July 8, 2005    Volume 12, No. 13

Search Back Issues
Guest Editorials
Trading Exchanges
About Us

Lean Machines Sixteen Case
Studies On Lean
From Manufacturing &
Technology News

Free e-mail newsletter

Lack Of Manufacturing Base Imperils U.S. Lead In Nanotechnology


Nanotechnology, often touted as a key to maintaining the United States' global lead in industrial productivity, is far from a sure thing for the U.S., according to the warnings of experts who last week offered lawmakers varying assessments of the likelihood that the country will be able to capture nano's economic benefits and varying prescriptions for doing so.

"The manufacturing train has already left the station" in some fields of nanomaterials, Matthew Nordan of New York-based Lux Research Inc. told the House Science Subcommittee on Research at a June 29 hearing titled "Nanotechnology: Where Does the U.S. Stand?"

Any revitalization of the U.S. manufacturing base through nanotechnology could end up limited to "pilot-scale manufacturing and manufacturing where specific skills are required," he testified, characterizing these activities as "generally low volume." When it comes to the production of more basic nanoproducts, he stated, "the U.S.'s economic opportunity is in coming up with the ideas that may be implemented in manufacturing plants on other shores."

Nordan's fellow witnesses -- venture capitalist Floyd Kvamme, who co-chairs the President's Council of Advisors on Science and Technology (PCAST), and Sean Murdock, executive director of the nanotechnology policy and commercialization advocacy group NanoBusiness Alliance -- appeared less "prepared to cede the manufacturing of nanotechnology-enabled products here in the United States," as Murdock put it.

But the three did agree in their fundamental assessment of the present: All view the United States as the world leader in nanotechnology up to now, and all regard its lead as imperiled.

Kvamme, citing an estimate contained in the review of the National Nanotechnology Initiative (NNI) published by PCAST in May, testified that the $1 billion in federal funding for nano R&D in Fiscal Year 2005 "is roughly one-quarter of the current global investment by all nations."

He placed the U.S.'s overall annual nano R&D effort at $3 billion, "one-third of the approximately $9 billion in total worldwide spending by the public and private sectors." Additionally, the U.S. "leads in the number of start-up companies based on nanotechnology and in research output as measured by patents and publications."

Still, Kvamme said, the U.S. is coming under "increased competitive pressure," as "other countries are aggressively chasing [its] leadership position," both by beefing up coordinated national programs and by focusing investments on "areas of existing national economic strength." The U.S. lead in patents and publications, he added, "appears to be slipping."

According to Nordan, whose company's figures were cited repeatedly by PCAST it its report, even the U.S.'s current R&D spending lead is open to question. On the basis of purchasing-power parity, 2004 government spending on nano R&D in the U.S., at $5.42 per capita, came in below South Korea's $5.62, Japan's $6.30, and Taiwan's $9.40.

"The $130 million in estimated government spending on nanotech last year in China equaled $611 million at purchasing-power parity, or 38 percent of U.S. expenditure," Nordan noted. That nations like China are free to direct "initial capital investments toward the instrumentation needed for nanotechnology research, without having to maintain technology infrastructures and skill sets that were cutting-edge 20 years ago" could add to the comparative bang they're getting for their bucks.

A figure cited in Murdock's testimony seems to corroborate this assumption. In the period January to August 2004, China led the world in research papers on nanotechnology, presenting 14 percent more than the U.S. And while the U.S., according to the NanoBusiness Alliance's database, accounted for 613 of 1,175 companies worldwide that are "involved with nanotechnology," Murdock said that "if one is to believe the announcements made at the ChinaNano2005 trade expo," China now has almost 800 such companies.

Keeping the edge in R&D is critical to Nordan because he believes that, for the U.S., the economic advantage to be derived from nanotechnology begins and ends with intellectual property (IP).

He pointed to Japan's Frontier Carbon, whose 40-ton-per-year capacity for the manufacture of fullerenes, based on a process licensed from an MIT spinoff company, surpasses last year's total world demand by more than 25 times. "It's unlikely," he told the subcommittee, "that you're going to find U.S.-based companies investing that far ahead of demand in order to attain manufacturing dominance" in basic nanomaterials.

