the other half for my Part II blog.

The lead article of Manufacturing: The Third Industrial Revolution lays out the big picture, noting the use of new materials, processes, and means of sharing information, mixed with a reduced need for labor, that could result in an age of mass customization where the role of low-cost labor is reduced. As The Economist states:

“As manufacturing goes digital, a third great change is now gathering pace. It will allow things to be made economically in much smaller numbers, more flexibly and with a much lower input of labour, thanks to new materials, completely new processes such as 3D printing, easy-to-use robots and new collaborative manufacturing services available online. The wheel is almost coming full circle, turning away from mass manufacturing and towards much more individualized production. And that in turn could bring some of the jobs back to rich countries that long ago lost them to the emerging world.”

Factories and Jobs: Back to Making Stuff lays out the importance of manufacturing and the changing nature of manufacturing jobs. The article quotes a report by Susan Helper of Case Western Reserve University, who finds that “manufacturing makes up only about 11% of America’s GDP, but it is responsible for 68% of domestic spending on research and development.” On the topic of the changing manufacturing workforce, Colin Smith, Director of Engineering and Technology for Rolls-Royce says that “If manufacturing matters, then we need to make sure the necessary building blocks are there in the education system.” The piece notes shortages of apprenticeship opportunities among U.S firms, and offers a suggestion to increase collaborations between community colleges and local firms to develop training programs. Increasing use of simulation software is also mentioned, as well as the notion of increasingly embedding service into the manufacturing equation as a basis for consumer purchasing decisions (we see this increasingly in the automotive industry).

Comparative Advantage: The Boomerang Effect is quite interesting in that it focuses on the comparative advantage equation for manufacturing and the role the current versus future role of low-cost labor plays in this. The article states that “for some manufacturers low cost wages are becoming less important because labour represents only a small part of the overall cost of making and selling their products.”

Three months ago, I posed the question “What Would it Take for Apple to Make ‘Em Here?” referring to Apple’s iPad production that utilizes low-cost labor in places like China and Taiwan. Well, The Economist may not quite answer my question, but it does tell us what it costs to make ‘em there.  Based on research from the University of California, Irvine, a 16 GB first generation iPad that retailed for $499 in 2010 cost $154 in materials and parts from around the World (including, but not limited to, the U.S. and China), $75 in distribution and retails costs, and $33 in total labor. Of the $33 labor cost, $8 was from Chinese labor, with the other $25 coming from unidentified sources (though I somewhat suspect that much of that $25 comes from contract manufacturer Foxconn’s facilities in Taiwan). However, Chinese wages are rising, especially along its Eastern Coast.

The article does try to answer my question more directly when it goes beyond the role of labor in the decision on where to manufacture, as it states another factor driving Apple’s production decision is access to an Industrial Cluster in and around Shenzhen, China that provides design and engineering skills mixed with production know-how and capacity. However, there are other factors at play that are causing firms to produce here at home.

Chesapeake Bay Candle still produces Candles in China for the Chinese market, but moved production of domestically-sold candles from China to Vietnam, and then ultimately to my home state of Maryland in part “because of rising labor costs in Asia and increased shipping charges, but also because having a research and development facility in the American factory allows the company to respond to new trends much faster.” Peerless AV, which makes metal brackets and stands for televisions, moved production back from China due to Intellectual Property theft, and the firm’s president, Mike Campagna, observed that “the total cost of manufacturing in China is not as cheap as it might appear to be.”

Additive Manufacturing: Solid Print focuses on the revolutionary technology of 3D Printing, which is transitioning from a technology used to make prototypes to one that makes final components and finished products. It is this transition that is perhaps the most important ramification of the impact the 3D Printing will have, and the article notes the astonishing speed at which the technology is shifting:

“Currently around 28% of the money spent on printing things is for final products, according to Terry Wohlers, who runs a research firm specializing in the field. He predicts that this will rise to just over 50% by 2016 and to more than 80% by 2020. But it will never reach 100%, he thinks, because the ability to make prototypes quickly and cheaply will remain an important part of the mix.”

As I noted up front, there is so much good material in this special Economist section that I have only covered half of the articles thus far! Check back soon and I’ll share more.

Meanwhile, do you have an opinion about any of these issues? Have you read information that suggests otherwise? If so, drop me a line…

About Author

Ben Vickery

Ben Vickery is Senior Technical Advisor with NIST MEP, and works in its Partnership and Program Development Office. Ben is leading NIST MEP’s efforts to create regional Technology Collaboratives, which serve to develop and sustain regional innovation ecosystems that are positioned and prepared to identify, assess, and adopt technologies resulting from federal R&D investments.

3 Comments

  1. Stacey Wagner on

    Ben, this is very exciting and supports what I’ve been seeing “in the field”. Once conference I attended mentioned that with additive manufacturing, every household could potentially be a “manufacturer”. Wow! Let me know when you get to the part in the Economist about future workforce skills.

  2. Pingback: An Economist View of the Third Industrial Revolution, Part II: Crowdsourcing, Robots, and Chocolate! Oh My! | Manufacturing Innovation Blog

  3. Pingback: Manufacturing Innovation Blog – An Economist View of the Third Industrial Revolution, Part II: Crowdsourcing, Robots, and Chocolate! Oh My!

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