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Marketplace.

Asked recently if his company's marketing executives would care to speculate on the auto markets of the future, a spokesman for one of the Big Three automakers replied, "No, thanks. Our people have sworn off forecasting.

"Why? Well, mainly because we've been burned too often. Certain journalists, particularly in the general news media, have taken our forecasts--they're really only educated guesses--and turned them into declarations of fact. Later those so-called facts come back to haunt us.

"Cars of the future? Third world markets? Very interesting to speculate about, but we'll pass, thank you," he added. "Besides, if you want to know the truth, our people are a lot more concerned about what the prime rate will be next year."

So what's the answer? How do you make reasonable, useful forecasts on the marketplace of the future?

Facts are what you need. Hard, tedious facts. Lots of digging and reading in the right places, and then some cautious extrapolation, with the solid lines prudently fracturing into dotted lines.

In the sections that follow, we're attempting to report facts--along with a few opinions from qualified sources--that will help you to plan for the future. You won't find all the facts you need, but perhaps you'll at least become inspired to dig, ask questions, think, and start constructing concrete plans. Trends to watch in the US marketplace

As you casually observe the people, trees, houses, cars, and other phenomena on the street come and og as usual, a neighbor gets a new car, another moves away, and season blends into season.

Deep down, though, the magma flows, and the plates shift. Important changes are taking place; you may not see or feel them, but they will have profound effects on the American marketplace of tomorrow. We're getting older and...

Back in October, 1982, the US Dept of Commerce's Bureau of the Census issued an interesting and important document called "Projections of the Population of the United States: 1982 to 2050 (Advance Report)." The projections are based on the July 1, 1981, population estimates and race definitions.

Among the Bureau's forecasts that would have a bearing on your company's marketing and manufacturing plans are the following:

Life expectancy for US males is assumed to rise from 70.7 years in 1981 to 73.3 in 2005 and 75.1 in 2050. Life expectancy for females will likely rise from 78.3 years in 1981 to 81.3 in 2005 and 83.6 in 2050.

Fertility rates are expected to remain fairly steady, increasing slightly from 1.83 births per women in 1980 to 1.96 in 2000, and then decreasing to 1.90 births per woman in 2050.

Net immigration is expected to be a constant 450,000 a year.

The annual rate of population growth will slow from 0.9 percent in 1981 to 0.6 percent in 2000, and will reach virtually zero population growth (ZPG) by 2050.

The total US population will increase from 230 million in 1981 to 268 million in 2000. Population will reach an alltime high of 309 million in 2050 before beginning to decline.

While the rate of births is projected to be negative after 2035, net immigration results in a growing population until 2050, after which the population will start to decline.

The Bureau notes that these changing components of population will likely lead to marked changes in the age and race distribution of the population during the next 70 years:

The percentage of the population 65 and over will rise from 11.4 percent in 1981 to 13.1 percent in 2000, and then to 21.7 percent in 2050. At the same time, the percentage of the population aged 85 and over will rise from 1.0 percent in 1981 to 1.9 percent in 2000, and to 5.2 percent in 2050.

In the school-age population--those aged 5 to 13 years--the total will decrease from 30.7 million in 1981 to 29.6 million in 1985. This group will then gradually increase to 34.4 million by 1995.

Secondary schoolers--those aged 14 to 17--will decline from 14.9 million in 1981 to 12.9 million in 1990, then increase to 15.4 million in 2000. People aged 18 and 19 will decline from 8.5 million in 1981 to 6.5 million in 1995, before rising slowly to 7.5 million by 2000.

The population of young adults aged 25 to 34 is likely to increase from 39 million in 1981 to 44 million in 1990. This group will then decline to 36 million by 2000.

Overall, said the Bureau, the US population will grow substantially older. The median age will increase from 30.3 years in 1981 to 36.3 years in 2000, and then to 41.6 years by 2050.

Racially, the percentage of the population that is black is projected to increase from 11.9 percent in 1981 to 13.4 percent in 2000, and 16.8 percent by 2050. The middle class is shrinking

According to the Bureau of Labor Statistics (BLS), US Dept of Labor, the percentage of American households that are usually described as "well to do"--those having total annual incomes of $50,000 or more--is growing. So, too, is the percentage of "poor" families, those earning $15,000 or less (see graph). Between those two groups, the middle class--families earning $15,000 to $35,000 a year--is shrinking.

