February 2008

Don't cry for me: Notes on measuring, testing, and control instruments industry

By A.A. Imberman

The measuring, testing, and control (MTC) instruments industry manifests in a high level of concentration with six dominant companies out of over 100 major companies in the industry. 

The rise in U.S. MTC industry exports to China refutes the dire predictions of the demise of American manufacturing. 

Data indicate that while there has been an increase in M&C instrument imports from China from 2002 to 2006, from $374 million to $1 billion, such instrument exports to China have risen during the same period, from $539 million to $1.3 billion. 

This covered such products as digital oscilloscopes, light meters, humidity and temperature meters, insulation meters, programmable power supplies, analog and digital temperature controllers, abrasion testers, thickness gauges, water penetration testers, dyeing rubbing testers, twisted pair transmission amplifiers, digital indicators, fatigue testing, power meters, and others. 

North American MTC instrumentation manufacturers are succeeding in this new era of globalization thanks to their efforts to cut costs and innovate.

How are American manufacturers accomplishing this in the face of cheap Chinese prices? 

There is one answer to this question: improvement in our manufacturing methods through Lean Manufacturing and Total Quality Management (TQM), according to the Manufacturing Performance Institute, which carried out a census of manufacturing companies. 

The Lean Manufacturing and TQM methods of improvement work best through the use of incentives and such programs like Gain sharing. 

Such programs help lean manufacturing and TQM boost productivity and eliminate errors in quality output.

For example, if 100 employees produce 1,000 items in 10,000 hours in one month, and the same 100 employees produce 1,000 items in 9,000 hours the next month, that productivity improvement of 1,000 hours of labor is a gain worth $10,000 if labor is $10/hr. 

This sort of improvement has been taking place in most of our MTC instruments industry encouraged by the repeated exhortations to boost productivity by Alan Greenspan, former Federal Reserve Chief and now repeated by Ben Bernanke, present Federal Reserve Board Chairman. 

U.S. manufacturing productivity rate has increased by more than 50% in the past decade in the MTC instrumentation industry.

The widespread use of incentive systems to encourage American employees to boost productivity is a major factor in meeting Chinese competition, according to the National Association of Manufacturers in its annual survey covering 2006.

Many attribute the rise of Chinese exports to the lower cost of labor in that country. However, this is only partially true. Part of China's advantage is due to the consistent currency rate manipulation of the Yuan by China to boost artificially U.S. imports of Chinese products. 

Chinese wages are on the rise. Businesses are reportedly having a hard time finding skilled workers and are having to pay the workers they can find more money. A separate report by the Chinese Academy of Social Sciences has warned of coming labor shortages even in rural areas. The trend in China is rising labor rates, which will undoubtedly continue to influence Chinese prices.

The unpleasant discovery that the quality of Chinese output is not up to par is another aspect to consider when evaluating competition with China. 

For example, the lead content in Chinese painted toys, as well as complaints about the quality of China-produced auto and airplane components, pet food, pharmaceuticals, plastics, chemicals, scientific instruments, and others have all created a backlash against Chinese imports. 

U.S. manufacturing is the most innovative and resilient in the world-and certainly faces no recession today.

ABOUT THE AUTHOR

A.A. Imberman (imbanddef@aol.com) is a retired professor at the University of Chicago.