Building U.S. Ownership of IoT

The Internet of Things (IoT) promises a massive expansion of gadgets and sensors for a range of use from industrial to medical to personal. It will be a huge business, both in the number of smart devices created and the resulting explosion of data and IT processing.

Clearly, the largest market in the near-term is the United States. Smart sensors need an affluent society to be adopted in volume. Moreover, the US is gadget conscious, as demonstrated with Apple's success. But there is a question. Where will all these sensors be made?

 Standard logic would say that the cheapest point of high volume manufacturing will be the winner. That is long-hand for China, of course! This deserves a bit of scrutiny, though, since the business model more most of these sensors may not strictly follow the “high-volume” model. In fact, there is a good likelihood that this will be a market characterized by small-volume, semi-custom, or custom designs.

In fact, this will be the place that 3D printing finds its way into mainstream production. The technology of 3D printing has already reached the point of rapid production of precision robust parts and is ideally suited for the production of the small parts needed for most sensor applications.

Examples are medical wristband sensors, implanted detectors, and the sensors used in autos. Repackaging sensors for specific use cases is easy with 3D printing, and parts can be built that are impossible to mold in a single piece. 3D printing can be an on-demand process, which allows a much more agile manufacturing process and low inventories.  This ends three-month production pipelines and fire sales of excess stock, while speeding up the design change process tremendously.

All in all that's a win for the manufacturer, which raises the next question. Why assemble sensors in China? Good inventory management practices suggest that, with an on-demand component supply cycle, the best place for component fabrication and unit assembly is local to the product’s final consumer.

In other words, the Internet of Things lends itself to on-shoring!

Look at the other dynamics operating. Labor costs are rising in China, reducing the advantage demonstrated so well with the iPhone. In fact, China Inc. is considering extensive use of robots to stay competitive. Robots are immune to nationalistic fervor and could relocate to the U.S. without much trouble! That basically flattens the labor cost playing field, and leaves the increased agility of local manufacture as a huge bonus.

The typical pipeline from China is around 12 weeks long, and this would go away with production in the US. Speaking of pipelines, the feedstock for all those parts is petroleum, and the US is almost awash due to fracking, while China lucked out geologically.

It's worth noting that much of the core technology for the Internet of Things comes from U.S. companies like Intel, AMD, Broadcom, and Texas Instruments. Some of these were originally incented to build in China because of the lax pollution rules there, but China is being forced to clean up its act by internal pressures, and, frankly, corporations should be looking to run “clean” businesses wherever they fab product, even when third-party suppliers take on the pollution burden.

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On the other hand, the Green movement has to realize that pristine environments without good jobs aren't the future of the U.S. Rather than jerking their knee at the slightest smell of pollution, we need a New Age approach that works the issue with the culprit in a way to avoid pollution where we live or recreate. After all, we did a fine job of this with the ubiquitous garbage dump!

Will this on-shoring happen? Will business owners have the vision to see beyond “how things are always done“? Will the large Chinese fabricators give up easily?

Of course, these are the questions that must be asked and answered. Something has to trigger the evolution. There have to be brave souls who take the first step and invest in facilities to build meaningful quantities of “Things”. This is a place for government intervention, both at the State and Federal levels. Investment grants, favorable tax considerations, perhaps even direct subsidy are needed to help nurture the idea. Government should look on this as a way to clean the “rust” off the Rust Belt, and bring desperately needed jobs to Chicago and Detroit, for example.

Banks and investors also need to take some risk. This will involve a lot of money in the longer term, but again, the need is for some free-thinkers to look beyond prevailing “wisdom” and provide seed funding for early onshorers.

As for the Chinese mega-builders, this would be a good test of whether they really want to be multi-national, or are just organs of China Inc. With no need for millions of laborers, they have a one-time opportunity to move out into the bigger modern world. We'll see if they can make the jump and build in America. Maybe those government incentives should apply to them, too?

Last month, HP announced the sale of a controlling majority ownership of its server and storage business unit to a Chinese quango. This is due to the “Buy China” program that resulted from revelations of NSA spying via hardware. With China having also been caught out adding spyware to gear sold into the US, we could be in for a corresponding U.S. response to “Buy America”. Given the one-way trade in electronics and the barriers China is placing to U.S. entry into their market, we may even see a customs tariff on Chinese electronics.

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