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July 25, 2002

8 Min Read
International Molding Report: How much does manufacturing matter?

This report is prepared for IMM by Agostino von Hassell of The Repton Group, who provides IMM's monthly Molders Economic Index.

Percentage of GDP by manufacturing, 2001
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Wrenching changes in the U.S. economy over that past 20 years appear to cast a long, dark shadow over the future of the U.S.-based injection molding market. Here is one stark projection: U.S. injection molding plants in 2025 will employ half as many people as in 2002. Their overall output, while growing solidly at about 3.5 percent per year, will shrink as a percentage of the overall economy.

Does manufacturing have a future in the U.S.? Does injection molding as a goods-producing industry have a future? Molding as a manufacturing industry does indeed. But that future is radically different from today.

We will have far fewer molding plants in the U.S. Most will be substantially larger, far more automated, and employ fewer workers per machine than today. At the same time, some once-active U.S. molders will evolve to become just technology providers.

The Decline of Manufacturing
Rodger Doyle in the May 2002 issue of Scientific American called it the "deindustrialization" of the United States. Others call it post-industrialization. The reality is simple: In 2001, manufacturing accounted for just 18 percent of the U.S. Gross Domestic Product (GDP). In 1950, manufacturing accounted for about 48 percent of the then-applicable measure, the Gross National Product (GNP).

Here are some other data: In 1980, in a typical three-shift molding operation, molders employed 4.8 workers per injection molding machine, based on data from the U.S. Bureau of Labor Statistics (BLS). By 2001, this figure shrunk to 1.8 workers per machine. By 2025—if current trends persist—it will fall to .4 worker per machine.

Manufacturing currently remains the largest of the goods-producing industries in the U.S. in terms of employment, BLS data show. While factories account for just more than a third of goods-producing establishments, manufacturing employees outnumber those in construction and mining by nearly three to one. BLS data also show that manufacturing represents 5.4 percent of all establishments and 14.4 percent of all employment covered by unemployment insurance.

However, U.S. manufacturing employment as a portion of overall U.S. employment is small. In 2000, the U.S. Labor Dept. counted 18.4 million people working in manufacturing. By comparison, all levels of government employed 19.9 million people, retail trade employed 23.3 million, and the service industry employed 37.7 million.

This trend is common in highly developed economies. The situation is very similar in Canada, most of Western Europe, and Japan. Why? Several factors account for the stark fact that manufacturing is far less important to the overall economy today than it was 50 years ago.

In the same issue of Scientific American Rodger Doyle also wrote, "The traditional argument for the cause of deindustrialization is competition from low-wage labor in developing countries. But according to a theory proposed by Robert Rowthorn of the University of Cambridge, and Ramana Ramaswamy of the International Monetary Fund [IMF], deindustrialization is a natural consequence of economic progress in all developed economies. In their view, imports from developing countries have a relatively minor role; rather, faster productivity growth in manufacturing as compared with services plays the major part."

This certainly applies to injection molding. Productivity has grown sharply in the past 20 years. According to data from the IMF, manufacturing productivity in the U.S. grew on average 3.6 percent/year from 1960 to 1994. Productivity in service industries grew just 1.6 percent/year in the same time.

Total GDP, 2001
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But productivity alone is not the only factor. Foreign trade has limited the prosperity of molders making simple commodity products:

  • Automation. The amount of manual labor needed has dropped drastically. Technologies such as quick mold change, automated trimming and inspection devices, automated assembly units, and automated materials delivery systems all have combined to reduce the direct labor input required while boosting output per worker.

  • Consolidation. Large, centralized molding plants are dominating. In the 1970s and early 1980s the U.S. had in excess of 35,000 injection plants, most of which were quite small with less than 10 machines. Since then demands for cost reductions, additional services, and just-in-time production from major OEMs have forced a massive wave of consolidation. Automotive and appliance firms prefer to work with other large firms. For instance, just 20 years ago General Motors purchased molded parts from about 2300 separate firms. Today that number is less than 500.

