Guest blog post by Sue Helper, U.S. Department of Commerce, Chief Economist
It’s springtime, and during this season of growth and renewal another important renaissance is underway: a remarkable resurgence in American manufacturing. Powering this growth are the small- and medium-sized businesses that comprise the U.S. manufacturing supply chain.
President Obama in his State of the Union address earlier this year committed to supporting these small businesses. This week, in Cleveland, OH, he made good on that promise, announcing a series of key manufacturing initiatives. Additionally, a new White House-Department of Commerce report was released that examines the importance of reinvesting in America’s supply chain to enable innovation. The report, “Supply Chain Innovation: Strengthening America’s Small Manufacturers,” identifies potential barriers as well as solutions – laying the path toward sustained manufacturing growth and strength, at home and abroad, now and into the future.
As described in our report, the resurgence in manufacturing has seen the addition of 877,000 jobs added since February 2010. Small firms play an increasingly important role in U.S. manufacturing, and now account for almost half of America’s manufacturing employment. Dense networks of these small manufacturers are vital to the process of taking a product from concept to market, and sharing manufacturing expertise along the supply chain is essential for the diffusion of the new products and innovative processes that give U.S. manufacturing its cutting edge.
However, these small firms face barriers to innovation, a key element in strengthening U.S. competitiveness. While firms with fewer than 500 employees comprise 98 percent of all manufacturing firms, together they account for less than one-third of private-sector research and development (R&D) spending in manufacturing. And because of these barriers to innovation, in their operations, small manufacturers are less than 60 percent as productive as their larger peers. Moreover, lack of innovative capability impacts small suppliers’ customers: the quality of end products is compromised and it takes longer for innovative technologies to get to market.
Customer firms have a critical role to play in cultivating the capabilities of small firms in their supply chains and encouraging fruitful cross-pollination of expertise across firms. However, larger firms often under-invest in their suppliers because they fear improvements they pay for may end up benefitting their competitors, and because of conflicting internal goals.