During President Obama’s State of the Union speech last month, he called for revitalizing the U.S. manufacturing industry:
“We have a huge opportunity, at this moment, to bring manufacturing back,” he said. “But we have to seize it. Tonight, my message to business leaders is simple: Ask yourselves what you can do to bring jobs back to your country, and your country will do everything we can to help you succeed.”
After interviews with several biotech instrument manufacturers, it seems that at least for the bioindustry the President was posing the wrong question (i.e., “Ask yourselves what you can do to bring jobs back to your country…”). In fact, a range of biotech equipment is already being made in the U.S.
Regarding the possibility of more manufacturing jobs actually coming back to the U.S., talks with biotech officials might lead one to conclude that the President just might be whistling in the dark and either does not understand or is ignoring the main reasons behind the establishment of regional manufacturing operations.
The key drivers to setting up a manufacturing facility are manufacturing costs and proximity to important and growing markets, according to the biotech specialists.
National Pride Not an Issue
“Companies once felt an obligation to support American workers, even when it wasn’t the best financial choice,” said Betsey Stevenson, formerly chief economist at the Labor Department, in a recent interview with The New York Times. “That’s disappeared. Profits and efficiency have trumped generosity.”
Calls for patriotism or nationalistic pride don’t enter into the manufacturing equation and, from the business point of view, they shouldn’t, as discussions with biotech manufacturers revealed.
Terry Jones, a reporter for Investors Business Daily, during an appearance on the “Front Page” program on PJTV.com, succinctly summed up the cost issue. “You go where you can make your product at the cheapest rate,” he said.
This was the rationale also echoed to a degree by Jerold Martin, senior vp, global scientific affairs at Pall Life Sciences, and chairman of the BioProcess Systems Alliance.
“Biotechnology is a global business, and it’s very competitive,” he told GEN. “If manufacturing costs are too high, neither drug manufacturers nor equipment suppliers will be able to compete. Since manufacturing costs tend to be higher in the U.S., both drugs and equipment are also manufactured in other countries which, in turn, allows them to compete globally.”
He added that while many Americans say they would prefer to buy items made in the U.S., most, in reality, are not willing to pay the premium prices that many U.S.-made products command due to higher labor costs. Hence, there is a plethora of lower cost goods made elsewhere that Americans buy.
Martin also cited the need for biotech equipment manufacturers to ultimately establish manufacturing operations in rapidly expanding markets, such as Asia and Latin America, to be closer to those customers and better serve local and global markets. Pall Life Sciences has manufacturing facilities in the U.S. and Puerto Rico, England and France, and India and China for redundancy, regional supply, and cost efficiencies.
Martin also wonders how President Obama’s message is being taken by the U.S. drug manufacturers who have closed down a significant number of domestic research and manufacturing facilities and are moving those jobs to Asia where they can research, develop, and produce new drugs for the U.S. market at lower cost. That’s what already happened in the computer, cell phone, and tablet industries.
“In our case, it’s in response to the U.S. Government’s initiative to lower the cost of drugs to the U.S. consumer by encouraging both generics and, in the future, biosimilars.”
U.S. and foreign drug manufacturers are setting up facilities in Asia not just for the expanding Asian market, but also to export back into the U.S. with lower cost drugs. Correspondingly, U.S.-based equipment manufacturers ultimately will be pulled there to be close to their customers, said Martin.
“The key to creating new jobs in the U.S. is to encourage investment in education and in the development of novel products and technologies that create new manufacturing jobs here,” he explained.
“It will not be possible to bring back existing manufacturing jobs once they have moved to lower cost regions without a shift in foreign exchange rates or the government imposing high import tariffs or offering large tax-cut incentives that ultimately make domestic manufacturing more profitable. Businesses are not going to do that on their own otherwise.”