Adopting New Manufacturing Technology: Can it Help Declining Manufacturing Industries?

Expert groups such as the President's Commission on Industrial Competitiveness see innovation in manufacturing processes as vital to strengthening mature American manufacturing. At the same time, management experts largely ignore such innovation as a way to improve a firm's competitiveness in a declining manufacturing industry. Economists' research offers insights into the effects of technological innovation and suggests that management experts underestimate the importance of new technology. The research suggests that early innovators in a declining industry can profit from innovations in manufacturing processes, although later innovators may only reduce their losses. The profits are a function of time required for the innovation to diffuse through the industry, size of the firm's market, and initial reduction in costs. Many factors, in turn, influence an innovation's diffusion rate. Process innovations can also make declining industries more competitive in international markets as an innovation becomes widespread. An American industry's position in international markets generally depends on innovation, but innovation cannot make all mature industries competitive.