The biggest challenge facing manufacturers today is the trend to send manufacturing off shore, says Nehlig. It means less work for U.S. firms. But it can spawn innovation here, too, as displaced employees start their own businesses.
Manufacturers have had it tough lately because of the economy. Phoenix has been doing well. What's the secret? The key is to keep innovating. You've got to think long term. We've kept R&D expenditures at the same level as before instead of cutting back, so we are able to launch about 20 new products this year.
Beyond the economy, what are the other big challenges manufacturers are facing today? The biggest challenge everyone is facing in the U.S. market is the exodus of manufacturing. The pie is smaller because so much has gone off-shore.
How much smaller is that pie? U.S. manufacturing was 19% of GNP in 1991. In 2001, it was 14%, and the trend is continuing downward. Eventually, this exodus of manufacturing could affect our security.
How so? It has been said we are now in the age of a knowledge-based economy—one centered on services. And that's no surprise when you look at where the jobs are today. However, the manufacturing of certain products is vital to our economy. Products from integrated circuits to automobiles to medical equipment all play a role in our standard of living. If all of those things are manufactured off-shore, it brings into question how secure our knowledge-based economy is if we don't have some control over the design and manufacture of such critical products. Also, it would be very fragile for our defense industry not to have a commercial manufacturing industry with which to work.
Are any industries immune from the exodus? The process industries will remain in the U.S. For example, wastewater treatment and food/dairy will likely stay here. But discrete manufacturing may leave.
Why are the process industries immune? Well, it's just not economical to perform many process industries off shore and then ship it to our country. In waste water treatment plants, for example, the cost of shipping the waste, and then sending back the clean water to then be put back into the water towers would be astronomical compared to the cost of doing that process offshore. However, some process industries have left. Steel is the best example.
Is there a danger that engineering jobs will leave as well? The National Association of Manufacturers thinks so, and they are mounting a campaign to stem the flow of these jobs overseas. They say that as manufacturing leaves, manufacturing engineering does too, and soon to follow will be design engineering. Of course, that may be a long time in the future.
Is there a bright side to any of this? Yes, I think the bright side is that the exodus will spawn innovation. Many engineers who are displaced, for example, will start new companies to develop new products.
Author Information
Jack Nehlig joined Phoenix Contact in November 2001 and was previously Vice President and General Manager of Honeywell's Sensing and Controls Division.
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