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ManageMent Navigating the Challenges of the

Americas Market: The Evolving U.S. Role in Global Manufacturing

By Lance A. Scott, Founder and CEO, Alliance Technologies

GDP has declined considerably, from 24.3 percent in 1970 to 12 percent in 2015. As U.S. consumers coveted inex- pensive products and U.S. corporations focused on short-term profits, the econo- my saw a massive shift of high-volume manufacturing to low cost regions. U.S. consumers’ desire for less expensive electronics, automobiles and other tech- nologies first led to a surge of imports from Japan and outsourcing to Mexico, but the transfer of high-volume manu- facturing later expanded to China, In- dia, Vietnam, and elsewhere in South- east Asia. In 2011, China overtook the U.S. to


become the world’s largest producer of manufactured goods. According to the

lthough the U.S. still ranks first in gross domestic product (GDP), manufacturing’s contribution to

United Nations Conference on Trade and Development 2015 report, China’s manu- facturing as a percent of national output stood at 27 percent — more than double the U.S. manufacturing contribution. Still, recent efforts to “reshore”

manufacturing and embrace new ad- vanced manufacturing technologies have emphasized the need to maintain U.S. technological leadership and to protect intellectual property. Companies are learning to preserve low-volume, high- mix production of these emerging tech- nologies in North America, while shifting more mature, high-volume/low-mix pro- duction to low cost regions.

Low-Volume, High-Mix Production

The shift of high-volume, low-mix production to low cost regions is perhaps

most recognizable in the textile industry. According to the U.S. Department of Agriculture, the U.S. lost more than 900,000 textile and apparel jobs to off- shoring between 1994 and 2005. Lower wages and new industrial production ca- pacity in low cost regions drove many U.S. manufacturers to relocate or discon- tinue generations of textile production. A similar scenario transpired in

the PCB manufacturing industry, where a massive shift of high-volume, low-mix production of bare PCBs shifted to low cost regions. The Asia-Pacific re- gion now accounts for 77 percent of glob- al PCB production and dominates this nearly $80 billion manufacturing mar- ket. Several years later, the semicon- ductor manufacturing equipment mar- ket followed a similar path, with 70 per- cent of the global equipment now being produced in Asia. Still, U.S.-based manufacturers

can benefit from the relentless trend to- ward new technologies, manufacturing techniques, and quality controls. Ac- cording to SelectUSA, the U.S. em- ployed 227,000 textile workers in 2017. The country has seen a recent resur- gence of capital investment and a 39 percent increase in exports from 2009 to 2015, partly due to cultural trends to- ward sustainable manufacturing and Made in America products. The U.S. PCB and semiconductor

Navigating the Challenge of the American Marketplace

Helping international advanced manufacturing companies to accelerate strategic growth in the American market through direct operational management and expert guidance.

Getting Started in the Americas

Restructuring Your American Operation

Managing Your American Operations

Advising Your Board of Directors

Accelerating Growth Through M&A

Wherever you are on your journey to expansion into the American market, we can help. Contact us to discuss how we can grow your business, together.

+1 203 226 8895

manufacturing industries have also maintained a strong position in low-vol- ume, high-mix production, with strong demand from the military and aero- space industries, and an increasing trend toward smaller feature sizes, higher layer counts, and more complex manufacturing techniques.

U.S. R&D and Engineering Innovation is a cornerstone of

America’s reputation across a variety of markets, from semiconductors to med- ical device and diagnostic imaging equipment. Even for industries where the vast majority of manufacturing has been shifted to low cost regions, leading U.S. companies maintain substantial R&D and engineering resources in North America. It is essential for the U.S. offices

of European manufacturers to stay in constant communication with these R&D and NPI teams as they concen- trate on next-generation designs and select vendors. As such, it is vital for internation-

al management teams to recognize the key role that U.S. sales teams perform in securing design wins and selection to approved vendor lists (AVLs) that may result in volume production orders from manufacturing locations outside of the Americas. International communica- tion, account management and compen- sation schemes should be structured to reflect and reward these efforts.

Design Wins Versus Sales Volume One of the most common areas of

misunderstanding between European management and their respective U.S. teams is the perceived mismatch be- tween the enormous influence of U.S. engineers and supply chain managers of leading multinational OEMs, and the comparatively low sales volume from the American operation for these same customers. How can it be that the world’s largest economy is not also the largest manufacturer and sales region? The answer again lies with the

shift in global manufacturing to low cost regions. Companies like Apple maintain a philosophy of “Designed by Apple in California, Assembled in China” for the vast majority of products, with much of the research, development and intellec- tual property remaining in the U.S. Data from research groups Coun-

terpoint and IHS Markit report that Ap- ple shipped 61 million iPhones to the U.S. in 2017, and the Foxconn factories that assemble most of the iPhones em- ploy 230,000 workers. For a company manufacturing microprocessors, for in- stance, a design win by the U.S. sales team would yield virtually zero sales commission, without a close coordina- tion and compensation scheme that shares the rewards for massive pur- chase orders from Foxconn. A similar story can be told for

large multinational industrial manufac- turers like Caterpillar. While the world- leading producer of heavy equipment and related products once employed over 30,000 workers at its central Illi- nois manufacturing plants, Caterpillar now has more factories overseas, 76, than in the U.S., 62, with 25 plants in mainland China alone. This is partly due to a more decentralized approach to serve local markets. Still, many of the core design decisions remain in the U.S. This imbalance of design influence

versus sales volume varies by industry, and advanced manufacturers seeking to accelerate growth in America should care- fully analyze target markets and align ex- pectations. While the U.S. represents nearly 50 percent of the global medical de- vice manufacturing market, most Euro- pean manufacturers would be shocked to learn that U.S. manufacturers only ac- count for approximately five percent of global CNC machinery production. Each company must carefully tai-

lor its strategy, based on company size, industry, product portfolio, and techni- cal complexity to best address the chal- lenges and opportunities of the U.S. market. Alliance Technologies is able to provide actionable steps to help compa-

nies overcome these challenges. Contact: Alliance Technologies,

LLC, 26 Davis Hill Road, Weston, CT 06883 % 203-226-8895 E-mail: Web: r

June, 2019

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