A company I know has a thriving business making small electrical components by the millions, selling them to major electronics companies around the globe. If you’re wondering how a U.S.-based company successfully competes with Chinese manufacturers, and actually sells a lot of product to these same Chinese companies, the answer is technology.
A tour of the plant reveals a modest manufacturing area, parts of which crank out parts 24 hours a day, 365 days a year. Another part of the facility, actually bigger than the production floor, is dedicated to the design and building of the automated production equipment that enables this company to produce a wide variety of high quality products in large quantities at a competitive price. They ship nearly every order within 24 hours of receipt, about two-thirds from inventory and one-third made-to-order.
Another company a few miles away makes dimensionally complex machined parts, most of which are produced on fully automated CNC machining centers, 24/7. Their market success is based on their ability to fashion these complex shapes from a single block of material, a task made very challenging by the intricate shapes required.
The production equipment in this case is off-the-shelf – if you can consider million-dollar machines off-the-shelf – in the sense that anyone could buy one or more of these machines and produce the same parts…if they had the control software to drive the tools to produce the intricate geometries required. This company did not invent or develop the parts they sell- they are built according to the specifications provided by customers. The company did not invent or produce the production machinery. They did develop the control programs that make it all possible.
In both of these cases, the company is selling a product that is not in itself unique. They are successful because their technology allows them to produce the product, better, faster, at less cost, and/or with unique characteristics because of the manufacturing technology they developed and employ.
Among the many companies that are manufacturers and make their money selling the products they produce, there are many whose competitive edge is not actual manufacturing. These two companies excel at manufacturing technology. Also consider Apple. Most of Apple’s products are produced by contract manufacturers. Apple is more of a design and marketing company, even though their revenue comes from selling manufactured products.
Manufacturing is important to the economy because it is one of the few ways to create value. But actual production of products is not always the key to success. For many manufacturers, the competitive edge comes from design, engineering, marketing, customer relations, support, sourcing, or some other aspect of the business that elevates the product offerings to a superior value proposition for the customer. And those attributes are not necessarily based on or sensitive to labor rates, taxes, locations, or other perceived limitations. In fact, they can be the key to overcoming advantages that competitors might enjoy.