In a forthcoming paper my co-authors and I examine if plant exports influence the link between manufacturing technologies and performance. Over the course of last two decades there has been a steady degradation of technological and competitive capabilities of manufacturing firms in several developed nations. Proponents of trade-liberalization have asserted that a policy aimed at increasing exports could help in resurrecting the manufacturing sector and strengthening manufacturing competitiveness. Trade liberalization provides new set of opportunities and instigates innovation and adoption of new technologies. Since competition brings out high degree of innovation and improved performance, it is reasoned that a firm that is exposed to foreign markets will seek to use new and advanced technologies for competitive performance. International trade also facilitates transfer of knowledge and ideas pertaining to technology and innovation, and international best practices, which contribute to learning and productivity growth in manufacturing firms. Further, exporting also enables scale economies because of expanded markets which permit increased technology use and innovation. It has also been noted that exporters are more likely to develop staff competencies in technology use.
In concert with this expected link between innovation capabilities and exports, we witness several policy decisions that are trying to bring the two issues together. For instance, the recent National Export Initiative (NEI) aims to double American exports over the next five years. While the core aim of this initiative is to bring the unemployment level down, it will also positively impact manufacturing innovations provided the policy consciously consider the need to propel export of manufactured goods. The 2010 economic report released by the Council of Economic Advisers of the Presidentof United States emphasizes asserts that the government is interested in taking concrete steps to encourage exports. Several governmental agencies, such as the Trade Promotion Coordinating Committee, Export-Import Bank, and Commerce Department are engaged in helping firms export.
Interestingly, while these policy initiatives consider a link between exports and innovation, it is unclear how these patterns of innovations would manifest in manufacturing plants. To gain clarity on how manufacturing plants will gain innovation-based competitive advantage from exports, it is important to undertake an in-depth examination of process innovation patterns within manufacturing plants. It is important to link the macro-economic context of trade-liberalization and exports with micro plant-level technology and process realities. This will help in extending our knowledge base beyond the current understanding that has mostly focused on firm and national innovation competitiveness. This study’s thesis is that exporting manufacturing plants face strong competitive pressures and consequently adopt advanced manufacturing technologies to maintain competitive advantage. We empirically examine this thesis by using historical data from a period in which U.S. plants witnessed increased trade and growth.
Specifically, we focus on the period of 1993 – 1997 which presents an excellent setting for this study. Between 1993 and 1997, the United States enjoyed a sustained economic expansion with real GDP growth averaging over 2.8% during the years 1992-96 and accelerating to 3.9% in 1997 and 1998 partly due to the impetus provided by trade and investment liberalization resulting from the Uruguay Round Agreements and the North American Free Trade Agreement (NAFTA). In essence, the time-frame represents a period of high export growth in the United States. The impressive growth during this time period was enabled by the growth in investments in technology, plant, equipment, and other productivity enhancing factors due to the ready availability of external financing and the marked reduction in government borrowing, which left more resources available for private use (World Trade Organization, 1999). The insights gained from this period characterized by increasing exports provide a valuable baseline of the linkage between exports, skilled use of technologies, and performance. It has been observed that the U.S. economy goes through cycles of expansions and contractions. The lessons learnt from this study may be used to understand the problems of US manufacturing sector now or in the future.
Using this macro-economic environment as its background, this study adds to the literature by examining how exporting plants differ from non-exporting plants in terms of their use of hard and soft manufacturing technologies; no previous study has ever investigated this issue. The study posits that plants with varying export intensities differ in terms of the use bundles of practices within the set of hard and soft manufacturing technologies. As overall exports within the economy increase, the emphases on technology bundles change and evolve over time. Further, the study examines how the emphases placed on the bundles of soft and hard manufacturing technologies impact performance over time.
The paper integrates the macro-economic environment and the issue of plant exports with the rich stream of literature in operations management domain that focuses on manufacturing technologies. Studies have distilled the difference between technology investments and technology use and have asserted that it is the latter that leads to performance improvements. We consider the skilled use of technology and examine its impact on firm performance. Furthermore, manufacturing technologies can be classified into hard and soft technologies. Hard manufacturing technologies generally include capital intensive investments in manufacturing operations, such as flexible manufacturing systems (FMS), computer integrated manufacturing (CIM), computer-aided manufacturing (CAM), computer-aided design (CAD), robots, automated inspection(AI), local area networks (LAN) and computer numerical control (CNC) machines. On the other hand, soft manufacturing technologies focus more on the planning and administrative practices such as just-in-time (JIT) manufacturing practices, materials requirement planning (MRP I), manufacturing resource planning (MRP II), manufacturing cells (MC), statistical quality control (SQC) and total quality management (TQM). In our research investigation we explicitly categorize manufacturing technologies into hard and soft technologies to gain deeper insights into the distinct ways in which the use of these technologies relates to exporting and to understand how these technologies impact performance outcomes.
The paper employs several multivariate statistical analyses techniques to examine four hypotheses that link plant exports (high, medium, and non-exporting), manufacturing technologies, and performance (objective measures of plant rejects and lead time from orders to shipment). The results of this study indicate that exporters engage in more skilled use of manufacturing technologies than non-exporters. Further, exporters not only have higher skilled use of manufacturing technologies from non-exporters, but they also expand the scope of technologies that they skillfully employ in their operations. We find that over the course of liberalized trade regime, medium exporters get closer to high exporters in their skilled use of manufacturing technologies providing evidence of learning effect from exporting. Finally, higher skilled use of manufacturing technologies by high exporters translates into lower rejects and shorter lead times. However, non-exporters were not able to gain similar benefits from using manufacturing technologies.