According to recent figures from the BLS, the percentage of all US families comprising the middle class shrank (in constant 1982 dollars) from 53 percent of the total in 1970 to 44 percent last year. Those earning less than $15,000 a year grew from 26 percent in 1970 to 29 percent in 1982. During the same period, those families earning $50,000 or more grew from 22 percent to 27 percent.

Notably, the richest one fifth of families received nearly 43 percent of the country's total money income last year, the largest share in 30 years. That comes to more than 9 times what the poorest fifth earned. A decade ago, the richest fifth took in 7-1/2 times more than the poorest.

Bureau projections indicate that most gains in employment will continue to occur in the extremes of the income spectrum. This means that there likely will be more rich, more poor, and fewer in the middle. We're moving south and west

Bureau of the Census figures show that the shift of population to the Sunbelt continues. The fastest-growing state is Nevada, followed closely by Arizona and Wyoming. At the same time, though, the largest increases in gross numbers of people have been occurring in Texas and California.

"Their tastes (those of the people in Texas and California) are likely to be indicators or forerunners of the larger market," said Dr Roger D Blackwell, professor of consumer research at The Ohio State University, Columbus, OH. Co-author of the book called "Consumer Behavior" (CBS Publishing, 1982), Dr Blackwell gave a talk called "Changing life-styles: implications for auto manufacturing" at the Autofact 4 conference in Philadelphia.

"If you live in the northeast quadrant of the US, ZPG has already arrived," he added. "The State of New York declined in population by about 640,000 people, and other states declined also. Many auto dealers have gone out of business, of course, but some survive and prosper.

"Those firms that have learned to prosper in ZPG should become the models for future prosperity in the industry," he stressed. "If you were to study the auto models they are selling, the market targest they rifle toward, and their methods of management, you would probably have many clues to the future of the American auto industry."

The shift to the Sunbelt will likely result in some obvious differences in demands for products such as housing, air conditioning, and recreational and leisure products. More subtle, but highly significant, will be the impact on manufacturing.

"The process of abandoning older plants in the Frostbelt and building new ones in the Sunbelt is accelerating the renewal of US industries," said Stephen Moss, director of Operations Management Practice at Arthur D Little Inc, Cambridge, MA. "The newer plants tend to be equipped with current and more automated equipment. In addition, because much of the work force in the Sunbelt is more mobile and less well trained than that in the Frostbelt, industry is driven to do more training. This is beneficial for the overall competitiveness of US industry."

The shift to the south and west has begun to meet opposing forces, however, and may be slowing. "Companies that have been seeking the lower wages and better economies of production in the Sunbelt have also been fleeing the environmental restrictions found in the north and east," observed Richard S Lindstrom, senior member of Arthur D Little's Product Technology Group.

"Some southern states have been more lax than most Frostbelt states in environmental matters," he said. "As the population grows in the Sunbelt, though, state regulations there are becoming more stringent. For example, Texas is enacting some of the country's most stringent laws concerning pollution of air and water.

"Then, too, a number of Sunbelt cities have begun to experience problems such as availability of water and cost of housing. In California's Silicon Valley, for instance, many companies have given up trying to hire people from the east and midwest. Housing in the San Jose area has grown so expensive that people from other areas don't want to move there." Consumer attitudes are changing

Changes in population age groups, family incomes, and the relative cost of energy are among the main factors that have been altering the buying habits of Americans. Another is a shift in attitude toward what Ohio State's Dr Roger Blackwell called Frontier Consumerism.

"This is the frontier of intelligent consumption," he said. "Examples abound everywhere today. For instance, generic brands are capturing large market shares in some product categories, and couponing is growing. Off-price merchandising is very important, even in automobiles.

"The search is not for cheap products; the search is for value."

This shift to more intelligent consumption will have an impact not only on manufacturers that make consumer products, but also on industrial manufacturers that sell to the makers of consumer products.

