Making it in the new industrial revolution

First published in the Financial Times on 28th August 2012. 

Small operators may be able to compete with the giants again

It can be hard for a start-up entrepreneur to get into manufacturing. The capital investment needs are steep, the technical knowledge considerable, and often one must wait to get paid. It was partly for those reasons that I have instead focused on service opportunities that directly serve the consumer, such as the hospitality industry, with low working capital needs. Yet the idea of making tangible products still holds enormous appeal.

From Richard Arkwright to Henry Ford, the early manufacturers were small enterprises founded by individuals. But over the past century, manufacturing has been increasingly dominated by companies with the necessary financial and technical resources. Globalisation has increased that trend since the 1980s. Yet thanks to new technologies such as 3D printing, there may be a new industrial revolution that will enable small operators to compete with the giants again.

Two new books make this point: first, the Financial Times’s Peter Marsh in his excellent book The New Industrial Revolution ; and second, Chris Anderson, of The Long Tail fame, in his new title, Makers . They argue that mass production is giving way to customisation, combined with localism, and the emergence of “micro-multinationals”.

Digital manufacturing employs computers and a process called stereolithography to make products using layers of either powdered or molten plastic or metal, in what is described as “additive manufacturing”. I have seen these devices in action and they are impressive. These machines will steadily fall in price, while increasing in sophistication and availability as demand rises. Personal fabrication in the garden shed of all sorts of objects may be commonplace in a few years’ time.

There has been a revival in the US of individual craft manufacture. Make magazine and its Maker Faires have helped create a community of entrepreneurs learning and building, whether from a garage or in TechShops, a membership chain of open-access DIY workshops. They offer training and tools and help participants construct anything from a prototype to finished items.

In June I attended Deutsche Bank’s Manufacturing Forum to hear insights about the business of making things. One point became obvious: a manufacturing revival will not solve the west’s problem of unemployment. Modern plants use robots and increasingly few workers and run day and night, 365 days a year. Even Asian electronics powerhouse Flextronics plans to buy more than 1m robots in the coming years. Indeed, many of the manufacturing jobs that have disappeared in the advanced economies have done so thanks to productivity improvements, not offshoring. The jobs that new factories do create will be highly skilled roles. Manufacturers want recruits trained in “Stem” subjects – science, technology, engineering and maths – which is why the recent surge in popularity of these “hard” subjects is such great news.

It became apparent listening to various executives that whether it is Apple iPhones or Rolls-Royce Trent aero engines, the real profit is not made in the basic assembly of goods. The margins are in servicing, brands, design and after-sales.

Manufacturing contributes to an economy in many ways. As Andrew Liveris, chief executive of Dow Chemical, argues in his book Make It In America , it creates more added value pro rata than other activities, and is much more likely to generate exports to help offset trade deficits. Moreover, research and development tends to take place alongside manufacturing centres, which foster clusters of sub-contractors. It is no coincidence that Germany, Europe’s manufacturing powerhouse, has weathered the credit crisis so well compared to other EU nations.

Since the downturn started, many politicians in the developed world have insisted that societies move away from financial capitalism and back towards the real business of making things. If this policy is to succeed, it cannot be the usual formula of enticing global public companies to build multibillion-dollar plants. It must be about education, entrepreneurship and exploiting new equipment on a more bespoke scale. Incremental jobs in manufacturing can come from new, niche entrants using innovations in technology to help make them more of a match for the big incumbents.