Great article in Harvard Business Review by Williy Shih about American manufacturing and the Kindle.
The net of the article is that America can’t manufacture the Kindle (the new ebook reader from Amazon). This is despite the fact that the critical innovative aspects of the Kindle, the software and e-ink technology, were created here in the US. The sub-components and assembly are all handled in Asia and Shih very deftly walks through why this should be cause for concern. Here are my takeaways:
- The Kindle is at the cutting edge of technology. For all the talk about losing old-line manufacturing, the next generation is increasingly never even getting out of the cradle here. I challenge you to walk around Best Buy and find something made in America.
- The Kindle is a great example of fundamental innovation that should have multiplier effects. Meaning, the initial investment in R&D and development in a groundbreaking new project has traditionally, over the past 50+ years been accompanied by a corresponding creation of supporting industries and jobs. The clearest example would be the automobile industry and the creation of the massive supplier businesses. The creation of these jobs and businesses is still happening. *In Asia.*
- This is a worrying sign that future innovation and R&D investment will bear a substantial part of their long-term reward for foreign economies with a short-term immediate reward for us, the originator. Here Amazon will clearly make the bulk of the reward in the short-term, but as these devices proliferate, the majority of the economic value will be captured in Asia.
- Innovation and iteration on these devices will be, unfortunately for the US, done overseas. Improvements on the manufacturing side will be made in process and improvements to components will be done at the source of the production.
This is exactly the kind of manufacturing that US economic policy should be encouraging investment in since it is high-tech and largely automated component creation/assembly. With real fair trade policies in place we can create a pro-manufacturing environment that allows for “Made in USA” of goods like this, and more importantly, capture the future value of the innovations that come from it and its infrastructure.
Read: The US Can’t Manufacture the Kindle and that’s a problem
{ 4 comments }
Isn’t this capitalism at its finest? If Amazon manufs the Kindle over here, their margin is drastically reduced or the more likely scenario, the manuf costs are passed on to the consumers and hence a more expensive Kindle, which prob would have stunted its growth and popularity. I don’t see a solution to this problem w/o imposing high tariffs…
This is indeed capitalism :) And, yes, you are right under *current conditions* using overseas manufacturing results in higher margin and/or a lower-price for consumers.
Current US conditions for manufacturing essentially guarantees that manufacturing will continue to move overseas– “capitalism at its finest” as you say. I am running for Congress to fight for changing our current conditions. We can create the conditions for a high-tech next generation product like the Kindle to be produced here through manufacturing investment tax credits, general incentives for targeted industries, and by creating an overall economic environment for manufacturing that places the regulatory expenses on the consumption side rather than production side (a consumption tax vs a production tax, similar to many industrialized nations).
High tarrifs are a blunt force instrument that doesn’t address the underlying issues. Our peer industrialized nations have all created an economy that values manufacturing and the massive economic value it brings (and, of course, the jobs) yet we remained stuck in the mindset that manufacturing is optional. Also note Vinh, that I realize we’re not going to make most things– clothing, textiles, etc are likely gone forever. However high-tech goods that have a high degree of automation and are still rapidly being iterated on (which has substantial economic value add) is essential, and our current 17%+ unemployment rate are the symptoms of what decades have neglect have caused.
Isn't this capitalism at its finest? If Amazon manufs the Kindle over here, their margin is drastically reduced or the more likely scenario, the manuf costs are passed on to the consumers and hence a more expensive Kindle, which prob would have stunted its growth and popularity. I don't see a solution to this problem w/o imposing high tariffs…
This is indeed capitalism And, yes, you are right under *current conditions* using overseas manufacturing results in higher margin and/or a lower-price for consumers.
Current US conditions for manufacturing essentially guarantees that manufacturing will continue to move overseas– “capitalism at its finest” as you say. I am running for Congress to fight for changing our current conditions. We can create the conditions for a high-tech next generation product like the Kindle to be produced here through manufacturing investment tax credits, general incentives for targeted industries, and by creating an overall economic environment for manufacturing that places the regulatory expenses on the consumption side rather than production side (a consumption tax vs a production tax, similar to many industrialized nations).
High tarrifs are a blunt force instrument that doesn’t address the underlying issues. Our peer industrialized nations have all created an economy that values manufacturing and the massive economic value it brings (and, of course, the jobs) yet we remained stuck in the mindset that manufacturing is optional. Also note Vinh, that I realize we’re not going to make most things– clothing, textiles, etc are likely gone forever. However high-tech goods that have a high degree of automation and are still rapidly being iterated on (which has substantial economic value add) is essential, and our current 17%+ unemployment rate are the symptoms of what decades have neglect have caused.
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