"For industrial manufacturers, the purpose of studying changing life-styles is to anticipate the markets and problems of their potential customers," Blackwell said. "Companies that only react to the problems of their manufacturing customers are almost always commodity marketers, and that is a price game. The largest firm wins, and the rest accept low profitability and eventually ruin.

"To escape the commodity pricing problem, industrial marketers must anticipate the problems before their competitors, and recognize the problems--perhaps even before their competitors do," he continues. "Understanding consumer life-styles is an important tool for industrial manufacturers that seek the high margins and rapid growth that comes from anticipating the marketing environment."

As an example of successful anticipation, Blackwell pointed to a steel company, Allegheny Ludlum. In the late 1960s, Allegheny was like many other basic steel manufacturers. While other steelmakers were trying to maintain their old ways of selling old, established products to old, established customers, however, Allegheny began studying the future markets of consumer-product companies that would be growing and prospering. Then the steel company changes its internal organization to what would be needed in the future.

"That led them into the development of specialty products and manufacturing inputs for health care, food processing, leisure products, and other industries that would be prospering," Blackwell said. "They even changed their name to Allegheny International."

It seems a safe bet that successful old-line manufacturers of established products -- whether machine tools, autos, bicycles, or whatever -- will be emulating Allegheny in adapting to change, and in studying demographics and future consumer demands. Labor-intensive manufacturing continues to move elsewhere

The manufacture of products with high labor content -- for example, autos and electronic products -- has been moving offsore, and many observers think the trend will continue. A recent event that highlights the trend is Ford Motor Company's announced decision to build a new, small-car assembly plant in Hermosillo, Mexico. Estimated to cost $500 million, the plant will employ Mexican labor to assemble what Ford calls a "fairly sporty" subcompact car for sale primarily in North America.

According to a report in Business Week (January 23, 1984), another Mexican plant -- this one owned by the Japanese company Mazda Motor Co (formerly Toyo Kogyo Co), in which Ford has 25 percent ownership -- will supply major components for the new car. Industry observers speculate that the car may be a sporty derivative of mazda's successful 626.

"I expect that the share of the US auto market served by US plants will continue to decline," said Arthur D Little's Stephen Moss. "There will also be a decline in domestic content -- that is, the percentage of parts made in the US. Our automakers will earn their value-added dollars through their engineering and marketing expertise.

"In short, fewer and fewer cars will be built from scratch here," he continued, "Most cars are high priced already, and people are keeping them longer. If more domestic content were mandated, costs would continue to increase, the auto marketers would sell even fewer cars, and suppliers seeking protection would become even less competitive. Domestic content laws are not desirable in the long run."

In electronics manufacturing, much assembly of US-brand products continues to be done overseas. At the same time, though, our electronics manufacturers are making significant strides in gearing their domestic plants for automated assembly, notably the assembly of printed circuit boards.

This trend will likely accelerate, and in the years ahead, the industry will devote even more R&D to the design of the products themselves for automated fabrication, assembly, burn-in, and test. The critical role of energy

For now, we Americans are complacent about energy. The Administration thinks that natural market forces solve everything, so the Dept of Energy has been reduced to a token. Believing that there's plenty of oil available, and that gasoline prices will remain stable for the foreseeable future, many of us have returned to driving larger, less fuel-efficient cars.

US industry still expresses a concern about energy consumption and costs, but the conservation fervor whipped up by the oil crisis has cooled considerably. The big concern today is capital, not energy.

During the late 1970s, some US manufacturing companies achieved notable successes in reducing energy consumption. For instance, the Gillette Co of Boston, MA, now burns 40 percent less energy per each new razor blade produced than in 1972. And, under the aegis of Charles Feledy, corporate energy director, the United Technologies Corp of Hartford, CT, reduced the amount of energy consumed per unit of production by an amazing 55 percent. The OPEC problem

The scramble in this and other oil-consuming nations soon put the brakes on demand. With the price per barrel of crude dropping precipitously, the OPEC member nations fell into disarray. Now they present us with another, possibly more serious problem: they're becoming debtor nations, placing a further strain on the already taut credit market.

