American Manufacturing has to confront (4) main challenges right now:
- Skilled Labor Shortage
- Dependency On Cheap Foreign Imports
- Software-First Innovation Philosophy
- Vertically Integrated Competition
This article will outline each of these challenges. It will attempt to prescribe a general direction to overcome these challenges as well. The ideas expressed in this article are relevant for any kind of manufacturing.
Skilled Labor Shortage
It is now common knowledge that our country is facing a skilled labor shortage. There are some reports that suggest there are more job openings than we currently have people looking for jobs. While that seems hard to believe, the general consensus is that both in manufacturing and construction we need skilled labor.
A manufacturing company is dependent on human labor or technological automation to keep up with production. If, that company is growing, they will need more labor to fulfill orders. When companies like this can’t fulfill orders, their customers go elsewhere. Sometimes those customers don’t come back, either, which in turn negatively effects the business further.
Inspiring Young People To Develop Skills American Manufacturing Needs
The “American dream” has certainly changed over time. These days that dream often includes a college degree. There is a notion that getting a college education is good for a person’s personal development, as well as being able to get a good paying job as an adult. However, the salary of a skilled laborer can rival that of a job requiring a college degree. So if the goal is to inspire our young people to have a good life with a good paying job, skilled labor is a definite route they should take.
Our work with Universities and lower education has lead us to believe that there is a stigma associated with skilled labor education. Young people are being pushed towards STEM fields. There are a lot of companies, non-profits, and individuals that say children should “learn to code.” This would continue to prop up a software-first mentality we will talk about later.
However, the value of building something with your hands that other people use is a valuable and fulfilling way to make a living. American manufacturing also ensures that our production goes towards making things that have lasting value. By comparison, software has no real resale value and it has definite challenges when it comes to counting inventory.
Companies like Facebook, Google, Amazon, and other software-first mentality brands attract young people. They have sold young people on their cultural benefits, or employment perks. These companies do tend to pay very well also, however, they are mostly based in California or other West Coast cities so to work there many would have to relocate.
We need American manufacturing companies to do a better job of marketing to young people and recruiting them.
Dependency On Cheap Foreign Imports
This has become a trope of traditional industries that is still absolutely true despite efforts to combat it. New trade deals may open up other options in North America and help level the competitive landscape. However, that won’t solve the problem entirely of competing against foreign imports.
Look at how cheap foreign imports trickles down into advertising messaging and consumer behavior. When graphic t-shirts only cost a consumer $5 – which may be less than its actual cost – that consumer may choose to buy (5) of them at once. Or they may buy (5) over the course of (5) months. If, on the other hand, that person could afford (1) $20 graphic t-shirt which were to last for 36 months instead of deteriorating after a year, it is overall worth more.
Only recently did I finally get a pair of Ray Bans Wayfarer sunglasses. Prior to that I had a pair of Ray Bans Aviator shades that I had for about 15 years. In the year I got those aviators (approximately 2005) they cost about $180. That is the same approximate cost of my new wayfarers. On the other hand, I have also gotten myself cheap non-prescription sunglasses periodically for about $15/each. None of them lasted even a year, though.
Now, Ray Bans are technically handmade in Italy, so this is merely an example of the difference between cheap imports and quality imports. The consumer should be free to pick whichever options they want. Just as the manufacturers and distribution companies are free to pick what products they buy, sell, and make.
White Label Opacity
Calling a company a “manufacturer” sometimes has a misleading connotation. Many companies you think of as producers are in fact representatives of a bigger corporation or they may just be a distributor. A company may buy/sell and just create a brand to market under. That is a perfectly fine business model, and cheap imports make this kind of business easier than ever. E-commerce models make it even easier than anybody probably ever imagined.
There are examples where there are actually multiple layers of white labeling that increase pricing without adding any value to the purchasers downstream. Sometimes in these systems, smart sellers can make a fair bit of money on the arbitrage between suppliers and market expectations. This isn’t the main problem, either.
It is a complexity that cheap foreign imports make it easy access to sell or marketing them. That is very seductive. With the opacity it makes it easy to fool customers or even enterprise customers – with misleading presentations. That in some cases can lead to fraud, unfortunately.
