In the March 6, 2006 Issue:

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NAM Report Identifies Challenges for Small and Medium Manufacturers in 21st Century Economy
Innovation, flexibility, speed to market, and closeness to the customer are the common characteristics shared by successful small and medium manufacturers (SMMs), says a new report from the National Association of Manufacturers (NAM). The report reveals 15 best practices that are followed by successful SMMs and identifies challenges faced by manufacturers in an increasingly competitive global marketplace.

The Future Success of Small and Medium Manufacturers: Challenges and Policy Issues is a follow-up to a 2001 report on the importance of SMMs during the height of the 1990s prosperity boom. Since that time, a major recession has occurred causing many shifts in the manufacturing industry.

The report identifies two important trends that are shaping the future of SMMs. First, large manufacturers are increasing their dependence on suppliers of parts as they streamline their operations to increase productivity. This has been positive for many SMMs, the report indicates, as they have expanded businesses into areas formerly owned and operated by large manufacturers. On the flip side, however, the pressure to reduce prices is passed down the supply chain with the burden of cost reduction and innovation falling on SMM suppliers.

The second trend is the development of increasingly sophisticated production in developing countries, which has toughened the landscape for SMMs. In order to stay competitive, SMMs have to offer value to their customers that low-cost overseas competition cannot match, such as proprietary, high-technology products, a willingness to customize, and fast turnaround times, the report states.

While the U.S. remains the world's leading innovator in terms of R&D and patents granted, other fast-growing economies are catching up, partly because more of their students are earning degrees in science, engineering and math, according to the report. Additionally, SMMs are hit disproportionately hard by labor costs, including energy and health care, retirement benefits, tort litigation, regulatory compliance, and taxes. Foreign competitors, particularly from China, are continuing to drive down prices as structural prices continue to increase, leading SMMs to suffer a profit squeeze, the report shows.

Workforce issues and productivity also are a concern for SMMs. During the 2000-2003 recessions, more than 3 million jobs in manufacturing were lost. A recent article by the Federal Reserve Bank of Cleveland, Are We Engineering Ourselves out of Manufacturing Jobs?, focuses on the extent to which strong productivity growth in detailed manufacturing industries is associated with weak employment growth. According to the article, the long-run decline of U.S. manufacturing employment is just as much the result of declining consumption of manufactured goods produced in the U.S. as a share of total income.

Some of the challenges faced by SMMs have solutions that can be achieved partly through enactment or reform of legislation and regulations and through negotiations with international trade partners, the report suggests. NAM supports several policy issues in this regard, including regulatory improvement, energy legislation to reduce cost, leveling the international playing field by improving competitiveness in the global market, pro-growth tax relief, legal, health care and education reform, and federal funding and tax credits for R&D.

According to NAM, the report is intended for policymakers who may not appreciate the contributions and challenges faced by SMMs in their own states. The Future Success of Small and Medium Manufacturers: Challenges and Policy Issues is available at: http://www.nam.org/s_nam/bin.asp?CID=202515&DID=236457&DOC=FILE.PDF

Links to this paper and more than 3,000 additional TBED-related research reports, strategic plans and other papers can be found at the Tech-based Economic Development (TBED) Resource Center, jointly developed by the Technology Administration and SSTI, at http://www.tbedresourcecenter.org/.

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Useful Stats
Value-added Manufacturing by State, 2001-2004
The U.S. Census Bureau recently released Geographic Area Statistics: 2004, a report that details manufacturing statistics collected from the 2004 Annual Survey of Manufactures (ASM). The report provides data on the number of all manufacturing employees, number of production workers, all employees payroll, value-added by manufactures, cost of materials, and value of shipments by state. The report also includes data by industry groups, including food, textiles, lumber, fuel, computers and transportation equipment.

Using Bureau data, SSTI has prepared a table showing the state rankings for the percent change between 2001-2004 for value-added by manufacture, value of shipments, and average value added per employee. The total value-added by U.S. manufacturers increased by 9.28 percent over the four years. Nationally, the average value-added per employee also increased by 29.68 percent.

Among states, Idaho more than doubled its total value-added dollar amount (161.73 percent increase) and nearly tripled the dollar amount in average value-added per employee (196.01 percent increase). Arizona experienced the largest drop in value-added by manufacture (15.24 percent) and had the only national decrease in average value-added per employee during the same period (0.03 percent).

The District of Columbia showed the largest increase in value of shipments, up 52.4 percent from 2001. New Mexico followed closely with a 51.7 percent increase. Total U.S. value of shipments increased by 7.28 percent over the four-year period. Of the 11 states that saw a decrease in value of shipments, Washington topped the list at 13 percent.

SSTI's table is available at: http://www.ssti.org/Digest/Tables/030606t.htm

State rankings of ASM statistics from 1997-2000 can be found at: http://www.ssti.org/Digest/Tables/032902t.htm

Annual Survey of Manufactures, Geographic Area Statistics: 2004 is available at: http://www.census.gov/prod/ec02/am0431as1.pdf

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Save the Date
SSTI's 10th Annual Conference Set for Oct. 31-Nov. 2
It only seems natural that SSTI celebrate a decade of convening the premiere professional development event for the nation's tech-based economic development community in a state that, for nearly 20 years, has been a pioneer for innovative approaches to transform regional economies — Oklahoma. SSTI's 10th annual conference and pre-conference intensive workshops will be held at the Cox Convention Center in Oklahoma City on Oct. 31-Nov. 2.

Many Digest readers may be familiar with elements of Oklahoma's tech-based economic development portfolio - or should be familiar - as several initiatives within the Sooner State's strategy have served as models for launching similar efforts around the country. References to organizations like the Oklahoma Center for the Advancement of Science & Technology (OCAST), i2E and the Oklahoma Capital Investment Board can be found as examples in the strategic plans, budget justifications and performance reports of many state and regional TBED roadmaps.