In 1983, Nigeria--OPEC's neediest member--borrowed $2 billion from the banks to reschedule its debt. Algeria borrowed $700 million last year, and will probably borrow a like amounts this year. Mexico, Brazil, and other member nations continue to borrow and refinance their debts.

According to a story in Business Week (December 26, 1983), Salomon Bros estimates that OPEC's current-account deficits totaled $33 billion for 1983, compared with $7 billion in 1982. Their debt will likely grow to $35 billion in 1984.

"Belt tightening by some of the countries will not change the prospect of big deficits throughout the decade," said the report. "That means the world's banks can expect a massive outfolow of funds."

Meanwhile many of our companies have reduced staffing and expenditures for energy conservation. UT's Feledy is out of a job, and the trend throughout industry is to reduce energy conservation from a corporate-level concern to a lower staff job, or even to plant- or division-level jobs.

Apparently we've done about as much as we're going to do. We've turned down the thermostat and installed a few electricity-saving systems. We even tolerate the federal government's continuing demand for gradual improvement of fuel-economy ratings in new autos.

Like the creeping vanguard glacier of an impending Ice Age, however, the problem is still there. It hasn't gone away; it has only pause for a few years in its relentless advance. We've grown accustomed to high-energy costs, but the prospect of much higher costs still looms, closer now, beginning to cast a shadow. Exploration more costly

If US industry isn't concerned about energy, it should be. There's only so much fossil fuel left in the ground, and it won't last forever. In the Middle East, where some 76 percent of the world's known oil reserves like, the wells will beging sucking air by 2010 to 2020. Already the 2 million barrels a day we've been pumping out of Alaska's North Slope have dropped off.

True, exploration continues in many areas, including Alaska, Indonesia, the coasts of China and Vietnam, and others. But, thus far this activity has been mostly speculation, and it grows more expensive every year.

Exploratory drilling in the North Sea and on the North Slope, for instance, have climbed to over $1000 a meter. This means that finding the capital just to look for oil has already become a problem. Add to that the increased costs for storage, pipelines, shipping, terminals, refineries, and so on, and you see the magnitude.

Even during our current complacency, energy watchers continue to sound the warning bell. Experts in the oil industry still anticipate that the cost per barrel could multiply several times by 2000. The American Gas Association predicts that by 1995, the cost of natural gas will have increased by 5 to 6 times. And analysts warn that the price per kilowatt hour of electricity will triple by 1990.

During the 1990s, they predict, the price will triple again, reaching 30^/kWH to 45^/kWH. That's 10 times the 1982 rate.

Of course, research in alterntive sources hasn't stopped altogether. Gasohol is a live possibility, but currently it doesn't seem economical. At NASA's Langley Research Center, experiments continue in the production and use of supercooled hydrogen as a jet-engine fuel. And at Sandia National Laboratories in Albuquerque, NM, researchers are working on a way to use molten salt for power generation. The salt transfers heat from the sun to a water supply; here steam is generated to drive a turbo-electric generator. We ship it out

Despite the warnings, most of us continue to regard fossil fuels as though they'll never run out. We mine and ship our coal as fast as the Europeans will buy it. Even with our conservation measures, we Americans--6 percent of the world's population--use one third of the earth's energy.

We'll have to face up to the rising costs of energy, and to the disappearance of fossil fuels. US manufacturers will also have to face the fact that energy is becoming an increasingly important cost factor in each unit produced. Here's why.

As companies automate their shops and plants, the cost of the labor in each unit produced rapidly decreases. At the same time, though, as the energy input is shifted from human labor to electrical power, the energy content in each unit produced increases. More and more electricity is used to run the machining centers, conveyors, computers, and so on, and this usage shows up in the production costs.

Trouble is, we Americans have not paid nearly as much attention to energy productivity as have some of our global competitors. As shown in the graph, France, Japan, West Germany, Italy--these and other industrialized nations have done far more to improve their energy productivity. Even the United Kingdom and the Soviet Union, often regarded as inefficient managers, have done better than we.

In the years ahead, our energy productivity will play an increasingly important role in determining our competitiveness. With the energy content rising in most manufactured goods, we'll need to devote much more effort to planning and designing energy out, just as we've been doing with the labor content.