Bottom line? Be careful.
Software-First Innovation Philosophy
America’s first (4) $1 Trillion valued companies: Microsoft, Amazon, Google, Apple. While each of them have big software businesses, they also now all supply hardware. As of this writing, I do not know who the source manufacturer is for any of their products, however, none of these companies manufacturers all of their own components. So there could be white label opacity even in these companies which have created great consumer trust and built a direct relationship there.
Look on any venture capitalists’ website. Read Tech Crunch. Look in the economic, technology, and media publications. You will see more mentions of “SaaS” and “AI” or “machine learning” than you’ll ever see of, “skilled labor positions for American manufacturing plant.” Facebook, Uber, Lyft, AirBnB, and so many more. More people are pushing children to learn how to do things with computers than they are with making tangible things.
Software businesses are appealing to investors because they have:
- Low Barrier To Entry (Costs Little $ To Code A Simple App)
- High Sale Price (Valuations Are Easy To Manipulate)
- Reliance On Facebook & Google Advertising
For the most part these kinds of “plays” are all about increasing the valuation to at least $1,000,000,000 as fast as possible, or even better yet, to raise that much money with a value in the tens of billions. That ensures that the company is well on its way to an IPO. This kind of game can drive great innovation, however, it is usually overinflated and underperforming in terms of adding value to society writ large.
We need to recalibrate our economic values. Fight for the value of tangible things over short term unrealistic gains. Educate people about the dangers of inflating values in order to sell equity instead of actually inventing meaningful new things people want or need.
Vertically Integrated Competition For American Manufacturing
These days you have to fear Jeff Bezos and Amazon as a competitor if you’re in any of the following businesses:
- Distributing Consumer Products (Any Kind)
- Grocery Stores & Food Delivery Services
- Health-Care Companies
- Consumer Product Brands (Amazon White Labels Many Things)
- Manufacturers (Amazon’s White Labeling Threatens Competitors)
- Publicly Traded Companies
Basically if it could be found online, bought online, and distributed to consumers – you’re competing with Amazon. Netflix and traditional television as a product type compete with Amazon to some degree as well. It should also be noted specifically that one major source of capital for the company is stock trading, and it is a major player on the American market.
Take Uber or Lyft as another case of vertical integration that you might not think about. Technically they “disrupted” (took revenue from) the taxi industry. They provided an opportunity to create a side hustle for everyday people as well. On another level, they have at least (2) services bundled in one. These companies both accept payments online + provide an exchange between private individuals who want to connect to transact business.
Think About It…
When it comes to vertical integration, Amazon for example, has taken an even bigger step – in that they have digital ads. So they are also now competing with Facebook and Google on that front. This kind of vertical integration could have been an example of vertical integration that actually made things better for the consumer, though.
Consumers go to Amazon when they know they want to look for something and they don’t necessarily need to go to Google first to search then go to Amazon. Therefore, to have ads on Amazon’s platform makes a lot of sense because people there are in “shopping mode.” However, think about just how vertically integrated Amazon is. They could use their own ad platform to both make money on ad dollars given to them by competitors, as well as steer consumers towards Amazon’s own products at the same time.
Are You Willing To Fight For American Manufacturing Jobs?
That’s the question you have to ask and answer for yourself. If you’re not, then you risk us losing more of our economic backbone to foreign nations that don’t have our best interests at heart. You threaten our ability to grow and sustain financial muscle. It degrades the next generation’s foothold on freedom. Doesn’t mean you can’t still get cheap stuff from elsewhere.
Consumers will always have that choice. Manufacturers will also have that choice. Distributors with white label brands will also have that choice. But it is up to some of us whether or not we’re going to fight for American manufacturing jobs. Inspire the youth to work on tangible things. Decrease our dependency and inflated valuation of software-based companies.
Begin making quality products that last, and creating business models that can sustain that kind of cycle. Rather than having consumers addicted to buying more often; have them support you for a lifetime of loyalty. There is no singular answer here. But we are willing to fight for American manufacturing jobs, and the industry of this country. Will you?