The U.S. cannot maintain an edge, he argued, by offering "low labor costs or tax advantages for capital investment in manufacturing facilities" in an attempt to "go toe-to-toe against...countries that have more runway to go down in terms of economic development based on nanotechnology." Nor, he said, can it prevent the transfer overseas of research, whether "through a patent process [or] to a country that perhaps does not have the respect for intellectual property rights that Western European and U.S. nations hold."

Instead, the U.S. should seek "to have an unremitting, relentless flow of novel ideas that take time and keep us continually two, three, five years ahead of what other countries can attain," Nordan maintained. "The achievement that we can drive toward is to always be ahead and always be first to market with those novel ideas, and through that I think we'll attain economic rewards."

Murdock, while concurring on the importance of enforcing IP laws, countered that keeping manufacturing in the U.S. is critical to the nation's economic health. "I believe that we need to endeavor to be more than just IP companies," he stated, in view of a projection by Nordan's firm that "new, emerging nanotechnology applications will...becom[e] incorporated into 15 percent of global manufacturing output totaling $2.6 trillion in 2014."

"If you look at the total value associated with any product, most of the value tends to accrue to those that are closest to the customer -- that, in fact, make it. And while IP may have higher margins, ultimately there is a big value pool out there, and we need to ensure that we're taking steps to capture the value.

"Furthermore, IP is not the only source of intellectual capital," Murdock added. "There is know-how. And that is the reason for the importance of manufacturing. Ultimately, when we move from the knowledge or the proof of principle into making the stuff, we develop process knowledge. That process knowledge helps us to refine and improve both the quality of the product and the throughput, and it increases the marginal productivity of the labor. That is what enables us to pay high wages and keep jobs here.

"So while we need to be realistic and understand that this is a global economy, we also need to take steps to do what we can to ensure that we do commercialize and manufacture the set of technologies that we can here."

While Murdock and Nordan did not see eye-to-eye on the ultimate viability of nanomanufacturing in the U.S., they did agree that insufficient venture capital has been made available to nanotech startups [see story above]. Both praised the role in addressing this funding gap of the Small Business Innovation Research program and of the Commerce Department's embattled Advanced Technology Program. The latter, according to Murdock, "provides one of the only sources of capital (and thus incentives) for new nanotech innovation systems to form."

Kvamme, meanwhile, offered a straightforward prescription for keeping the manufacturing of nanotechnology products in the United States: Slash corporate tax rates.

"The reason that you put a semiconductor plant today in China has nothing to do with labor rates," he asserted. "It has to do with return on capital employed." Using a semiconductor fab as an illustration, he said that 93 percent of the cost is related to capital, adding: "You just do not put those high-value plants overseas for 4 percent of your cost structure."

Positing a 10-year deal in which the Chinese government granted "zero tax for the first five years and half tax for the next five," Kvamme said a plant requiring a $3 billion investment in the U.S. would come out $1.3 billion cheaper in China. "Unfortunately, the manufacturing plants" that incorporate nanotechnology "are going to be expensive," he observed.

"So who's going to give you the best opportunity for return on your capital? If you get hit with 35 percent off the top here, and 4 percent someplace else, it makes a dramatic difference."

The allure of such a differential could be limited, depending on the proposed location, by concern about protecting intellectual property, Kvamme allowed. Still, he expressed his hope that, in the round of tax simplification promised by President Bush, the Congress would "look at our global competitiveness at the corporate-tax level because, frankly, we're not very competitive right now."

Written testimony from the June 29 hearing of the House Committee on Science's Research Subcommittee is online at http://www.house.gov/ science/hearings/research05/june29/index.htm. The PCAST report, "The National Nanotechnology Initiative at Five Years: Assessment and Recommendations of the National Nanotechnology Advisory Panel," is available at http://www.nano.gov/ FINAL_PCAST_NANO_REPORT .pdf.

Provide us with feedback on this article, suggestions for people to interview, or potential story ideas.

Receive our no-nonsense, content rich e-mail newsletter. (You will NEVER receive spam.)

Manufacturing & Technology News provides its readers with original reporting on ssues that impact YOU -- your company, your industry and your organization. You and your staff can read every article in the latest issue, plus read all the articles written over the past seven years by becoming a regular reader of Manufacturing & Technology News. The cost of a new subscription is $395 per year.

Scan Back Issues | Reports & Analyses | Comments | About Us | How To Order

Copyright © 2005, Publishers and Producers.