Building Ecosystems for Manufacturing

FLC Northeast Regional MeetingNew London, CT

September 11, 2014

Sujai Shivakumar, Ph.D.Board on Science, Technology, and Economic Policy

The National Academies

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The National Academies

• President Lincoln signed a congressional charter forming the National Academy of Sciences in 1863.

• We provide expert advice on some of the most pressing challenges facing the nation and the world.

• Our work helps shape sound policies, inform public opinion, and advance the pursuit of science, engineering, and medicine.

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The Academies’ Board on Science, Technology, and

Economic Policy• For 25 years, STEP studies have

identified ways to:– Accelerate innovation,– Advance U.S. competitiveness through

better policy,– Improve our understanding of the nation’s

economic performance, and– Learn from other nations’ policies and

practices.

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Today’s Presentation• Why Manufacturing Matters for Innovation• The Case of Flexible Electronics• What can we learn from foreign programs to

support manufacturing?• Reviving Manufacturing in the U.S.—An

Ecosystems approach• Conclusions• NB: Today’s presentation reflects my

personal views.

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Why does Manufacturing Matter?

• An important Source of Employment– Manufacturing supports an estimated 18.6

million jobs in the U.S.—about one in six private sector jobs (NAM, 2009)

• Manufacturing is closely linked with Innovation– Research and supply chains are integral to

manufacturing (Pisano and Shih, HBR, 2009)– 70% of industrial R&D, 80% of patents, employs

64% of scientists and engineers (Tassey, 2010)• Having on-shore production capacity

matters for National Security

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Declines in U.S. Trade Balance for Advanced Technology Products

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Displays

Lithium ion batteries

Products invented in the U.S.,

but made in Asia

Consumer Electronics

Displays

Metal Castings

Machine ToolsSolar Panels

Drawn from Sue Helper

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MIT Views on the Flight of Manufacturing

• Decline of vertically integrated industries*– The great new American companies of the past 30 years

like Dell, Cisco, Apple, and Qualcomm have little or no manufacturing in-house.

• Focus on “Core Competence”* – Higher stock market valuations of leaner, “asset-light”

companies led firms to move and offshore and outsource manufacturing.

• Growth in Capabilities Overseas**– Rapid Growth of Skills, R&D, and Government Support have

Created Substantial Manufacturing Capabilities Overseas. * Suzanne Berger, Making in America, MIT, 2013** NRC, Rising to the Challenge; U.S. Innovation Policy for the Global

Economy, 2012

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The globalization of innovation has produced a

Paradigm Shift• U.S. funded and U.S. based R&D no longer

necessarily leads to U.S. based commercialization and large-scale manufacture.

• The U.S. pre-eminence is no longer assured as a place to turn research ideas into – New, high-volume commercial products– New companies with supportive supply chains– High value, well paying jobs

• This has significant implications for Economic Growth, Employment, and National Security

Source: NRC: Rising to the Challenge, 2012

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“The loss of companies that can make things will

end up in the loss of research that can invent

them.”Suzanne Berger et al., Production in the Innovation Economy

Preview of MIT’s major new report on Manufacturing Released, February 22, 2013, at the National

Academies

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R&D Needs Manufacturing to be

Successful

ProductsJobs

Growth

Manufacturing

R&D

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Importance of the ‘Manufacturing Commons’

• Shared access to webs of technical know-how, operational capabilities, and specialized skills.– These are embedded in the region’s firms, workforce, suppliers,

educational institutions, industry associations, and the like.

• Professors Pisano and Shih of the Harvard Business School argue that the market under-invests in this public good.– “The nation will under-invest in key aspects of the nation’s

manufacturing commons if it simply leaves well enough alone.”

• They call for increased public investment in R&D and technology development infrastructure

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The Flexible Electronics Opportunity

Focus of forthcoming Report of the National Academies

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U.S. Advantages in Flexible Electronics

• Research: U.S. research universities and government organizations are engaged in a broad range of research topics directly relevant to flexible electronics products and associated production processes.

