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Let the Stock Market Not Write Off Manufacturing Capabilities

14 March 2007 - Features - Editor

They teach you in management schools that economies transit from agriculture to industry, and then on to services. A stock market therefore rejoices when manufacturing jobs are shipped abroad, boosting this quarter’s profits. Executives earn pay rises and perquisites spinning yarns about how they manage toll manufacture, and gain time to focus on things such as marketing. Is the genius of the Ford assembly line dead?

Enduring stock market values are built by raising entry barriers for others. Manufacturing has a crucial role in this process. The functions associated with production are not static and continue to evolve to this day. New materials are major components of new developments which have begun to transform ways in which products are made. Stock market members who are invited to visit plants owned and managed by companies in which they are invested, never cease to be amazed by the rapid pace of new processes in the world of manufacturing.

Robotics and artificial intelligence also have increasing parts in modern factories. Automobile manufacturers are amongst the most developed in this respect, but these advanced technologies have enormous productivity implications for all others sectors as well. Most of these advances require large investments in fixed assets, but returns on well managed projects are most gratifying for stock market interests.

The learning curve is inescapable when it comes to manufacturing. You can acquire expertise relatively quickly in other disciplines such as marketing and finance, but each production unit has its own foibles and special circumstances. This is why the stock market often experiences dramatic changes after manufacturing capacities first change hands-you may have possession of the plant ,machinery, and land, but what if key personnel disappear?

Some observers believe that the stock market emphasis on fields such as financial services and Information Technology may have been exaggerated, to the extent that engineering excellence has receded to the background. Boeing is a gold standard when it comes to studying how the production function can lead to business excellence, especially when integrated fully with Research and Development.

The best stock market picks of the future are likely to be ones with strengths in the manufacturing area. Companies which depend on others to produce their products are likely to find that they have become out of date with obsolete designs, or simply unable to compete on the price front. Short term profit gains by outsourcing production will eventually lead to dilution of know-how and creating Trojan horses within one’s own ranks. This is an opportune time for stock market investors to shift portfolios away from blue chips who depend on others for production to bargain securities of units with state-of-the-art manufacturing technologies.

 


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