What is perhaps less well known is the success Oklahoma City civic leaders and residents have had over the past 15 years transforming the region's economy for a knowledge-based future. The public-private level of investment and willingness to embrace change are impressive — and are paying off in exciting ways for the city. What is most telling about the Oklahoma City's success, though, is that no single organization or individual can or would attempt to take credit for the transformation. It only happened through many different public-private partnerships, true civic engagement, and an overwhelming and shared commitment to long-term change. Visitors to the city can't help but understand and share the excitement shown by the Greater Oklahoma City Chamber of Commerce, our conference host.

Oklahoma City provides the perfect backdrop for SSTI's 10th annual conference for many reasons, but perhaps none as important as this: It demonstrates vividly that tech-based economic development works. And that it works well in a city of 523,000 in a state of only 3.5 million, 1,600 miles from Silicon Valley and 1,700 miles from Route 128.

Join us Oct. 31-Nov. 2 at SSTI's 10th Annual Conference to experience it for yourself. More information will soon be available at: http://www.ssti.org/conference06.htm

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AAU Initiative Targets Nation's Economic, Security Challenges
With China and India on the doorstep and U.S. universities facing an attrition of science and math students, America must do more if it wishes to produce the well trained scientific and technical workforce necessary to remain competitive in world markets. That is the overarching theme of a new national education and innovation initiative proposed by the Association of American Universities (AAU).

A white paper released by AAU details the National Defense Education and Innovation Initiative, which aims to meet economic and security challenges the U.S. will face over the next half-century. The paper contains recommendations for policy changes and investments, primarily by universities and the federal government.

AAU, an organization of 62 leading public and private research universities, points to the country’s need to address economic challenges from the emerging economies of Asia and post-9/11 national security threats. These challenges, AAU states, are evidenced by such statistics as a leveling of federal basic research funding in the physical sciences and engineering and the rise of Asia and Europe over the U.S. in the number of science and engineering doctoral degrees awarded.

AAU cites as a model the bold actions taken by the federal government to maintain American economic and military leadership following the 1957 launch of the Sputnik satellite by the Soviet Union. In the years immediately following Sputnik, Congress enacted the National Defense Education Act (NDEA) -- an initiative that upgraded education at all levels, tripled the federal investment in basic university-based research, and created NASA and the Department of Defense’s Advanced Research Projects Agency.

Similar to NDEA, the AAU initiative makes recommendations designed to strengthen the nation’s capacity to perform basic, university-based research; cultivate American talent in the sciences, engineering, mathematics and foreign languages; and continue to attract and retain the best talent from overseas. For universities, the recommendations include:

For the federal government, AAU recommends:

The AAU report is available at: http://www.aau.edu/reports/NDEII.pdf

Links to this paper and more than 3,000 additional TBED-related research reports, strategic plans and other papers can be found at the Tech-based Economic Development (TBED) Resource Center, jointly developed by the Technology Administration and SSTI, at http://www.tbedresourcecenter.org/.

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'The Better World Project' Examines the Impact of Technology Transfer
While it is safe to say that new medicines, electronics, educational tools and other inventions have improved the lives of countless people, a new project by the Association of University Technology Managers (AUTM) describes more than 100 such breakthroughs that probably would not exist if not for the practice of technology transfer.

In The Better World Project, launched Friday by AUTM, readers can learn the stories behind the Google™ search engine, Honeycrisp apple, V-chip, cochlear implant, Habitrol® nicotine patch and other products used in health care, environmental protection, agriculture, safety and 16 other fields.

"This project will pique the interest of anyone who's ever wondered 'Where did that come from?'" AUTM President John Fraser said in a press statement. The project shows how technology transfer - the process of licensing and commercializing academic research - contributes to the economy and supports new discoveries, Fraser added.

A key element of the project is The Better World Report, a book containing 25 technology transfer cases contributed by AUTM members in the U.S. and Canada. Another important component, a Reports From the Field publication, includes 100 short stories about products used in areas such as biotechnology and veterinary science. The stories, contributed by academic institutions in the U.S. and Canada, show the breadth of academic research, AUTM states.

Both The Better World Report and Reports From the Field are fully searchable via an online database that is soon expected to include stories from Europe, Asia and Australia. Print copies of the reports, the online database, and licensing success stories from the United Kingdom are available at http://www.betterworldproject.net.

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Participate in State VC Survey By Mar. 15
Innovation and tech entrepreneurship take money — different amounts at different stages with different strings. As a result, increasing access to capital is an objective of many state and local technology-based economic development programs.

“States fill a critical gap in available finance for many of the nation’s start-ups," said Sue Strommer, chief executive officer of the National Association of Seed and Venture Funds (NASVF). Discovering just how many programs across the country are working toward filling the financial needs of tech-based innovation is the goal of a current NASVF project to survey programs. All state equity-related financing programs are encouraged to participate before March 15, 2006.

“This is an opportunity for states to showcase their efforts to support the new businesses and entrepreneurs who drive the new economy,“ Strommer added. "State leaders can reap local benefits from learning about national best practices and emerging models.”

The report is expected to show that states are natural incubators for many new venture capital programs and incentives. Fund of funds strategies, pre-seed or validation funds, angel networks, creative tax incentives, and other innovations are taking root across the country. The final compendium of state data will be a valuable resource to policymakers, universities, economists, financial analysts, private venture firms, and entrepreneurs.

Preliminary survey results will be released to national press and policy leaders on May 18, 2006, at the State Venture Capital Symposium, Renaissance Hotel, Washington, D.C. To participate, state program managers can go directly to a survey link at www.nasvf.org, or may contact Lisa Walker, Research Associate, at lwalker@nasvf.org for more information.

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