• Industry: The U.S. microelectronics industry is the world leader not only in technology but manufacturing a variety of advanced devices

• Technology: U.S.-based companies are global leaders in a number of key materials with applications in flexible electronics– Corning (bendable glass), Universal Display Corporation (phosphorescent

emitter materials) and DuPont Teijin (films with electronics applications).

• Dual Use: DOD has supported the development of flexible displays for military and dual use applications for over a decade

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Key Challenges for U.S. Companies

• The technological hurdles to commercial applications in the form of new products and processes remain daunting. – Widespread commercialization will require advances in

efficient manufacturing technology, materials, equipment, and processes.

• No large U.S-based champion has yet emerged that is prepared to engage in large scale commercial manufacturing of flexible electronics products

• Some industry experts reckon that if left to market forces alone, it never will.

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The Missing Middle

• Individual U.S. companies have proven adept at translating scientific knowledge into useful products and processes.

• But, in contrast to countries such as Germany, the United States does not have a nationwide infrastructure supporting translational innovation by companies– particularly by small companies—broadly and

systematically

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The Challenge from East Asia

• Dominance of East Asian firms in the manufacture of conventional displays may continue over to flexible displays– They are using their installed manufacturing base in that field to

leverage their entry into flexible displays.

• Significant support from government programs– National programs emphasize applied research in industry

and government research institutes. • Large Asian industrial groups enjoy not only ample

financial resources but extensive industrial and technological competencies– Strengths in relevant fields such as microelectronics,

optoelectronics, materials science and printing.

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The Challenge from Europe

• Europe enjoys a strong fundamental research base as well as a formidable infrastructure for applied research in relevant technology areas– This includes Germany’s Fraunhofer Institutes, a new group of

research centers in the UK, and world class institutes in Belgium and the Netherlands (IMEC and its affiliate, the Holst Centre) and Finland (VTT).

• The European developmental effort is broad in both a geographic and technological sense. – It is supported by successive layers of government at the

community, national, regional and local level.– It engages companies with a long tradition of collaboration to

achieve technological objectives.

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Consequences for the U.S.• “The relatively low prevalence of actual

manufacturing and advanced systems research and development in the United States has led to an incomplete hybrid flexible electronics R&D scenario for this country.”

• “Manufacturing is moving to regions of the world that provide greater investment and commitment to product development.”

• “It then becomes questionable as to whether this approach is a healthy one and can be sustained in

the long term.” – Conclusions of a 2010 NSF/ONR Study

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Key Questions

• Capturing Value: Whether U.S. research discoveries and technological advances in flexible electronics can be translated into significant onshore manufacturing capability and domestic manufacturing employment?

• Partnering: Whether industry, universities and government labs can work together to realize the opportunity presented by flexible electronics in the face of significant technological hurdles and intense international competition?

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Report Addresses the Potential For Applied

Research Partnerships• Collaborative applied research efforts

involving companies, government labs and universities may present advantages in fields where – The technological and commercial risks are

substantial and where– no single company, no matter how large and well

endowed, can command the resources and full range of technologies needed to succeed commercialize new technologies.

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What can we learn from Leading National

Programs to Support Applied Research and

Manufacturing?Germany’s Fraunhofer Institutes

Canada’s Industrial Research Assistance ProgramTaiwan’s Industrial Technology Research Insitute

Britain’s Catapult InitiativeFrance’s Carnot Institutes

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The German Fraunhofer Institutes

• Broad Network: Stable and well-organized system of over 60 research institutes covering major areas of basic & applied research

• Scale: Over 22,000 employees, many with advanced degrees

• Partnership: Each institute paired with a university• Competition: Institutes compete, but also network

effectively• Budget: Sustained and substantial investment

– $2.45 Billion budget with state and federal contributions (~80%) plus contributions from industry fees

The Fraunhofer Advantage

• Focus primarily on applied research, incremental improvements with market orientation

• Training: Builds a skilled work force closely engaged with industry, with academic and practical skills

• Facilities: Well funded, up-to-date facilities– Training on newest equipment donated by companies– Product benchmarking for new firms