The results of this study indicate that exporters not only invest more in manufacturing technologies, they also engage in more skilled use of these technologies than non-exporters. The skill-biased technical change in 1980s has resulted in changes in production practices; the introduction of computers and related technologies increased the demand for more educated workers. Further, plants with outdated technologies were replaced by plants with latest technologies. Export sales were found to be strongly correlated with increases in between plant movement of skilled labor, suggesting that the skilled use of technologies by exporters may be a function of the skilled labor advantage that exporters have over non-exporters. Overall, the finding that exporters are more active in skilled use of manufacturing technologies corroborates previous research.
The results of this study indicate that over the course of liberalized trade regime, medium exporters get closer to high exporters in their skilled use of manufacturing technologies. This emphasizes the role of exporting, irrespective of its relative size, in instigating the skilled use of technologies. In essence, we find that, over time, exporting plants learn the need for improving their innovation capabilities by skilled use of technologies. Trade liberalization results in increased economic efficiency manifested in terms of gross domestic product (GDP), foreign direct investment (FDI), employment, and trade balance. The results of this study highlight that trade liberalization also play a positive role in manufacturing innovations. This is further corroborated by evidence of an expanded scope of technology use by high exporting plants as time progresses within the free trade regime.
The results of this study find evidence for “learning by exporting,” specifically as it relates to manufacturing innovations manifested by skilled use of hard and soft manufacturing technologies. This learning by exporting is a result of information exchange within foreign markets as well as due to the increased competitive needs to complete in the global stage. International buyers of goods provide informational assistance to improve process technology of exporting firms and trigger the skilled use of installed technologies in the plant. Further, these buyers also expose the exporters to competition and make them privy of their products, manufacturing processes, and technology use. Exporters not only have higher skilled use of manufacturing technologies from non-exporters, but they also expand the scope of technologies that they skillfully employ in their operations.
We find that from 1993 to 1997 exporters enhanced the range of technologies in which they differentiate themselves from non-exporters from 5 (Automated Inspection, CAD, CNC, LAN, and Robotics) to 8 manufacturing technologies (Automated Inspection, CAD, CAM, CIM, CNC, FMS, LAN, and Robotics). With regards to the skilled use of hard manufacturing technologies, exporters engaged in combinative capabilities.
We also observe the adaptive nature of learning as seen in the case of the skilled use of soft manufacturing technologies in which exporters distinguish themselves. Over the course of 1993 to 1997 exporters adapted the need for JIT practices in their operations. As a part of their technology bundle in 1997, exporters replaced TQM (one of the differentiating soft manufacturing technology in 1993) with JIT based on changing competitive needs.
Business leaders have long reasoned that exporting is good for firms since the competition is fierce in international markets than domestic ones, demanding higher levels of performance. Opportunities for technological or knowledge spillovers and learning increase when firms are competing in foreign markets. Progressive firms realize that exports are important for sustained future growth and hence improve performance before embarking into foreign markets. Thus, while firms might be similar in their performance before making the decision to export, once a firm decides to export it substantially increases its performance relative to others in the industry. Exporting is also associated with reallocations of resources from less efficient to more efficient firms. This provides inherent advantage to exporting firms as compared to non-exporters.
The results of this study indicate that higher skilled use of manufacturing technologies by high exporters translates into lower rejects and shorter lead times. We also find that these high exporters were able to exploit the complementarities associated with skilled use of technology and exporting. In 1997 only high exporters were able to gain the positive impact of skilled use of soft manufacturing technologies on their quality and delivery performance and were not affected by the adverse effects of the skilled use of hard manufacturing technologies. Non-exporters were not able to gain the benefits of soft manufacturing technologies, but were being adversely impacted by their hard manufacturing technologies.
Interestingly, an analysis of high, medium and non-exporters indicate that high exporters were not affected by the constraints of plant size. As a post-hoc analysis the size of exporters and non-exporters was compared and the results suggest that exporting plants were significantly greater in size than non-exporters. The results indicate that exporting plants are able to overcome the liabilities of hierarchical structure and bureaucracy associated with large size and take the advantages of learning, economies of scale and economies of scope exhibited by large plants. The results also indicate that in 1997 plant size did not negatively influence quality and delivery performance. These results once again point towards the positive role of exporting on plant’s processes and consequent performance. We controlled for the process type by using three dummy variables corresponding to “small batch” (PD1), “large batch” (PD2), and “mass production” (PD3), respectively. In our comparisons, the reference process type is “one-of-a-kind.” The results obtained using 1997 data for non-exporters suggest that the lead times were not statistically different irrespective of the process type. This is counter to the expectation that high volume production is generally associated with stable quality and shorter lead times. It appears that non-exporters are not experiencing the benefits of large volume production—an indication of inefficiency and uncompetitive production in non-exporting firms.
Source: Nair, A., Ataseven, C., and Swamidass, P. (2013). An examination of the use of manufacturing technologies and performance implications in US plants with different export intensities. International Journal of Production Research, 51(11), 3283-3299.