Indiana’s manufacturing future depends on R&D, new products

There’s a tipping point in every industry where yesterday’s innovation becomes tomorrow’s commodity.

Just take a walk through the aisles of a local Wal-Mart and compare prices on DVD players. In the late 1990s, the DVD was a new technology and players often cost more than $500; today, the shelves are filled with models that deliver better features for $75 or less.

It’s a common cycle. New products command high prices because they are unique. Prices stay fairly high as early models are redesigned and quality improves. But as competition increases and manufacturing processes are streamlined, the emphasis shifts towards cutting prices to drive sales.

Looking at Indiana’s manufacturing sector, many of our industries are mired in this price-cutting mode. Labor costs are a prime target, as jobs are being downsized permanently or moved to cheaper labor markets like Mexico or Asia. This explains the loss of nearly 100,000 Indiana manufacturing jobs since 2000, an economic catastrophe than mirrors a national trend — according to Fed economists, nearly 80 percent of national job displacement in this recession appears to be permanent. Yesterday’s commodity manufacturing jobs may not be coming back.

The only way for Indiana to re-energize its manufacturing base is to attract and grow companies that are investing heavily in R&D and creating innovative products. These are the businesses that command high value in the marketplace and can sustain good jobs in Indiana.

For an example, look towards Zimmer Inc., a northeast Indiana-based medical device manufacturer. In 2000, the company formed a research partnership with Indiana's main research universities – Purdue, Indiana and Notre Dame –, IU Indiana and Purdue that resulted in the Zimmer MIS 2-Incision Hip Replacement Procedure, a new implant and surgical method that mean less scarring, shorter hospital stays and faster recovery times for hip replacement patients. In 2004, based in part on the success of this new offering, Zimmer announced its plans to add 400 new jobs and a $64 million expansion of its Warsaw, Ind., manufacturing and distribution facilities.

Or visit Kokomo, where the Delphi Electronics operation employs nearly 6,500 Hoosiers. Delphi’s success has been driven by a mix of high-tech products that include integrated circuitry, safety electronics, power modules, audio equipment and more. By producing components that require advanced manufacturing processes, Delphi is thriving while many other automotive manufacturers are cutting back or moving offshore.

The seeds of a similar success story were planted just last week in West Lafayette, where Sikorsky Aircraft Corp. selected the Purdue Research Park as the site for a new helicopter engineering and design facility operated by its subcontractor, the Butler Technical International Inc.Group. Sikorsky’s products include helicopters flown by all five branches of the U.S. military; the company has also supplied all presidential helicopters since the Eisenhower administration. The Purdue Research Park, which was recently named the nation’s "Outstanding University Research Park" by the Association of University Research Parks, provides Butler with a strong network of support services and proximity to Purdue’s engineering and aeronautics expertise.

The Sikorsky/Butler operation will initially mean 50 jobs for Central Indiana. The number of staff could grow to 200 by the end of the year and by as many as 500 positions over the next several years depending on contract awards. That’s great news, but even better is the kind of jobs being created: research and design positions that build intellectual capital.

In today’s economy, innovation creates opportunity. The manufacturing sector accounts for 70 percent of all U.S. industrial research and development. If Indiana attracts a larger share of this R&D investment and becomes a source of cutting-edge manufacturing and product development, we can build an advanced manufacturing sector that serves us as well — or better — than our traditional manufacturing base of the last century.