The New Industrial Revolution, Startups, and the Fall of Traditional Manufacturing

Recently, I read the following article from Fortune concerning cyber theft and the effect on industry of that theft lowering foreign competitor’s lead time to compete with United States domestic companies.

http://fortune.com/2014/10/13/cold-war-on-business-cyber-warfare/?sf32421678=1

An example is given of a biomedical company spending five yeas developing something before it could go to market only to have a company in China producing the same after only eighteen month. The article uses this and other instances to discuss the problem, both in the past and ongoing, with cyber theft enabling companies overseas to build products in many industries with much lower cost and ramp up time.

While I won’t argue the concerns of cyber theft are not important, or that it isn’t an issue, and while I have some thoughts on the way security is typically implemented and the flaws in our typical approaches to it, that’s not the topic I’d like to address. I’d like to address our general approach to manufacturing, research and development, and the production of goods in the United States and much of Europe.

It’s important to understand the history of Western industry and manufacturing. I will get to why it is important shortly, but let’s look at that history for a moment.

Manufacturing as we know it began with the Industrial Revolution.

What can be termed manufacturing before that was small operations mainly in rural areas, often in houses, building things to sell in markets or shops in more populated areas. Small numbers of things were built at relatively low cost, but a large amount of effort, as they were made by hand, usually one person building each item from start to finish, then moving on to the next. Similar is still done even today, and this type of manufacturing is growing in popularity again, as evidenced in craft fairs and farmer’s markets across the US, and websites like Etsy.

But this type of manufacturing took the back seat and in many cases died out with the advent of the Industrial Revolution. This wasn’t a political revolution, but a revolution in technology and methods which changed the shape of Europe and North America. It was the largest period of technological change since the agricultural advances of the High Middle Ages, but can be argued as bringing about a much larger cultural shift.

The Industrial Revolution was primarily propelled by the adoption of machines and and assembly lines to enable more mass producing methods. It was also included new forms and methods for power including coal, water, and steam, new techniques and methods for iron working, new uses of chemicals in the production process, and the replacement of hand methods with machine tools.

Much of the cultural shift occurred as the manufacturing industry created a need for jobs in the cities, and the cheap production made the home based hand crafting enterprises in many cases unviable. There was a large move of people moving into the cities to work in the new factories, a move from agricultural based life to a lifestyle where you worked for a wage, and also the changes brought about by the replacement of existing implements, tools, and items with the more mass produced but cheaper and often stronger manufactured goods.

Over time, of course, there have been innovations in processes, advances in machines, and the changes that labour laws and unions, and environmental regulations have brought. But the basic idea stays the same, and assembly line building large numbers of specific objects as quickly and cheaply as possible. And in order to do this, there is a large investment in research and development, because you need to have a very specific product and design your machines and processes to build that product as efficiently as possible, both to recoup the cost of the development and to minimize the ongoing cost to maximize profit.

This is why understanding the history is important. The manufacturing industry in the US, and other places as well, still functions essentially the same as the factories that came into being in the 1700s and early 1800s. And this model exists in many places in our culture, from fast food or sit down type restaurants to how we approach education and out legal process. And this approach has served us well for over two centuries. Why fix something that isn’t broken? Why reinvent the wheel? If it works, keep doing it.

But is it still the best approach?

We see an interesting thing happening in China and the rest of the APAC region, a different approach than our own. Instead of a large lead time and expensive research and development process, there is a tendency to either steal the research others have done, like the article talked about, to speed up this process, or reverse engineer a working item in order to reproduce a replica. While you still see the large assembly line and fitted manufacturing, the lower cost of development means more profit in the production, and even cheaper costs, with the expense of the precision, so in many cases minor issues that don’t affect the use but aren’t quite as refined. The focus is getting the product out the door, not in a perfectly defined product and method.

But this isn’t the whole of what is happening in APAC. In the past, if you weren’t a major manufacturer and you came up with a new product, your only option was having a large quantity made at a high cost, because manufacturers had to set up the production process for you. This is still the case if you go through most US companies. However, there are small scale manufactures in Eastern Asia, especially Taiwan, where you can get a small run at a much lower total cost, because they use processes that allow the fine tuning for a specific product with much less custom machines and processes. This is changing the smaller end entrepreneur’s ability to get up and going. It replies on modern machinery and equipment, but is much more the pre-revolution approach to manufacturing. The best of both worlds if you will.

The advent of such opportunities have allowed many startups that would not have been able to get moving forward as early speed up the initial process. And the growing availability and versatility of things like 3D printers allow a certain amount to even be done in house.

I believe the US, and likely Europe, are holding on too tight to the Industrial Revolution approach to manufacturing, and that those that move beyond this model will take the market in the near future, both the foreign companies, and the more innovative domestic companies.

And the process, the new industrial shift, isn’t just in manufacturing methods and scale. The software industry has for some time followed a model in many cases, for in house development, where the coding is out sourced, so the company itself does not need to have the skills in house. This could serve as a model, and I believe it will, for out sourcing research and development. Companies can come up with the idea, contract with another company to work out the details, then contract with a third company to build it for them. They can focus on the tasks of innovation and marketing and let the “dirty work” be done by companies that specialize in this.

I think we will see a rise of startups taking over the larger traditional markets, using other companies that specialize in R&D or small scale manufacturing, with on demand or short run production, speeding up the time to market, lowering the over all cost, and lessening the need for recouping large investments that are no longer necessary.

~Bethany Davis,
Caer Islandia Enterprises

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