  • Services. Major buyers of molded parts—and this applies to all key markets such as medical parts, electronics, and automotive and appliance parts, to name just a few—want suppliers who provide a host of ancillary services: complete subassembly, basic design and engineering services, decorating, and materials selection in some cases.

  • Financial strength. Major buyers of molded parts have become much tougher about how much they are willing to pay for parts. Profit margins are razor thin and demands for give-backs are common. Major parts buyers—regardless of their pressure on molders to offer all the services plus just-in-time delivery—are very slow payers. This has winnowed the field to companies that have the financial strength to service customers while often waiting for payment for 90 days or longer.

  • Global trade. For many buyers of molded parts it has become more profitable to buy components abroad where labor costs are well below levels seen in the U.S.

    Understanding Trade
    Trade has become an integral part of the U.S. and world economies. The combined total of U.S. exports and imports has increased from less than 5.5 percent of GDP in 1950 to 11 percent in 1970, to 24 percent in 2000.

    The U.S. market for injection molded parts has seen change on a similar scale. Detailed data on how many molded parts are imported are hard to come by; statistics maintained by the U.S. Customs Service are not specific enough.

    But other data reveal elements of this change. In 1960, close to 96 percent of all injection molded parts in cars and trucks were produced inside the U.S. By 2001, average local content had shrunk to about 70 percent. What's more, over this 40-year period the average amount of molded parts per car and truck jumped by more than 500 percent.

    Consider, also, desktop computers. In 1982, 92 percent of molded products in desktop PCs assembled in the U.S. were locally provided. By 2001 this dropped to 33.1 percent.

    The bulk of molded product imports into the U.S. remains commodity parts—items such as low-value toys, plastics cutlery, drinking cups, combs, and similar items. However, in the past 10 years imports of more sophisticated items such as car components and parts for all types of electronics are entering the U.S. from abroad. This forces domestic molders to either abandon certain markets or compete through increased automation and technological sophistication.

    Yet, at the same time, U.S. molders making top-of-the-line products with very high value-added content are prospering in export markets. A recent study by the International Monetary Fund documented that workers employed in export-oriented firms earn 10 percent more than workers in similar firms that export less.

    The Future Molder
    The transformation is already apparent. Within 20 years you will see three basic types of molding operations in the U.S. Some companies will combine all three formats. These "new" types of molding operations are in place already, but they are not yet dominant:

  • Mega-molding plant. This operation has more than 100 injection molding machines—often substantially more. It's driven by constant investment in new systems to maximize automation, with the goal of reducing direct labor input to an absolute minimum. This operation offers a host of basic services: complete design engineering, assembly, decorating, just-in-time shipping, and so on. The typical molder has a central headquarters with all the basic services; it also runs smaller molding plants close to customers' assembly facilities. An example would be a supplier of automotive subassemblies that sets up plants in states within a few miles of newly established car assembly plants.

  • Micro-molding plant. This is a very different type of operation, often with 10 or fewer injection machines. What makes this type of plant so special is the level of technical sophistication and the high degree of value added. Typical markets are highly specialized medical parts, nano-devices, and ceramic and metal powder molding for precision applications. Such molders will also be major exporters, earning as much as 50 percent of their revenue from trade.

  • Nonmolding plant. Injection molders with major operations in the U.S. without a single injection machine is another key trend. There is no doubt that U.S. molders lead the world in technology for automated manufacturing, design, and product development. The actual molding and assembly is almost a byproduct of the engineering process. The "molder" either directly owns molding operations abroad (in low-labor-cost locations such as China, Malaysia, Mexico, or Brazil, typically close to the end customer) or through a joint-venture partner. All engineering work is done in the U.S. Some operations may maintain one or two molding machines to test parts and deliver accurate setup information, but the true purpose of these operations is to develop and direct manufacturing elsewhere. Injection molding machines and other equipment are purchased in the U.S. but shipped to other facilities outside the country. The bottom line: Profits are high for this type of "headquarters" operation.

    Contact information
    The Repton Group, New York, NY
    Agostino von Hassell
    (212) 750-0824;
    [email protected]

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