The migration of manufacturing from the United States to Asia could be having a significant impact on which advanced technologies are commercialized. Specifically, there is evidence that the shift in manufacturing is curtailing the development of emerging technologies in areas such as optoelectronics and advanced materials for the automotive industry.
In studies with colleagues at MIT, Erica Fuchs, an assistant professor of engineering and public policy at Carnegie Mellon University in Pittsburgh, shows that the relocation of component manufacturing from the United States to East Asia in optoelectronics and to China in composite body parts for automobiles changed the economics of producing the technologies. The result in both cases is that emerging technologies developed in the United States were not economically viable to produce in the Asian countries because of differences in manufacturing practices. And Fuchs suspects similar effects are happening more generally as production shifts to the developing world. Location matters for “which products will be economically viable, which products countries will be most competitive in producing, and which products countries and companies globally are most likely to develop,” she says.
The findings add to a growing awareness that manufacturing plays a critical role in driving innovation. Harvard Business School professors David Pisano and Willy Shih argue, for example, that innovation capacity often disappears if a country loses its manufacturing sector, because the knowledge and abilities needed to develop new technologies are often closely linked to the skills and expertise associated with manufacturing (see “Innovation Depends on a Robust Manufacturing Sector”). Fuchs builds on this idea by showing that regional manufacturing differences can cause the most advanced technologies to fall by the wayside. “Manufacturing locations can affect the evolution of technology globally,” she says.
At the core of Fuchs’ argument is the recognition that there are significant differences in manufacturing practices in different countries and regions, and that those differences drive which technologies are economically viable to produce. While labor cost is the most obvious difference between countries, Fuchs says, it is not necessarily the most important one. Manufacturing downtime, yields, and material costs and quality are among the factors influenced by location. Engineers are routinely taught in introductory design classes to “take all these different variables into account when considering the most competitive technology,” she says. Yet businesses and policy makers often neglect the potential impact of manufacturing location on technology competitiveness when picking manufacturing locations.
In the case of optoelectronics, Fuchs and her colleagues examined how manufacturing economics affected the commercialization of new integrated circuits in which various photonic components, such as lasers and modulators, are squeezed together on a single chip. Fuchs found that in the United States, the newer technology would be cheaper to produce than older optoelectronic designs, in which the laser and other photonic devices are built as discrete components. But in East Asia, the reverse is true; her analysis showed that because of local manufacturing practices, the older design was cheaper to make. As a result, says Fuchs, work on developing the new technology “was largely abandoned” by the companies that shifted their manufacturing away from the United States.