There are some who say it doesn\u2019t matter where R&D is conducted, and in fact, it\u2019s better to have the R&D department or facility located away from where manufacturing is conducted.\u00a0 This perspective often originates from people in design. There are others who say that it is best situated in manufacturing facilities, and this perspective originates from people in manufacturing<\/p>\n
One of my blog readers worked for Baxter for many years and touts the Baxter model as the best solution to this question.\u00a0 Baxter has nearly all of its engineering R&D located in Round Lake, IL and biological R&D in Morton Grove, IL.\u00a0 Baxter’s manufacturing plants are all over the world.\u00a0 He listed three of the reasons Baxter set up this model as follows:<\/p>\n
His solution to the question is to have America sell R&D services to nations like Mexico and China and have countries like Mexico and China sell manufacturing goods to the USA in return.<\/p>\n
This was an economic strategy first proposed by John Naisbitt in Megatrends<\/em>, in which the United States would become the center of innovation and all the dirty, grubby manufacturing would be done in other countries.<\/p>\n Thus far, Mexico has remained a location for outsourcing of manufacturing and not a producer of proprietary end products so they aren\u2019t interested in doing R&D for their products; much less buying the R&D services from American companies.\u00a0 However, China wasn\u2019t\u2019 satisfied with being the world\u2019s factory floor \u2013 they want to do it all.\u00a0 China is transitioning from an outsourcing location to a producer of proprietary end products, and their companies are either doing reverse engineering of American products to market copies or counterfeits or stealing American intellectual property to produce their own brands of products.\u00a0\u00a0 China is graduating 500,000 engineers per year while the Untied States only graduates about 50,000 per year, many of which are foreigners, who return to their own countries when they graduate.<\/p>\n There is an abundance of articles by myself and others discussing the consequences of having China sell manufactured goods to the USA — high trade deficits, the loss of thousands of manufacturers, the loss of millions of manufacturing jobs, and the loss of whole tiers in the supply chain of goods.<\/p>\n There is no question that it is advantageous to have R&D conducted near universities or government and private research centers, which is why San Diego is a hotbed of companies starting up with innovative new products, as a result of the research being conducted at the University of California, San Diego, Scripps Research Institute, Department of Defense facilities such as SPAWAR, and other institutions.<\/p>\n My argument is that American companies need to be conducting their own R&D in the United States and not hiring it to be done by companies in China and India.\u00a0\u00a0 It doesn\u2019t matter whether or not R&D is done in the same facility or done in separate facilities of a company.\u00a0 What does matter is losing the knowledge of how to make a product to be able to innovate the next generation of product or innovate a totally new product.<\/p>\n Baxter\u2019s model as a multinational global company is one that can only be replicated by another multinational global company.\u00a0 It is not a model that any small to medium sized company would have the financial and technical assets or personnel to utilize.\u00a0 In fact, in San Diego, very few manufacturing companies are large enough to have a fully staffed engineering department, which includes design engineers, component engineers, mechanical engineers, and manufacturing engineers.\u00a0 There are only a dozen or so manufacturing companies of over 500 employees, and more than 90% of all manufacturing companies are under 50 people.\u00a0 Many companies are only able to have one or two of the above categories of engineers, and some don\u2019t have any engineers on staff as full-time employees.<\/p>\n My blog reader is right when he said that most cutting edge or break-through technologies are not generated by established, larger companies.\u00a0 They come from the creative innovations of entrepreneurs starting up companies.\u00a0 However, most of these entrepreneurs don\u2019t startup their companies in a vacuum; they are most often started by people who have gained knowledge and experience at existing companies in a technology\/product field and leave the company to develop their own innovative new product in that same field.<\/p>\n From my experience working with startup companies for nearly 30 years, the model in San Diego is for a company to start up with a concept for an innovative new product.\u00a0 The founders of the company may have a concept of the new product they wish to develop and market but don\u2019t have the technical expertise to do the design and development themselves. More often than not, they hire outside consultants to design and develop the product or they may subcontract the design, development, and prototyping to a company specializing in providing these services. There are more than a dozen product development companies and more than a hundred engineering consultants listed in San Diego\u2019s Yellow Pages, and most with which we have dealt are not even listed.