"This nation's return to 'normalcy' cannot be taken as a signal that our energy crisis is over," concluded a report (Benchmarks 7, March 1982) from the American Productivity Center, Houston, TX. "Significant improvement in energy productivity remains central to greater energy independence as well as to overall productivity growth." The outlook for US industries

Each year, the Bureau of Industrial Economics of the US Dept of Commerce publishes a thick report called the US Industrial Outlook. The 1983 edition contained not only the current outlook for 250 industries, but also forecasts for each surveyed industry out to 1987.

Following are selected forecasts for metal-products industries. Machine tools and accessories

Production of metalcutting and metalforming machine tools in the US rose rapidly from $1.27 billion in 1972 to $5.13 billion 1983. At the same time, the percentage of imports as a share of US sales rose steadily from 10.2 percent in 1972 to 33.9 percent in 1983.

"Foreign producers offer low prices, quick delivery, low-cost financing, and excellent service," wrote Thomas J Gallogly, Office of Producer Goods, Bureau of Industrial Economics. "The long-term prospects of the US machine-tool industry are thus directly related to its ability to meet the challenge of foreign competition.

"Traditionally, the machine-tool industry has been among the last to adopt the technology it develops and produces for others," he continues. "The technology exists today to quickly restore competitiveness to the US machine-tool industry. a long-term commitment by builders to utilize the productivity-improving tools and accessories they produce would make the difference in the years to come."

Gallogly sees the ongoing concentration of producers in the industry continuing beyond this year. Market forces will persuade marginal producers to consider merger or acquisition in order to survive. The net effect will be a strengthening of the industry, which could strengthen itself even more by acknowledging long-term trends and taking action to accelerate the concentration process.

Shipments of machine tools are expected to increase at a 5.3 percent compound annual rate through 1987. Robotics

The potential for the industrial robot is immense, both in terms of technological advancement and market development. As the economy continues to improve, the demand for robots should increase markedly.

According to a recent survey and forecast by the Society of Manufacturing Engineers, the US market for robots could reach 10,000 units annually by 1985, with purchases totaling about $350 million. By 1990, the US robotics market could top $2 billion.

"Foreign competition, already strong, will become more intense," wrote Gallogly. "To date, Japanese robot manufacturers have focused their attention on internal demand. When their attention focuses on the US market, however, the structure of this market will probably change dramatically.

"In all probability," he continued, "the Japanese will have a significant price advantage, which will translate into a rapidly growing share of a rapidly growing market. US robotics companies will have difficulty competing with Japanese firms, and the result will be a shakeout in the industry." Flexible manufacturing systems

The approximately 35 FMSs installed and operating in the US have demonstrated their ability to produce significant improvements in cost savings and quality. "Given an economic environment more conductive to capital investment," wrote Gallogly, "FMS will flourish. The prospects for increased use over the next five years appears good." Foundry equipment

The need for foundries to remain competitive, both within their own industry and with other metalworking producers, requires the accelerated purchase of equipment that incorporates advanced technology.

"Many foundries cannot long delay the purchase of such equipment as their improved business volume begins to require modernization and expansion," wrote Robert A ricciuti of the Bureau's Office of Basic Industries. As a result, demand for foundry equipment should continue upward during the mid 1980s, he concluded. Welding apparatus

According to Paul Sacharov, Office of Basic Industries, advanced American welding technology has created an unprecedented worldwide acceptance for welding as a better way for joining metal. He thinks the gasic popular welding techniques--electric arc, gas, and resistance--will continue to be favored.

"However, more and more emphasis will be placed on robotics--automated and computerized systems--to apply welding techniques to mass-production industries where productivity manufacturers look to improve efficiency," he wrote. "Demand for welding equipment is expected to grow at an average annual rate of about 6 percent in real terms from 1983 to 1987." Material-handling equipment

According to John A Lien, Office of Producer Goods, the value of shipments by the elevator and moving-stairway industry, measured in 1972 dollars, is projected to increase at a compound annual rate of 2.7 between 1982 and 1987. Producers of conveyors and conveying equipment are expected to increase shipments at 3.3 percent a year during the same period.

