Summit ’18: Scaling-Up American Production

To build the future of U.S. manufacturing, we need to expand both supply and demand.

Earlier this decade, MIT put forward a first-of-its kind study of hardware startups emerging from the institution’s own research labs. Researchers found that even when start-ups had access to sufficient skills and financing for R&D and initial product demonstration, most had to move abroad — typically to China — to scale production to commercial levels. They needed additional capital, production capabilities, and lead customers that the United States simply couldn’t provide.

Since the MIT report, the situation has only grown more serious. With venture capital (VC) firms now overwhelmingly focused on software investments over hardware investments, it’s increasingly difficult for new manufacturing firms to get off the ground — let alone soar to production at scale. Technologies invented in the U.S. are routinely being licensed, sold, or simply given away to manufacture overseas.

Simply put: U.S. taxpayers are subsidizing foreign product development and manufacturing.

World-leading R&D investments are necessary but not sufficient for global leadership in manufacturing. We need a more comprehensive strategy. To restore domestic production and overall leadership in emerging industries, America needs to invest in advancing manufacturing technologies, increasing pilot production, and scaling up to viable commercial volume.

MForesight’s new flagship report — Manufacturing Prosperity — puts forward options for addressing these challenges. At the 2018 MForesight National Summit, speakers offered perspectives on how to boost pilot production and scale-up domestic manufacturing.

To understand the issue, let’s first look to two examples.

1) As Willy Shih and others have pointed out, semiconductor packaging has been located almost entirely offshore in recent history — a legacy of the labor requirements of packaging processes. But times have changed. These packaging processes are now automated with little labor content. Further, new technologies in which multiple chips are packaged together (e.g. System-in-Package or SiP) have created an opportunity to reestablish this value-creation on U.S. shores.
2) Take the example of another field: Pharmaceuticals. Drug manufacturing is on the verge of dramatic change with the emergence of continuous manufacturing methods for powder-based products. From the standpoint of U.S. manufacturing competitiveness, the technology could be transformational: It could make domestic production of pharmaceuticals cost-competitive in a broad range of areas.

The question in both of these cases is: how to take the leap and actually restore U.S. production at scale?

The new MForesight report documents how government procurement from domestic sources can speed the process.

MForesight National Summit attendee, Ira Moskowitz, reading the new report.

Sue Babinec of the Advanced Research Projects Agency-Energy (ARPA-E) made the crucial point that we need to secure demand — not just supply — for U.S. manufacturing. Government procurement contracts have proven to be an effective tool for doing so. Diverse participants in MForesight’s Manufacturing Prosperity project expressed agreement that the United States can do more to leverage procurement to create lead markets for new products and technologies.

Sue Babinec

This isn’t new territory: The federal government has a history of building strong national industries through a combination of R&D and procurement contracts for many decades. Aviation and the internet are clear examples of success.

Government purchase orders can enable companies to raise needed capital (including both investments and loans) and to initiate pilot production or scale production on U.S. shores. Assured markets of sufficient scale can translate into successful product launches. They moreover incentivize private investment to create needed manufacturing technologies and production facilities.

Of course, government procurement is not a panacea.

As the Manufacturing Prosperity report points out, we need new ways to ensure that domestic resources are available to scale production here, rather than contracting manufacturing to Asian producers. This is especially the case for high-value, high-technology products.

Geographically-dispersed manufacturing investment funds could be one solution. Such funds could be organized as public-private partnerships or build on existing state government funds to provide reliable source of investment capital to domestic hardware start-ups.

Eric Chewning

As Eric Chewning, Deputy Assistant Secretary of Defense for Manufacturing and Industrial Base Policy, underscored at the Summit: “This is a market failure.” But the consequences of our failure to adequately finance hardware start-ups and scale-ups go well beyond what we typically consider “the market.” There are important implications for our national defense, public health, and our broader capacities to solve societal problems.

It’s time to get serious about leveraging existing resources to empower American production.