Georgia Manufacturing Survey Points to Profit & Wage Benefits for Innovation Economic Development Institute

Georgia manufacturers that compete based on innovation in products and processes rather than on low cost earn higher profits and benefit from higher wages, according to the 2002 Georgia Manufacturing Survey conducted by the Georgia Institute of Technology's Economic Development Institute (EDI) and School of Public Policy. Researchers found that on average, annual wages were $10,000 higher at innovative manufacturing firms and returns on sales were almost a full percentage point higher.

However, the majority of Georgia manufacturers are competing based on cost rather than innovation. According to EDI researcher Jan Youtie, that's a bad sign because companies competing on low cost are vulnerable to competition from international producers with even lower costs.

The study also showed that more than half of Georgia's manufacturers underwent major changes in strategy or structure in the last two years, and that company concerns have shifted from information technology to marketing and new product development – with nearly two-thirds of manufacturers now improving or developing new products.

"What was disturbing in this survey is that even more of our manufacturers competed on low price than had taken this approach in the last survey when we were in a growth economy," says Youtie. "So when faced with a stressful economic situation, rather than innovating their way out, they are trying to get out of it by dropping their prices. That's not a good long-term strategy for global competition."

Researchers defined innovative companies as those that were developing new products or processes, improving products or processes, or changing organizationally. Researcher Philip Shapira, a professor in the Georgia Tech School of Public Policy, notes that innovation isn't restricted to companies considered to be "high technology."

"There can be innovative companies in traditional sectors such as textiles, food and apparel," he says. "It may be that they use these process and organizational methods to give themselves leverage in the marketplace in order to distinguish themselves from other companies."

In the survey, manufacturers' reasons for not innovating included cost, lack of available financing, uncertainty regarding benefits, organizational rigidity, lack of market information, lack of in-house systems and disinterest from current customers.

"My sense from the survey is that Georgia's manufacturers are weathering the downturn in the economy," says Shapira. "They are changing their priorities and becoming more interested in marketing and product development. I think that is a good sign."

Other results from the study included:

Manufacturers' priorities shifted from information technology hardware and software to marketing and product development. More than 60 percent of Georgia manufacturers reported doing some type of product development, whether it was developing new-to-the-industry products, offering value-added support services or linking with innovative, out-of-state companies.

Concerns about information technology hardware and software declined from peak 1999 levels. The survey showed that virtually all manufacturers use e-mail and the majority use company Web sites, shared databases and high-speed Internet connections. More than one-third of manufacturers reported that customer requirements drive information technology adoption, and information technology use rose with facility employment size.

About half of Georgia manufacturers underwent major changes in strategy or structure in the last two years. About a quarter reported changes in organizational structure; other top changes included marketing concepts and methods, corporate strategies, internal or external training, ownership and management techniques.

Nearly half of responding manufacturers had at least 20 percent of employees using computers or other programmable machine controllers at least once a week as part of their jobs. One out of five respondents reported that a majority of its employees used computers or programmable controllers weekly. Firms with more than 20 percent of employees using computers had higher than average sales revenues, returns on pre-tax sales and productivity than those with a lower percentage of (or no) computer users.

Twenty-four percent of manufacturers surveyed used Georgia Tech for business assistance. The top benefits reported were improved management and employee skills, improved existing processes and increased productivity.

EDI uses the survey results to tailor its services to Georgia manufacturers, according to EDI Director Rick Duke. "This survey is an important component of EDI's and the state's partnership with the national Manufacturing Extension Partnership (MEP) program," he says. "The results assist EDI in shaping service delivery to Georgia's most important industry sector - manufacturing."

The Georgia Manufacturing Survey is a statewide survey conducted every two to three years by Georgia Tech's Economic Development Institute and School of Public Policy to assess the business and technological paths of Georgia's manufacturers. Between April and October 2002, mail surveys were sent to 4,000 manufacturers with 10 or more employees. Completed surveys from 636 manufacturers were weighted to reflect employment and industry distributions in the Georgia Department of Labor database.

For more information, please contact Jan Youtie (404-894-6111); E-mail: [email protected] Or Phil Shapira (404-894-7735); E-mail: [email protected]

EDI offers an array of services with a common objective: to grow Georgia's economy by providing technology-driven solutions to the state's businesses and communities. For more information about EDI, visit http://www.edi.gatech.edu

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