Lien thinks shipments of industrial trucks will increase at an inflation-adjusted rate of 4.4 percent during the period. "The expected rate of growth is higher than for other segments of the material-handling industry," he wrote, "because of the extremely low level of shipments in 1972. Competition in the world market for industrial trucks will continue to increase, with the strongest challenge coming from Japan."

As Lien observed, the material-handling equipment industry serves so many manufacturing and service sectors that its health goes up and down with the general economy. "The overall growth rate...is estimated at 3.5 percent for the 1982-87 period," he wrote. "Imports will probably increase slightly from 6.3 percent of apparent domestic consumption achieved in 1982." Electrical equipment

According to Richard A Whitley, Office of Producer Goods, transformer-industry shipments are not expected to register any substantial gains during the next several years. Power circuit-breaker switching additions are expected to decline at an annual rate of 2.5 percent for the period of 1982 to 1990.

Shipments of motors and generators will grow at about 3 percent a year in the 1983-87 period, during which the use of energy-efficient motors will increase.

In the field of industrial controls, "An estimated growth in real GNP of about 3 to 3.5 percent during the 1983-87 period should kindle modest demand for equipment," Whitley wrote. "Shipments by the industry, in 1972 dollars, are expected to grow at a compound annual rate of about 4 percent." Computing equipment

According to John McPhee and Tim Miles of the Bureau's Science & Electronics Div, the US computer industry grew at an inflation-adjusted compound annual rate of about 20 percent from 1958 through 1981. Many influences that were minor in the past could act in the future to moderate real annual growth to an average level of 18 percent a year.

"Although below the historical average," they wrote, "the 18-percent rate will require healthy demand from several major markets. Business and industry have traditionally provided the principal demand for computers. This will continue through 1987, as the automation of offices and factories proceeds.

"The largely untapped home-information market may begin to expand during this period," they continue, "but it will not become a major factor unless breakthroughs in inexpensive, easy-to-use computers occur. In addition, computer firms will ultimately compete for this market with products and services from a variety of other industries, including telephone and telegraph equipment and services, broadcasting, and consumer electronics." Office equipment

McPhee and Miles believe that the trend toward increased office automation should stimulate demand for a broad range of office typewriters. Also, "the convergence of the previously distinct word-processing and data-processing functions will continue," they wrote, "not only in word processors but also in equipment such as desk-top computers. US manufacturers can expect substantial competition from the Japanese in all typewriter sectors in the future."

The two analysts believe that, on balance, the value of product shipments for office automation will increase 6 percent annually through 1987, somewhat below the historic growth rate. Motor-vehicle parts and stampings

Within the US automotive industry, vehicle manufacturers may become less vertically integrated and source more of the parts requirements to independent suppliers, according to Robert V Coleman, Office of Producer Goods.

Both limited availability of capital and the need to reduce manufacturing costs underlie this trend. In addition, greater reliance on suppliers would take advantage of their technological capabilities.

"Any movement toward greater dependence on suppliers would probably be accompanied by a trend toward longer-term contracts and greater participation by suppliers in the vehicle-manufacturers' product-development programs," Coleman wrote.

He stated that, on the assumption that US vehicle manufacturers will source a greater share of their parts requirements to independent suppliers, the domestic OEM parts market is expected to grow at a higher rate than motor-vehicle sales during the next decade. "The OEM parts market is projected to grow, in real terms, 2 to 2.5 percent annually in the 1980s," Coleman wrote. "The domestic replacement-parts market...should have an average annual growth rate between 3 and 4 percent during this period." Aircraft and aerospace

US aircraft and aerospace producers and subcontractors look forward to the last half of the 1980s with "cautious optimism," according to Randy Myers and Gene Kingsbury, Office of Producer Goods. They think that civil aerospace demand will continue sluggish during the next year, but manufacturers anticipate that a rebound will follow.

