This study provides conclusive evidence to support the view that small plants are slower than larger plants to adopt manufacturing innovations. This empirical study based on over 1000 US manufacturing plants engaged in producing discrete products, studies the adoption of manufacturing technologies in small plants relative to large plants between 1993 and 1997.
Under the assumption that small manufacturers are disadvantaged, several federal and state programs have been created to assist small manufacturers in acquiring and adopting manufacturing innovations. Through quantification of technology adoption in small manufacturing firms, this study’s findings reveal which manufacturing innovations are in greater need of governmental assistance programs. While small plants are making progress over time in catching up with larger plants in computerized technology use, they are not making similar progress in adopting manufacturing technology innovations in soft technologies. Several propositions for future research and recommendations for public policy are offered.
Small manufacturing firms are vital to the US economy. For example, over 70% of all manufacturing plants in the industries conforming to Standardized Industrial Classifications (SICs) 34–38 (a description of these industries in the Standardized Industrial Classification of the US Department of Commerce appears later) are small plants with less than 100 employees; there are over 30,000 such small plants in these industries (Bureau of Census, 1993). Yet, small manufacturing firms, which are in a majority in this country, are at a disadvantage. Consider this:
Most of the literature on competitive strategy—from the fields of business strategy, marketing and industrial organization economics—has focused on the advantage of large firms and high market share: … (Fiegenbaum and Kirnani, 1991; p. 101).
Swamidass (2000a) found that more than 67% of US manufacturers report manufacturing cycle time reduction, manufacturing cost reduction, product line increase and ROI increase as a result of manufacturing technology use. Literature records that larger plants use more manufacturing technologies than small plants (Swamidass and Kotha, 1998; p. 31). The focus of this study is to estimate how much small plants lag behind larger plants in manufacturing technology use.
6.1. Under the assumption of market failure
Policy makers have made tangible policies backed by budget appropriations to help smaller manufacturers become more competitive through the use of manufacturing technologies (Federal Technology Report, 1996 and Franks and Meehan, 1994–1995). One could argue that these policies are at least partially based on an assumption of market failure. One theme of these programs is to make smaller plants comparable to larger plants in technology adoption in the hope of making small plants more competitive.
Regardless of whether one accepts market failure in this matter or not, this study provides a quantitative estimate (the SPMTAR) of the difference between small and larger plants in their use of specific manufacturing innovations; the quantification enables a better assessment of technology use in small plants for public policy purposes. Given that public assistance programs are already in existence, the following two recommendations may help to increase the effectiveness of these programs.
6.1.1. Emphasize soft technology assistance
Since SPMTAR is stagnant over time for soft technologies, assistance programs meant to help small manufacturers must pay relatively more attention to the adoption of soft technologies such as JIT, TQM, SQC, and MC for improved pay off from the tax dollars spent. Successful adoption of soft technologies require much training, much cross-functional cooperation, planning and control system modifications, process changes, etc., which may call for expertise that small plants may not have.
6.1.2. Address the lack of funds and technical know-how in small firms
The findings of a study by Swamidass (2000b) show that a continuous improvement theme in some plants provides for an umbrella of funds for capital investment in new manufacturing technologies. The word must get out to small manufactures about the evolving trend towards investing in manufacturing technology for continuous improvement.
Further, Swamidass (2000b) found that some US manufacturers think that it is foolish not to invest in manufacturing technologies because most manufacturers recover their investments in less than 2 years; a payback of less than 2 years implies a return far in excess of prevailing cost of capital. Small manufacturers should be made to realize that it is foolish not to invest in manufacturing technologies because the returns are high. A part of the solution may lie in the education of small firms on the robust return on investment experienced by firms that invest in manufacturing technologies for continuous improvement, or for strategic purposes.
6.2. When market failure is not assumed
One may argue that the lag in the use of certain technologies by small plants cannot be attributed to market failure and therefore no public response is needed. According to this line of thinking, if small firms need know-how, they could use existing knowledge diffusion programs; if they need to change processes, consultants could help; and if they need capital, they could turn to internally generated funds, capital markets or creditors.
6.2.1. A less complex environment in small plants
If the environment in small plants is less complex (or simpler) than larger plants, one may argue that the smaller plants need not equal the larger plants in technology use to be competitive. This alternative explanation for the differential use of technologies in small and larger plants would render intervention through public policy unnecessary. Therefore, an alternative proposition to investigate in the future would be the following.
Alternative proposition: the inherent simplicity of the manufacturing environment in small plants reduces the need for manufacturing technology.
In an in-depth study of technology use in US manufacturing firms, Swamidass (2000b) found that companies in high-growth electronic industries financed their new manufacturing technologies at “lightning” speed using internally generated funds. These firms enjoyed generous cash flow. Further, they had a low or non-existent debt. However, small manufacturers in mature industries are particularly low in internally generated funds for investment in manufacturing technologies. In such environments, investment in new manufacturing technologies slows down, or investments are made with greater caution. That is, market growth dictates which industries would have generous funds for investment in new technologies and which would not. In this situation, it is up to the public policy makers to decide if they want to intervene and provide assistance to small plants in certain mature industries in need of capital for investment in technologies. Although, those who are against market intervention may argue against such help saying that the market should pick the “winners” and “losers” among industries.
