For U.S. Manufacturing, Opportunities and Challenges

For U.S. Manufacturing, Opportunities and Challenges

Jun 3, 2015

By James R. Hagerty, Wall Street Journal

Willy Shih, a professor of management at Harvard Business School, has spent more time in factories than in academia.

The son of Chinese immigrants, he grew up in Wisconsin and Illinois and earned a doctorate in chemistry at the University of California, Berkeley. Dr. Shih worked for 28 years in industry, including executive jobs at International Business Machines, Silicon Graphics and Eastman Kodak, before becoming a professor in 2007. He is also a director of Flextronics International, a Singapore-based global manufacturer, and advises the Manufacturing Academy of Denmark.

Using his inside knowledge of global supply chains, Dr. Shih writes and speaks frequently about the challenges facing the U.S. in rebuilding a manufacturing sector hollowed out by Asian competition. In a Harvard office decorated by his own photographs of factories and penguins, Dr. Shih spoke recently with The Wall Street Journal about manufacturing. Here are edited excerpts of that talk.

Network effect

WSJ: You’ve said the boom in smartphones is changing the game for many kinds of manufacturing. Could you explain why?

  1. SHIH:Smartphones are being manufactured in stupendous volumes, well over a half-million a day for the iPhone 6 at launch, and then you have to add in Samsungand Xiaomi, the red-hot Chinese maker, and the legions of other Android makers.

Consumers expect to be able to buy 10 million of them over the launch weekend. That demands a particular style of supply chain to keep up, and you will only find that in China, where you can hire a couple hundred thousand workers to ramp a product. It also has created huge demand for components like accelerometers, image sensors, GPS units and other sensors, driving them quickly down the learning curve [and reducing production costs].


WSJ: What are the implications of these cheaper sensors and other parts?

  1. SHIH:Now, for a couple of bucks, you can add an image sensor or an accelerometer or all kinds of transducers to your robot or the rearview mirror in your car. Stick them all over the place, they’re cheap! Firms that aren’t in the smartphone space can use variants of the same modular components and benefit from the same plunging cost curves.

WSJ: Which sorts of companies will benefit?

  1. SHIH:The ones that recognize the opportunity to incorporate the sensing devices and then mine the data that the sensors produce to improve the performance of their systems. I think we are on the brink of a new industrial revolution, where manufacturing becomes more network-based and the data that we get from cheap sensors will flow through the production process into the customer experience and then back again.

WSJ: Can the U.S. follow an Apple-style model of designing high-tech products here and having them made somewhere else?

  1. SHIH:The problem is that a lot of the innovation and learning will be where the manufacturing is. And you’re going to be competing with people who are drawing on the same knowledge and component-supplier base. You’re already seeing that with Xiaomi. If I were Apple, I’d be worried about Xiaomi, because they came out of nowhere and produced a very capable product.

A lot of innovation comes from putting new products into the manufacturing pipeline. Early in the production cycle, there’s a lot of back-and-forth between product developers and manufacturing people. There is a lot of refinement, a lot of experimentation—how do I get costs down, how do I improve yields, how do I do my testing? That’s why you want to keep R&D near manufacturing.

WSJ: Some have predicted a renaissance in U.S. manufacturing thanks to our shale energy and stable wage costs. What’s your view?

  1. SHIH:We’ve regained manufacturing in some areas, especially autos. We’re quite strong in aerospace and biotechnology and pharmaceuticals. But there are still factories in the U.S. where production is being offshored to squeeze costs out. The dollar’s strength makes it even harder to bring manufacturing home. We’ve lost many of our production skills and suppliers. We tried to make smartphones in the U.S., but we still had to import nearly all the components from China. Frankly, we were better off assembling the phones there. I wish I could be more optimistic.

WSJ: What needs to change to make the U.S. more attractive for manufacturers?

  1. SHIH:Getting a more qualified workforce is a big issue, and you can’t have too many regulatory hurdles to get approvals to build plants. People in the U.S. have no idea how fast people do things in Asia. They work 24/7. I was just in Shanghai, and I was watching them build an elevated freeway. The construction workers lived on the site. We don’t have that level of urgency in the U.S.

WSJ: Why do we need to make things in the U.S.?

  1. SHIH:At some point you have to pay your import bill. Our trade deficit is not getting better. You have to make things; that’s where a lot of the value-add is.

Government’s role

WSJ: What should the U.S. government do to encourage manufacturing?

  1. SHIH:We have to keep investing in basic science and try to stay ahead of the curve. The Human Genome Project is a great example. Those investments created a whole biotech industry here. The U.S. is very good at those types of innovations.

We don’t like to have industrial-policy discussions in this country, but I’d like to have a more intelligent discourse about what’s important. Where’s the line between public goods and private goods? Public goods are things like education and infrastructure and investments in basic science—things that are helpful to the country overall, powered by a vision.

President Kennedy had this very simple vision of putting a man on the moon by the end of the decade, and that translated downward into a whole series of goals, which had many benefits in electronics and aerospace technology and materials. Now we don’t seem to be able to have a discussion about major investments that will be important to our future.

WSJ: Will 3-D printing and more-advanced robots level the playing field for U.S. manufacturing?

  1. SHIH:We’ll need to use those effectively just to keep the manufacturing we still have, but don’t assume the Chinese aren’t going to do this too. Everybody’s going to do it.

WSJ: Will China remain very strong in manufacturing?

  1. SHIH:China will see the end of its population dividend as the workforce ages rapidly, and they’re trying to deal with this problem. They need to get their productivity up, they need to address their horrible environmental problems, and they need to rebalance away from an investment-led growth strategy. But they have captured the supply chain in many sectors, especially electronics.

If the Chinese aren’t careful, they could screw it up, but I wouldn’t underestimate their ability to learn from their mistakes. They have demonstrated that they are good at that.

WSJ: Which other countries have a bright future in manufacturing?

  1. SHIH:The Germans continue to be strong. One of their advantages is that they make lots of the very unique production machinery used around the world in manufacturing. Japan is still the main global source for many components and industrial products and tools, so I think it’s premature to write them off. South Korea is interesting, but it’s relatively undiversified in terms of corporate structure. You have a few large players. Singapore is really investing in biologics, and they have also demonstrated an ability to move from areas where they have lost competitiveness into new, higher-value areas. I think they’re going to do well.

Mr. Hagerty is a news editor in The Wall Street Journal’s Pittsburgh bureau. Email


Leave a Reply

Your email address will not be published. Required fields are marked *