• Brand: Outstanding brand backed by dense networks of collaboration

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Fraunhofer Strengths

• Enjoys broad public support and increasing funding

• Works with large as well as small companies• Helps maintain German advantage in

machine tools, automotive, chemicals, and many niche products

• It does not generate new industries, but does create new technologies and provides top flight training of engineers for industry

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Fraunhofer Weaknesses• Focused on demand for research from existing

industries, rather than on creating new ones– Many incremental improvements; some major

innovations, but few high-growth start-ups.• Draw on research funding and talent may have

contributed to erosion of university-based applied research in Germany

• Focus on low risk, short horizon, early pay-off projects undermines ability to support high risk, long horizon sectors like biotechnology

• Limited success with start-ups

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What can we learn from these Foreign Programs?

Best Practices Include: • They offer customized and flexible field services

directly to firms– information, diagnostics, mentoring, technology support,

networking, and referral and expert personnel• Substantial and sustained funding • Long-term focus on manufacturing• Well equipped facilities and Highly trained staff• Training of Graduate and Undergraduate students

in a hands-on environment; co-located with universities

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Best Practices from Foreign Programs

• Autonomy in establishing strategies and deploying resources but with on long-term accountability

• Links to local clusters, including partnerships with universities and long-term collaboration with private firms

• Support for start-ups: Space, equipment, legal and technical assistance, management advice and business connections for funding and markets

• Regular assessment, learning, program adaptation, shifts in priorities over time

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The U.S. needs to be an Attractive Location for R&D and

Manufacturing• The Results of Research are Mobile: They can be—

and are being—exploited around the world. • Attracting Private R&D: Governments around the

world are employing a host of measures (e.g., market access, quality research) to attract Corporate R&D Centers.

• Securing Production: Many governments have active programs to grow and attract and retain manufacturing, and the jobs, growth, and security they bring.

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Reviving U.S. Manufacturing

New National Initiatives

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New White House Manufacturing Strategy

• Innovation: Spur next generation technologies though support for manufacturing institutes, investments in manufacturing R&D

• Training: Strengthen workforce skills and regional clusters

• Lower tax rates: Make the US more competitive for manufacturing

• Market Access: Expand with trade agreements• Cheap Energy: Capitalize on new technologies in shale

gas extraction– National Economic Council Director Gene Sperling, July 25, 2013

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The Advanced Manufacturing Partnership (AMP)

• 2011 PCAST Report called for a partnership across government, industry, and academia

• Calls for identifying pressing challenges and transformative opportunities to improve the technologies, processes and products across multiple manufacturing industries.”

• Addresses three broad categories:– enabling innovation,– securing the talent pipeline, and– improving the business climate.

• Calls for the creation of the National Network for Manufacturing Innovation.

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The New Manufacturing Innovation Initiative builds

Ecosystems• The National Network for Manufacturing

Innovation (NNMI)– $1 billion private-public partnership program to

commercialize and manufacture U.S. developed technologies.

– 15 institutes proposed, each supporting a regional ecosystem of manufacturers, skilled workers, researchers

– Pilot institute on additive manufacturing in Youngstown, Ohio

– Additional centers announced in IL, MI, and NCSource: www.whitehouse.gov

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AMP 2.0 Report to be Released

• Guides the implementation of the original AMP recommendations

• Identifies strategies for – Securing US leadership in emerging technologies– Developing the manufacturing workforce

• Addresses open policy questions on the path from technology innovation to production.

• This strategy is to be presented at the National Academies in October 2014.

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To Conclude

• Manufacturing Matters for Innovation, Economic Growth, and Jobs.

• Leading nations have established strong programs to support applied research and manufacturing.

• The U.S. needs to be an attractive location for innovation and manufacturing

• A new National Manufacturing Initiative is underway.

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Thank You

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Sujai Shivakumar, Ph.D.Board on Science, Technology, and Economic Policy

The National Academies500 Fifth Street NW

Washington, D.C. 20001sshivaku@nas.eduTel: 202 334 1337

http://www.nationalacademies.org/step

© Sujai Shivakumar