Custom-made shoes to fit your feet? Live in the shop?
In this presentation Century Management’s founder Arnold van den Berg explains why 3D printing is going to lead to an improvement in productivity and how this increased productivity leads to wealth creation. But this time, I believe the consumers will benefit.
The Wealth Creation Cycle according to Century Management
Century Management’s definition of Wealth
Obsolete manufacturing facilities
The drawbacks of this coming whirlwind of change to manufacturing companies is job losses and obsolete manufacturing facilities. Even though in Europe and the US many manufacturing jobs were outsourced in the last decade, there are still many plants left, employing still significant numbers of low-skilled laborers.
For example, what will happen with a bicycle factory in France which is now protected by EU import barriers against cheap Chinese bicycles?
If it doesn’t want to lose out against competition, it will have to start buying 3D printers, hiring engineers and designers and will have to start closing factories, firing production line workers and set up 3D printing hubs in every corner of the country, perhaps in every other bicycle shop.
Competition will be higher, competitive advantages short-lived
However as 3D printers will become cheaper every year, competitors will start appearing and key competitive battlegrounds will be intellectual property, safeguarding access to the latest 3D printers, materials, retaining the best engineers and most original designers and have a fine-mazed distribution network (bicycle shops with production facility?)
This will lead to very thin profitability margins and business models being turned upside down, there’s no EU import barrier to prevent this development.
What does this mean for investors?
After the technology sector, the heavy capital intensive manufacturing sectors will have their business models constantly turned upside down.
Owning a traditional factory could very well turn into a liability as competition turns abundant and profits turn into losses.
Subsequently fixed assets will have to be impaired and the debt used to finance these assets will be uncovered, leading to restructuring and losses for equity holders.
But debt is not the only liability, think expensive pensions, severance pay for redundant employees and more. Remember what happened to US car manufacturers with uncompetitive labor costs and obsolete car models?
Who will profit from this productivity gains?
For investors, productivity is a great gain, however 3D productivity will not be limited to the company you’ve invested in. It will rather be the new normal and if your company is not flexible enough to adapt…well forget all those stable cash flows you’ve counted on.
So run this scenario when you decide paying for a company’s future cash flows. How will 3D printing affect the business model? How much is current management thinking about or already applying 3D printing techniques?
Thanks to free competition in the end most productivity gains from 3D printing will go probably to the consumer. Manufacturers should prepare for an open competitive landscape and move first to safeguard their competitive position for the years to come.
Beware Myopic Politicians
A significant unknown are protective measures by myopic politicians to avoid 3D competition from destroying jobs. Pursuing this path will lead to temporary job protection, but uncompetitiveness and a dis-incentive to innovate and forcing their citizens to pay more than their peers in other countries. Leaving less money to productively invest in the economy. But unfortunately, career risk is also a strong incentive for politicians to make bad decisions.
See for a sad example Brazil’s expensive clothing prices and inferior textile industries. Ever bought clothes in Brazil? 4 times US prices and inferior quality fabrics. Middle and upper class Brazilians travel to US to buy furniture, electronics, wedding dresses, clothes and more. Hardly a sustainable and fair situation for the country’s population.