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June 20, 2005 – Larry Bock, a founder of Nanosys Inc. and a veteran biotech entrepreneur, is fond of an anecdote about pancreases. Processes like isolating a protein that once required grinding up the pancreases of a thousand head of cattle, he says, can now — as a result of the biotechnology revolution — be performed by a grad student in a lab.
Others in the nanotech industry have picked up on the example as a way of explaining the potential of nanotechnology. But the anecdote also says something about the jobs of the future. As globalization continues its relentless onslaught, the question inevitably arises: Precisely who benefits from this scenario, other than the cattle?
Certainly the shareholders of companies like Genentech, the pioneering biotech outfit to which Bock had been referring, stand to benefit from innovation and the industrial development that follows. The employees of new firms — like Bock, who worked at Genentech after college — benefit, too. And then there are the local economies in which such industries develop. They benefit from the creation of new jobs, the expansion of the local service sector, and from the reinvigorated tax base that results.
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But as state governments in the United States and others around the world increasingly look to nanotech to drive the economic development of the future, three outcomes are becoming increasingly likely.
The jobs that nanotechnology innovation brings won’t look like those of the past. They will be a mix of research jobs, technician jobs, management and service positions, not factories hiring thousands of workers at a time.
The fact that nanotech innovation is a global phenomenon means these jobs will be geographically distributed in clusters around the world, not just in the United States.
And the rest of the world has just as much of a chance of building these clusters as the U.S. — and in the case of micro and nanotechnology, perhaps even a few advantages.
“These are not second rate scientists (in China),” said Roy Doumani, the acting chief operating officer of the California NanoSystems Institute (CNSI). The institute is a joint effort of the University of California, Los Angeles and University of California, Santa Barbara to collaboratively develop 21st century technologies.
Nanotechnology is as ripe as any other area for global development, says Doumani, and there is cutting-edge research going on all over the world. Given the extraordinary financial constraints put upon startup businesses to succeed, there is as much pressure on them to source intellectual know-how to the global market as there is for them to source manufacturing globally.
In short, it’s not just call centers that are moving to India, but legal services, too. And, at the highest end of the service sector, the very wellspring of innovation is now portable: scientific research.
Doumani and other experts say the global market for intellectual capital also gives a leg up to other countries. A case in point: CTI Molecular Imaging Inc., a Knoxville, Tenn., developer of imaging equipment and services, went to China last year on a trip organized by Doumani and CNSI. While there, CTI cut a deal with Zhejiang University to give the university a positron emission tomography, or PET, scanner in return for access to research. Some of that research will use the scanner to make comparisons between different types of cancer treatments.
For CTI, it’s a two-way street. Scientists in China will use its tools, which helps it develop a new end-user market. At the same time, the feedback from scientists will help CTI further develop and innovate with the tools. In addition to selling the imaging machines, CTI also operates various service subsidiaries to perform imaging and analysis. Although the company has not announced plans to outsource such services, having a footprint in China and elsewhere would facilitate such a move.
But outsourcing is still more about labor than having access to brainpower. According to Michael Young, the chief executive of Sensor System Solutions, the cost of manual labor remains the biggest incentive for working in China. Young’s firm recently launched a joint venture with China Automotive Systems to make MEMS sensors in China and sell them there, too. (See page 51 for an in-depth report on his plans.) Packaging MEMS components, he argues, is the most labor-intensive part of the process and it makes sense to do that in a place where costs are lower.
In fact, the simultaneous growth of China as a consumer market and a manufacturing locale has lured many leading international manufacturers of electronics, auto parts and more to set up shop there. For example, both GE and Siemens, two of the world’s largest conglomerates, have global research operations in China and elsewhere in Asia.
For many of these companies, entering China is nothing new. Delphi, the Troy, Mich., auto supplier, has been investing in China for a dozen years. In April, it completed the expansion of a manufacturing facility in Suzhou, about 50 miles west of Shanghai, which it had originally built in 1996. About 600 employees work on audio, powertrain and safety system electronics at the facility.
Not surprisingly, arch competitor Bosch opened a new technology center, also in Suzhou, in April, where it employs more than 200 people working on automotive electronics and brake systems. The company says there will be about 300 people working there by 2008. Bosch has been offering electronic stability and antilock braking systems to the Chinese market since 2002.
But some argue that the outsourcing juggernaut will sail more slowly for existing, entrenched sectors. “It probably depends how capital intensive the manufacturing is,” said Don Bailey, vice president of industry relations at Cleveland-based OAI, a nonprofit organization that acts as a corporate relationship facilitator. “Once you have already made the investment,” he said, referring to manufacturing facilities, “moving it is a real barrier.”
The financial costs, the management of process transfer and intellectual property protection all weigh into the equation. In fact, an April 2005 Deloitte Consulting study found that many organizations that were quick to outsource are now bringing operations back in-house.
The study, based on responses from senior executives at 25 global organizations in manufacturing and other sectors, found that one in four of the companies had brought some functions back in-house after initially outsourcing them; 44 percent did not realize cost savings as a result of outsourcing. In addition, 57 percent of the companies said they ended up paying for things for which they thought their vendors were responsible. In short, unforeseen complexities and hidden costs absorbed much of the hoped-for savings.
A possible exception, Bailey says, is where an existing manufacturing facility can be adapted to make something new. The management issues remain if a company chooses a site abroad but at least new facilities don’t need to be built. The transition of older semiconductor manufacturing facilities to make MEMS devices is a good example. So would the adaptation of roll-to-roll processing methods from making photographic film to making, say, polymer photovoltaic cells.
All of which conspires to put pressure not just on individual states, but also on the U.S. as a whole, to find ways to develop clusters here rather than elsewhere. Other countries face the same challenge — and even the same pressures. In fact, China lost more manufacturing jobs than the United States during the period from 1995 to 2002, according to a July 2004 report from The Conference Board, a New York-based nonprofit public research organization. At the same time, the report found, China was gaining jobs in the service sector, following a pattern familiar in developed nations.
Whether or not the U.S. can maintain its standing as the innovation capital of the world will depend on factors such as education, funding and the ongoing development of technology clusters and corridors. While at first glance that thousand head of cattle seem pretty lucky that they’re no longer needed for the process of isolating a protein. But shift the analogy a bit to cast the cattle as workers and “no longer needed” simply means being out of a job.
Editor’s note: In April, a Siemens subsidiary, Siemens Medical Solutions USA Inc., bid nearly $1 billion to purchase CTI, a transaction which at press time had cleared German regulation and was expected to close sometime in the second quarter.