Manufacturing: Culture as Strategy

The softer side of America vs. China's hard power competition

Much ink has been spilled across various publications about the rise of Chinese manufacturing, America’s lack of competitiveness, and what the West writ large should do about it. Instead of examining geopolitics or economics, I intend to focus on how culture has contributed to the situation we’re in, and how culture (in addition to domestic reforms, trade measures, and others) can make us competitive again.

Some favorite publications on this topic are below:

A Techni-Industrialist Manifesto - Aaron Slodov

China is the world’s sole manufacturing superpower - Richard Baldwin

Global Reliance on Chinese Manufacturing - US International Trade Commission

Manufacturing is a war now - Noah Smith

The State of Play

Coming from an aerospace and defense background, I naturally had been pretty insulated from Chinese manufacturing. Simply: restrictions such as ITAR (International Traffic in Arms Regulation) prevented my two former employers from doing virtually any business with Chinese manufacturers. And, this is for good reason: critical national security hardware and software should be insulated from near-peer adversaries such as China.

As a “manufacturing guy” myself - both by background and passion - China had always been the boogeyman in the closet: America was at economic war with China and manufacturing of everything from everyday items to weapons was at the heart of it. The defense tech bros would make you believe that Chinese manufacturers are all low-tech sweatshops, made productive by fear, poor treatment of workers, and raw human power. While it's certainly hard to generalize an entire multi-trillion dollar industry in a country with more than a billion people (there are many well-documented examples of the former being true in western China, for instance), I’m here to tell you that that characterization is simply not true from my experience.

China isn’t just doing well in manufacturing. They are crushing it. Source

The cultural advantages span across the stack. Let’s start with prototyping. In this game, speed is everything. Unlike in software where you can try new code the same day, hardware requires the release of a part, manufacturing and shipping of the part, and then testing. Successful hardware companies have figured out how to reduce the cycle time of iterations, oftentimes utilizing Chinese manufacturers to do it. For instance, Chinese companies like JLC are dedicated prototyping and low-run production shops that emphasize speed. In personal experience, JLC often responds faster with a quote and has a much faster delivery time than companies in my same time zone and are right down the street. This isn’t some secret sauce for JLC - it's just a better run operation than many American shops.

China’s JLC is meaningfully faster to a delivered CNC part or printed circuit boards than American competitors that are 1000’s of miles closer

Learn from Your Competition

If there’s one industry with production capacity virtually exclusively in China, it's stationary energy storage and large power equipment such as inverters. As such, I’ve been quite exposed to Chinese manufacturers across the stack, in our search for component supply and technology as we, in parallel, develop our own tech and manufacturing stack.

If there’s one takeaway from spending some time outside of the America-first manufacturing bubble, it’s this: we have a lot of catching up to do, and should be embracing the opportunity to learn from the Chinese as opposed to applying American-exceptionalism rose-colored glasses and assuming we’ll be better “just because that’s our nature”. This view is heresy in some circles, but I think it is the pragmatic approach we need to take to re-establish American manufacturing dominance.

In sum, my observation is that Chinese society is architected around the art and science of making things. This manifests itself in various small but important ways. For instance, in discussions with many Chinese factories, you’ll find that the average non-technical person (sales, the front desk receptionist, executives) know intricate details about the manufacturing process, why certain processes were chosen, and even production metrics. This is very atypical from the US, where folks in these roles typically defer to plant managers or engineers. It's a small thing, but shows that they care.

Similarly, heads of departments or whole Chinese companies overwhelmingly tend to be from technical, not financial backgrounds. In contrast, the financialization of many American businesses has left them with business school grads or former consultants in top positions. Is this a problem? Just ask Bob Lutz, multi-decade leader in many US auto companies and author of the excellent book “Car Guys Vs. Bean Counters”.

China produces the overwhelming majority of the world’s batteries

Increasing Technological Complexity

China hasn’t just dominated low-skill or low-value commodity industries like mining and textiles as they started to decades ago. Take for instance, automobiles: I’m old enough to remember (and hear from people in and around my hometown of Detroit) how the Japanese nearly put the American automakers out of business in the 90’s. Your old-timer Detroit auto exec will tell you how General Motors, Chrysler, and Ford eventually - kicking and screaming - adopted a lot of the production processes that made Japanese automakers great, just in time to save themselves in the 2000’s. In fact, Toyota developed a whole management system (called the Toyota Production System) that to this day is used by American and Chinese car companies and taught in virtually every relevant university course on the subject.

What happened in the 90’s is now happening with China in the 2020’s. Chinese companies such as BYD and Xiaomi now [sadly] produce meaningfully better cars than the Detroit Big Three. On all objective metrics (cost, power, luxury, self-driving), the BYD Han beats its American competition. This dominance spans both the design of the car itself and its manufacturing process. Compounded with China’s supply chain advantage (manufacturers of the majority of the subcomponents are also strong domestic industries), this enables BYD and its acolytes to be formidable competitors with the US in an industry that we once dominated.

Culturally, my sense is that BYD is also just a much more interesting company to work for than, say General Motors. BYD engineers are developing cutting edge power electronics technology, GM’s engineers are optimizing fuel economy for a diesel pickup truck that has mostly carryover designs from the 70’s. BYD is recruiting top engineers from top schools all around China. GM has a strongly hierarchical culture where tenure is strongly valued. The list goes on. Of course, Tesla is the exception - and really the only exception to this rule.

Even more advanced and complex industries are going a similar way to cars. Semiconductors, batteries, power electronics, and airplanes all have Chinese competitors hot on the heels of decades old dominant companies. COMAC (the Chinese state-owned plane manufacturer) now has a narrowbody airliner regularly flying that directly competes with the dominant Boeing 737. COMAC has big plans for its plane. America losing its last few advantaged industries is quite problematic.

China is working its way up the complexity stack to the most complex product in the world: airplanes.

What to Do About It?

How do we improve the odds that America retakes the lead as the global superpower of making stuff?

Culturally empower manufacturing workers. Make working in manufacturing - both on the line and in the office - cool again. Bring back the high-class status of making things by:

• Increasing pay for manufacturing engineers, technicians, and operators in comparison to other jobs in the company

• Elevating leaders amongst these groups in decision making within the organization

• Apprenticeship programs: put new grad hires on the line for a certain period of time before moving on to other parts of the company

Build aspirational companies in manufacturing that have excellent talent brands. One recent example here is Hadrian. Founder & CEO Chris Power has built a world-class talent brand for software engineers, machinists, roboticists, and operators and in doing so has elevated the manufacturing discipline. Rangeview (investment casting), VulcanForms (high-speed additive) and Atomic Industries (molding) are also excellent examples. We need 1000x more companies like this; not just companies that design aspirational hardware, but that also make it.

Bridge the blue and white collar divide. By breaking down managerial barriers, having shared management structures, and removing engineer-to-line friction, blue collar workers will feel less managed and more empowered to do good work. This in turn elevates the role in the job marketplace, attracting more top talent. This will also reduce management-union friction, increasing worker productivity and reducing overhead.

Elevate degree programs that focus on manufacturing skill sets. 4 year technical degrees have a dearth of practical, hands-on engineering. Many of my peers at Michigan left with Mechanical Engineering degrees and didn’t know how to run a Bridgeport mill. Require a certain number of manufacturing-related coursework in the curriculum of any hardware-related engineering degree through ABET accreditation.

American industrial might was a large contributor to its winning WW2. This image, from the Detroit-area Willow Run Bomber Plant produced 1 whole plane per hour and employed 42,000 people at the peak. It was farmland 2 years prior.