Perils of Pivoting

Dieter Adam, 21 Nov. 2022

It has become very fashionable to talk about pivoting – politicians and officials in particular seem to embrace the idea wholeheartedly, as long as they can recommend it to others.

But it is true that in some instances businesses need to completely re-invent themselves, or go under. Kodak is the usual example quoted, even though the company still exists, at a >$1 bn turnover, and with a combination of commercial printing equipment based on digital technologies – and, still, analogue 35mm film for professional filming ( ).

Right at the moment, there is a big push for car companies to switch production to EVs. That is less of a problem for them, than for their suppliers. Other than for the bodies, car companies are largely assemblers, rather than manufacturers, and, increasingly, system integrators as the use of digital technologies in cars steadily rises. Their suppliers, however, are often quite specialised in their pro­duct range, so as their products will be less or no longer required, they face problems. Think fuel injection systems or gearboxes, for example. Bigger component manufactures like Bosch, Continen­tal or ZF, have taken prudent measures themselves early on to adjust their product range to those that will still be required in EVs. Still, they face difficult times, partly because the change from ICE technology to electric drive systems is now happening faster than they can accommodate. Con­tinental are still facing financial challenges, for example, and Schaeffler have just announced laying off 1,300 of their global work force of 83,000; most of these redundancies are happening in Ger­many. And for the large number of SMEs that produce machinery and equipment – or sub-components – for these companies, the situation is a lot more dire.

There is another aspect to this, however – the loss of skills. ICE engines are rapidly disappearing from cars, but not so for trucks, and even less so for large mobile or stationary machinery – tractors, earthmoving equipment, large generators, etc. And quite a few of the components of their drive trains – usually diesel engines – are manufactured by companies that have traditionally supplied the car industry. Keeping those factories running just to supply a relatively small market, at least in Europe, is not viable, so these factories – and with them the knowledge and skills to manufacture and continuously improve these components – are moved, usually to China. What that also means is that Europe will in future be dependent on China to supply spare parts for engines that often have a key role in building or maintaining infrastructure, for example, and tend to have quite long service lives – not quite what European proponents of ‘friendshoring’ would like to see.

Another, ‘historic’ example, is nuclear technology:

Workers walk past the material entrance inside the reactor building on the construction site of the third-generation European Pressurised Water nuclear reactor (EPR) in Flamanville, France, June 14, 2022

Even before the most recent events in Europe, the French government had decided that revitalising its nuclear energy industry would be an important factor in reducing the country’s reliance on ener­gy from outside, and help reducing its carbon footprint. In the UK, two new nuclear power plants are under construction, and government plans call for up to 24 GW of new nuclear capacity by 2050 to provide about 25% of the country’s electricity. One of the key constraints in the pursuit of these plants is a dramatic shortage of skilled labour at all levels, from welder to design engineer – most of the welding at the Flamanville plant is being done by contract workers from abroad.

Beyond generic skills shortages, there is a specific issue here: Even in France, and until very recently, both government plans and the mood in the general public were “grow green energy, wind back nuclear”. Little good reason, therefore, for young people to seek training for a career in an industry that is seen as unattractive, and unwanted. It will take years to change sentiments and create enthusiasm for the sector among young people, and then still 5 to 7 years of training from scratch for specialist engineers.

Is there a lesson for us? Well, digital manufacturing (Industry 4.0) was ‘invented’ in Germany more than 12 years ago, and by now even SME manufacturers can adopt these technologies at increasing­ly affordable prices. What is not available in sufficient quality and quantity is the workforce required to operate in an Industry 4.0 environment. That still is the #1 reason manufacturers cite for holding back on investment in these technologies. Our Schools of Engineering have only recently started to offer the education and training required – not to mention the almost complete absence of offers in our polytech system.

One of our next skills challenges is likely to be designing and manufacturing products for a circular economy and developing associated services that add value for customers. We may / may not agree that the world should go that way – but in the end our customers and/or government will decide. Also, a strong push for a circular economy with any significant impact on most of our manufacturers may not even happen. Yet, growing market and government demands for a (more) circular economy are more likely than not to eventuate – requiring us to be prepared, for which developing the requi­site skills at all levels one of the very first steps to take.

So, if you wanted to encourage your child to train as a technical expert in the principles of circular economy in manufacturing, where could they go? Good question …

There is an inherent lag in the response of our (vocational) education and training system to changes in manufacturing technologies – be that products or processes. Whether that’s technologies that are completely new, or technologies we have abandoned, only to discover we might still need them – the way our system works at the moment, it isn’t able to react as quickly as the introduction of new technology happens. That applies to finding experts willing and able to act as trainers, developing training materials and acquiring machinery and equipment to train on.

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