"Increases in military aerospace procurements will boost industry shipments, but may prove insufficient to offset civil declines," wrote the analysts. They forecast the compound annual rate of real value of shipments in the 1982-87 period as follows:
 Percent
Aircraft 2.8
Aircraft engines 2.7
Aircraft equipment 3.4


(wheel struts, flaps etc)

Guided missiles and 5.6

space vehicles
Space propulsion units 4.6
Space vehicle equipment 3.3


(fuel tanks, control surfaces etc)

Myers and Kingsbury see the compound annual growth rate for the entire industry at 3.7 percent for 1982 through 1987. Household appliances

The outlook for the US household-appliance industry through the mid 1980s is for continued growth as the economy continues to recover, according to John M Harris, Office of Consumer Goods and Service Industries. "During the next five years," he wrote, "shipments of household appliances are expected to increase at a real compound annual growth rate of 5.0 percent."

Harris bases his prediction partly on the assumption that real disposable income is expected to increase at more than 2 percent compounded annually. Also, the number of households headed by people aged 25 to 44--the principal appliance buyers--is expected to increase 20 percent during the next five years.

"The biggest boost for the industry will be increased confidence, leading more consumers to replace appliances to seek a higher standard of living," Harris wrote.

For information on the new 1984 US Industrial Outlook, priced at $11 a copy, write to: John J Bistay, Director of Publications, Bureau of Industrial Economics, US Dept of Commerce, Washington, DC 20230. The emerging business of factory automation

As discrete-part manufacturing becomes more automated, not only in the US but worldwide, something called the "factory automation" or "industrial automation" business is emerging. Companies are being formed with the purpose of selling not only discrete products and systems, but also the automation of shops, departments, and even complete factories.

The phenomenon isn't new, of course. Consulting companies such as Ingersoll Engineers based in Rockford, IL, have been providing automation design and engineering services for years in this field. (For an example of how Ingersoll can transform an entire metal-products plant, see the January, 1984 issue of Tooling & Production, pg 39.)

Arthur D Little Inc, Cambridge, MA, identifies the market for the business as teh computer integrated manufacturing (CIM) market. According to their system of classification, component technologies include computer-aided design (CAD), group-technology programming and software, automated material-handling, robotics, computer-aided manufacturing (CAM) hardware and software, and general-purpose computers and industrial software.

Within the CAM technology, Arthur D Little includes DNC and CNC machine tools and machining centers, flexible manufacturing cells and systems, and computer-aided inspection and test.

Based on a study recently completed by the company, the CIM market in the US is expected to grow from $25 billion in 1982 to $98 billion annually by 1992. "The highest rates of growth will occur in CAD and robotics," said Clifford D Young, the company's practice leader for CAM. "These technologies will expand at over 25 percent annually."

Frank T Curtin, general manager of General Electric Co's Industrial Automation Systems Dept, Charlottesville, VA, sees the automation business ready to mushroom. "Factory automation is more than a buzzword," he said. "It's now seen as something with a life of its own. In the latter half of the 1980s, the automation business will really take off."

Companies of many different sizes, types, and backgrounds are entering the automation field. The entrants of today, likely the forerunners of a large pack to follow, include everything from robot vendors, to agglomerations of acquired companies, to newly formed divisions of large corporations.

An example of the first type of company is GCA Corp's Industrial Systems Group, Naperville, IL. When GCA entered the industrial automation field just a few years ago, it did so mainly as a vendor of its own line of gantry-mounted robots, derived from equipment that GCA's PAR Systems Div had developed for the nuclear power industry. Soon the company added 21 models of pedestal-mounted electric robots imported from Dainichi Kiko of Japan.

Today GCA's Industrial Systems Group offers complete factory automation services, including plant and system design, CIMROC robot control software, and CIMCELL software for control of manufacturing cells. Recently the company introduced CIMNET, a complete factory networking system for control and data transmission.

"We've already engineered several major installations that will be publicized soon," said Arne Carlsson, newly appointed group vice president of marketing and sales. Carlsson had previously been with the DoALL Co, machine-tool builder and distributor in Des Plaines, IL.

"Our gantry robot design--along with the CIMROC, CIMCELL, and CIMNET software--enables us to close the loop for many operations in the plant," he added. "The loop may include not only many types of manufacturing cells and systems, but also cost accounting, work in process, inventory control, and all the other activities needed for high productivity, quality assurance, and profitable operation.