<\/p>\n At the extreme end, these companies subcontract everything from start to finish, including engineering design, procurement of the parts and materials, assembly, test, inspection, and shipping of the product to the end customer.\u00a0 They may handle marketing and customer service, but sometimes they even subcontract out these functions to marketing and customer service firms.<\/p>\n Many of these startup companies never become manufacturers in the traditional meaning because they never set up any manufacturing capability within their own facility.\u00a0\u00a0 They are what I call \u201cvirtual manufacturers\u201d because they outsource all of their manufacturing and assembly.\u00a0 The difference between the past and present is that these companies used to outsource various processes of manufacturing to other American companies or have their product assembled at maquiladoras in Baja California, Mexico, and now many of them outsource much or all of their product to Chinese companies.<\/p>\n \u201cVirtual manufacturers\u201d became common for consumer products that had a limited life span sold to a mass market or for entrepreneurs that just wanted to make a quick fortune and were not interested in building a company to last with follow-on products.\u00a0 Some examples of fad products with a limited manufacturing life are:\u00a0 the Hula Hoop, Cabbage Patch Kids, and PokeMon.\u00a0\u00a0 As I\u2019ve mentioned previously, two local organizations recognize the importance and advantages of co-location of R&D and manufacturing by American companies within our country and even within our local region.\u00a0 One is the San Diego Inventor\u2019s Forum, which meets the second Thursday of the month.\u00a0 As a member of the steering committee, we help inventors and entrepreneurs do their product development and prototyping locally and help them source their manufacturing within the United States as much as possible.<\/p>\n The other is San Diego\u2019s CONNECT<\/a><\/ins> organization, which has recognized the value of the current trend of bringing operations closer to home to reduce costs and become more flexible, responsive and adaptable in the constantly changing marketplace.\u00a0 CONNECT calls it \u201cnearsourcing\u201d in contrast to \u201cnearshoring,\u201d which Californians understand to mean sourcing in Mexico.\u00a0 CONNECT launched a new industry cluster in December 2010 for technology manufacturers to help them connect with local and regional sources for products and services.\u00a0 CONNECT is collaborating with the San Diego East County Economic Development Council to utilize the EDC\u2019s well-established www.connectory.com<\/a> database of manufacturers to facilitate the connections.\u00a0 CONNECT put on a program May 3, 2011 on \u201cNearsourcing vs. Offshore:\u00a0 What it is and what are the Initial Considerations for Technology Companies.\u201d\u00a0\u00a0 A case study on nearsourcing, \u201cHow Do we make \u2018Made in San Diego\u2019 a Winning Business Model?\u201d will be presented at the CONNECT-sponsored MIT Enterprise Forum on Wednesday, June 15, 2011.<\/p>\n In conclusion, it doesn\u2019t matter whether American companies do their R&D within their own facility or hire it to be done by outside American consultants or product development firms, but it does matter whether the R&D is done within America.\u00a0 We need to keep innovation within our country if we want to remain at the cutting edge of technology and maintain the critical mass of our manufacturing industry.\u00a0 Outsourcing R&D to China is like a mayor giving the key to his city to a would be conqueror.\u00a0\u00a0 We need to protect the key to our future security as a nation and keep R&D and manufacturing within the United States.<\/p>\n <\/p>\n <\/p>\n <\/p>\n","protected":false},"excerpt":{"rendered":" There are some who say it doesn\u2019t matter where R&D is conducted, and in fact, it\u2019s better to have the R&D department or facility located away from where manufacturing is conducted.\u00a0 This perspective often originates from people in design. There are others who say that it is best situated in manufacturing facilities, and this perspective […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1,3],"tags":[],"class_list":["post-195","post","type-post","status-publish","format-standard","hentry","category-general","category-outsourcing"],"_links":{"self":[{"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/posts\/195","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/comments?post=195"}],"version-history":[{"count":1,"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/posts\/195\/revisions"}],"predecessor-version":[{"id":196,"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/posts\/195\/revisions\/196"}],"wp:attachment":[{"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/media?parent=195"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/categories?post=195"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/tags?post=195"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}<\/del>If a product was designed for ease and simplicity of manufacturing, the location of the vendors who produced the parts and sub-assemblies didn\u2019t matter as much.\u00a0 However, today such factors as ease of communication, costs of transportation for shipping parts, and quality of the products are playing a more important role in determining where a product is manufactured.<\/p>\n