Second Chance

The USA can start its manufacturing renaissance with greenfield manufacturing innovation. But it takes radically different factory concepts wrapped with business model innovations.

Nowadays, the USA is undergoing a massive manufacturing construction boom, mostly in semiconductors and electronics accompanied by efforts to re-shore or near-shore other manufacturing sectors. This manufacturing boom posits a strategic chance to create an American manufacturing renaissance driven by greenfield manufacturing innovation. But it takes radically different factory concepts wrapped with business model innovations. Based on what I see, read, and hear, I fear these new factories being built are more-of-the-same-old manufacturing concepts, lacking the true disruptive potential of Industry 4.0.

Let’s travel back in time.

The USA was a monster manufacturing superpower at the height of WW2, producing ~55 tanks, ~26 bombers, and ~4 ships daily. On the other hand, as of 1945, other industrial nations such as France, the UK, Germany, and Japan had lost their industrial infrastructure due to the war.

After WW2, France, the UK, Germany, and Japan had the strategic chance to build modern factories with the new technologies invented during the war. The efficiency of these post-war factories was significantly higher than those of the pre-WW2 factories in the USA. To illustrate, in 1964, the operating cost of US steel mills was roughly 15 percent above that of Japanese producers, and this efficiency difference increased to 40% in 1972.

After WW2, instead of competing in the efficiency game, US corporations exited, downsized, or offshored manufacturing activities and focused on the sweet spots of their value chains, such as branding, distribution, final assembly, and R&D. Moreover, American entrepreneurial ecosystem consistently created new businesses and business models that became global monopolies such as IBM, Intel, Apple, Microsoft, Google, Facebook, NVIDIA, et al. The exponential growth and valuations of these new businesses dwarfed those of the best manufacturing businesses which compete on efficiency with diminishing returns on investments in efficiency, increasing complexity, and rapid commoditization of manufacturing tech. Although post-WW2 American corporate strategy erased millions of American manufacturing jobs, corporations did the right thing and created significantly more value than corporations of other countries.

Now, due to reasons publicly known, there is a re-shoring, near-shoring, and friend-shoring trend. This trend is a strategic chance for the American economy to show its innovation genes, to become a manufacturing powerhouse again, and to resurrect the middle class with new business models that render manufacturing a structural competitive advantage as solid as network effects and switching costs. However, achieving this requires a unique type of leadership, which seems to have been lost in the de-industrialized corporate America.

Supply security concerns aside, if new factories will be more-of-the-same-old factory concepts with more expensive gear and more complex IT but without radical innovations, then I can predict nothing but more inflation for the US consumer and failed re-shoring initiatives.

In my next post, Seizing the Chance, I will shed light on how to make x-shoring a Smart-shoring.

© Saip Eren Yilmaz, 2023