- Read the article carefully. What’s the difference between a manufacturing and service company?
- Well, what do you think? Should a company that designs a product, potentially buys the materials, and sells the product, but does not actually make the product be called a manufacturer?
U.S. Agencies Consider Redefining Manufacturing
Counting ‘Factoryless Goods Producers’ Would Boost Size of Industrial Sector
March 14, 2014 7:08 p.m. ET
Rich Cameron in the Carson Optical R&D room. Jason Andrew for The Wall Street Journal
HAUPPAUGE, N.Y.—Should a company be called a manufacturer if it doesn’t make what it sells? The answer isn’t as obvious as it seems. Just ask Rich Cameron.
“If someone asks me at a party, I say we make binoculars,” said the president of Carson Optical Inc., a small company tucked in an industrial park in this New York City suburb, adding, “It’s a little bit more vague than saying we manufacture them.”
Some refer to companies like these as “factoryless goods producers”—firms that handle every part of making their products except the actual fabrication. As industries have gone global, this model has proliferated from furniture making to electronics: Think of Apple Inc. and its iPhones. Now, there is a move afoot among U.S. government agencies to count these companies as manufacturers, which is a surprisingly fraught issue.
The upshot would be an overnight increase in the apparent size of the U.S. industrial sector without adding a single assembly line. It would also change its geography, as places like Silicon Valley would suddenly look much more like a manufacturing hot spot. Backers of the change say this would give a truer picture of the nation’s productive capability, because these firms still do most other functions of manufacturing, from designing goods to overseeing their production and distribution.
Lead engineer Michelle Hyers looking at fabric structures through a microscope. Jason Andrew for The Wall Street Journal
But critics like Miles Free, director of industry research and technology at the Precision Machined Products Association, a trade group for small U.S. producers, say the change in wording would gloss over the erosion of domestic manufacturing. “We think it would be bad for policy makers to say, ‘Look at these numbers, we have great manufacturing,’ ” he said, when the production in many cases is actually taking place on the other side of the world.
It was Mr. Free’s idea to put a picture of Joe Isuzu—the notoriously dishonest faux auto pitchman—on the group’s website to illustrate a story on the issue.
Government agencies say the proposed change—which could affect everything from the monthly jobs report to producer inflation figures—is simply driven by a desire to properly account for the effects of globalization.
One visible change would be in the Census Bureau’s survey of business, done once every five years, which contacts business locations across the nation and asks them questions about their operations. Until now, most operations like Carson were counted as wholesalers in the survey.
In a research paper released last year, two professors at the Tuck School of Business at Dartmouth College estimated the redefinition would have added anywhere from 431,000 to nearly two million workers to the manufacturing sector in the 2007 Census survey.
One reason for that wide range is that it is difficult to know how many factoryless goods producers there are, because not all wholesalers answer the questions that would allow them to be identified as falling into this new category.
“I’m not sure if this is a good idea or not,” says Andrew Bernard, one of the authors, “but if we don’t understand what’s going on, we might implement bad policy.”
Government economists say the change, if it occurs, wouldn’t happen before the next Census survey in 2017, and that it isn’t a done deal. “We’re working hard to understand all the potential problems and how to do this,” said Maureen Doherty of the Labor Department’s Bureau of Labor Statistics, who heads a committee made up of representatives of five agencies working on the issue. Mindful that the change could make it hard to compare numbers over time, she said they intend, whenever possible, to break out the number of factoryless-goods producers as a separate category in manufacturing.
A stroll through Carson Optical shows why companies like these can be hard to label. Mr. Cameron, a former banker, started the firm 23 years ago after a stint working in Asia, where he saw the potential to import optical goods from Japan.
But the firm today has evolved far beyond just importing the things that others create. In a conference room near the front, the walls are lined with products Carson’s three-person engineering team has designed, including a hand-held microscope used by medical-marijuana growers to study their plants and an anti-reflective lens device that can be clamped onto binoculars and gun sights.
Carson holds 94 U.S. and overseas patents. The company closely monitors how its goods are made, in some cases buying materials needed to make them and sending them to the factories in Asia.
And the evolution continues. Mr. Cameron is shopping for his first computer-guided production machine and is preparing to move to a bigger nearby building to accommodate his growing design and development operation. He plans to use the new machine to make better prototypes but doesn’t rule out someday making some of his own goods.
Michelle Hyers, the company’s lead engineer, said she has the same problem as her boss when people ask her what she does. “I say we make consumer optical products,” she said, using her fingers to mark air quotes around “make.” “We’re not producing here in the back,” she adds, “but we control the whole process.”
Write to Timothy Aeppel at firstname.lastname@example.org