March 8, 2004    Volume 11, No. 5

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President's Science Advisory Group Says Success In High Technology Is No Longer Guaranteed



BY RICHARD McCORMACK


The United States risks losing its high technology advantage if too much manufacturing capacity leaves for overseas locations, according to President Bush's top scientific advisory panel. "The nation's high-technology dominance is not forever guaranteed," states a new report from the President's Council of Advisors on Science and Technology (PCAST). "Continued damage to U.S. information technology ecosystems through a degradation of its principal anchors -- R&D or manufacturing -- has serious implications for the U.S. economy and standard of living. An R&D-manufacturing innovation ecosystem is important for every manufacturing sector."

U.S. policymakers must take a more proactive approach in responding to the negative trends impacting the U.S. high-tech manufacturing sector, says PCAST. "Over time, should our own ecosystems weaken while foreign ecosystems grow in strength, the maintenance of U.S. technology preeminence is not assured. Thus, while some predictions of national economic decline are overblown, the issue does warrant concern by policymakers."

As manufacturing moves overseas, America's traditional strengths in R&D, innovation and design could follow. "The proximity of research, development and manufacturing is very important to leading-edge manufacturers," says the PCAST report "Information Technology Manufacturing and Competitiveness." The continuing shift of manufacturing to lower-cost regions and especially to China is beginning to pull high-end design and R&D capabilities out of the United States.

One leading information technology manufacturing executive told the PCAST panel that "national priorities and corporate priorities are not aligned" in the United States, the report notes prominently. "The loss of U.S. high-tech leadership would have serious detrimental effects on the nation's economic security and its citizens' standard of living," the report states. "While not in imminent jeopardy, a continuing of current trends could result in a breakdown in the web of 'innovation ecosystems' that drive the successful U.S. innovation system."

The U.S. advantage in high-tech manufacturing and innovation will erode "as the quality of foreign universities and graduates improves," says the PCAST panel, which was chaired by George Scalise, president of the Semiconductor Industry Association. In some places, foreign engineers cost 90 percent less than those in the United States. "To exploit these cost advantages, R&D centers are being established in these countries as well as in Europe," says the study. "While no company told PCAST its top-level R&D and design was occurring overseas, the confidence in foreign R&D centers is slowly improving and young technicians are learning supervisory skills. Just as the management of complex global manufacturing networks has led to more offshore manufacturing at earlier stages, improved confidence in and management of global R&D networks could lead to the migration of high-end R&D and design work as well."

This is a worrisome trend, especially coupled with the fact that foreign governments in low-labor-cost regions have put in place aggressive programs aimed at building their information technology industries. "Concomitant national level policies are being pursued which make the cost advantages of foreign manufacturing even more compelling," the study notes.

Tax rebates for local production, subsidy programs, currency manipulation, the building of science-based industrial parks and worker training are all strategies being deployed aggressively overseas. The United States needs to study these tactics and learn from them, says the PCAST.

China has realized the connection between manufacturing and R&D and is pursuing policies to assure that "economic benefits accrue to Chinese companies rather than to foreign competitors," says the study. China will have low labor rates for years to come. It has an entrepreneurial culture and is investing in its talent pool. Meanwhile, the U.S. educational system is under stress. A large percentage of students engaged in advanced scientific degrees are foreigners and are going back home after they graduate, says PCAST.

Some states have made the connection between a robust high-tech sector and strong support for university R&D. They have put in place effective economic development organizations that are competing with foreign countries, PCAST points out.

The most important best practice in states that are succeeding in keeping and attracting high-tech manufacturing "is a strong, sustained commitment from the political leadership in the state," says the study. "The governor and the state's economic development officials must have a desire to attract information technology manufacturing and a comprehensive plan to do so."

State legislatures must take a long-term view beyond the tenure of any given governor and provide economic and financial incentives to industry. "This commitment and focus from the top -- meaning it must be a strong priority of the governor -- appears vital to implementing and maintaining a successful state program," says PCAST. States must provide strong support to university R&D; be committed to creating an educated workforce; have pre-approved industrial and R&D sites; and approve industry friendly tax policies.

PCAST recommends that the U.S. federal government consider creating a new "Bell Labs" type of organization that can pursue industrial R&D and be able to quickly transfer technology and people into a corporate type of environment. "PCAST will further study with OSTP how to create the right environment for a modern analogue to these activities, consistent with market conditions," says the report.

Other recommendations include increasing funding at universities for basic research in math, science and engineering; improving R&D coordination between the federal government and states; improving workforce education programs; and appointing a task force to assess how foreign countries are using tax incentives to lure industry. For a copy of the report, go to http://www.ostp.gov/pcast/FINALPCASTITManuf%20ReportPackage.pdf.

Members of the PCAST subcommittee on information technology manufacturing and competitiveness:

  • George Scalise, Chair, President, Semiconductor Industry Association
  • Michael Dell, Chairman and CEO, Dell Computer Corp.
  • Bobbie Kilberg, President, Northern Virginia Technology Council
  • Gordon Moore, Chairman Emeritus, Intel Corp.
  • Steve Papermaster, Chairman, Powershift Ventures
  • Luis Proenza, President, University of Akron




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