"We anticipate that other robot vendors will follow us in this direction. The key to success will be capabilities in programming and control engineering." Litton's in it, too

Another recent entry in the automation business is the newly formed Industrial Automation Systems Group of Litton Industries, with headquarters in Florence, KY, near Cincinnati. Headed by Gordon Palmer, formerly chief of Litton's Unit Handling Systems (UHS) Div, the group brings together Litton's seven metalworking and machine divisions (New Britain, Lucas, Landis Tool, Gardner Machine, Twin City Tool, Landis Lund, and Citco), plus the UHS Div and a company in Zeeland, MI, that builds automatic guided vehicle systems. The last named company formerly belonged to Bell & Howell.

The group also includes Taylor Mfg Co, a manufacturer of high-speed conveyor systems in Salisbury, NC, and Kimball Systems Div, a designer and builder of automatic identification and marking systems for load-tracking. Kimball is located in Paramus, NJ.

"We have a good collection of hardware producers, programmers, and system designers today," Palmer said, "and we continue to add a variety of skills. Our team will include specialists in the design and selection of machine tools, material-handling equipment, and controls, as well as in computer application and programming.

"Initially, we were surprised at the amount of up-front work needed to do overall plant and system planning. It requires a very broad variety of skills--broader than many industrial vendors have ever had."

According to Palmer, the Litton group is targeting three main industries for its automation activities: metal-products plants, electronics, and the food and beverage processing industries. "We've been active in all three fields for many years," said Palmer. "Now we're raising the level of coordinated services we can offer to companies that want to automate."

He also pointed out that computer-aided simulation is an essential tool for practitioners of factory automation. "It involves a terribly complex set of variables," he noted, "including throughput volumes, flow rates, permutations of product design, and others.

"Even after you arrive at a system design, you have to spend a lot of time playing what-if games to find the best solutions. It's no longer possible to do your design work on the back of an envelope." The integrator

At General Electric's Industrial Automation Systems Dept, General Manager Frank Curtin sees GE's role as that of integrator. "We intend to integrate hardware, sofware, and thoughtware," he said. "Thoughtware is all the planning, the strategic thinking, that must be done at the outset of an automation project.

"We think we're pretty good at it. After all, GE's expertise grows out of 100 years' experience on the shop floor, operation of 377 manufacturing companies around the world, and the production of many kinds of products in various volumes and mixes. We also have 30 years' experience in the use of computers in manufacturing."

Curtin sees his group primarily as a general contractor and designer. "We'll work closely with machine-tool companies and others to develop solutions," he said. "We won't compete with manufacturing systems people; in fact, we'll broaden their market, since we (GE) are now a major force in getting people to automate."

As for competition: at GE's level and type of activity, Curtin sees competition not only from Westinghouse, and to some degree from IBM Corp, but also from Hitachi, Toshiba, Siemens, and a few others of their caliber. "Competition will be worldwide," he said, "but we're prepared to play--and win."

The race has just begun, and thus far we've seen only the first few runners of the mark. France turning east

Usually when we talk of international trade, we mean trade between the western nations, and between the west and third-world or "developing" nations. The idea of doing business with the eastern bloc seems about as inviting as that of taking a winter vacation in Siberia, and our Administration's anti-Soviet posture does little to warm the prospect.

Other western nations see the world a little differently, however. France, for example, remains a staunch ally of the US but maintains its own independent attitude toward the Soviet Union. According to one report, France is preparing to increase its trade with the Soviets to include the export of nuclear technology.

The major reason for the step-up is the fact that France's trade deficit with the USSR hit $500 million in 1983. This is expected to soar in the near future, because France will soon begin buying Siberian natural gas. French purchases of this gas could top $1 billion by 1986.

To help reduce the trade imbalance further, state-owned Renault has agreed to help Moscow build a new passenger car. The deal is expected to net about $120 million in orders for Renault and for French suppliers of equipment and engineering.

As France and other western European nations become more dependent on Soviet fossil fuels, look for an increasing flow technology from west to east. Germany, too

Following the OPEC-induced oil shocks, West Germany rose to the challenge by debt-financing of massive social programs. As a result, the nation's debt has risen 500 percent--much more than the UShs debt--during the past decade.

At the same time, unemployment remains a serious problem in Germany, and the nation has failed to develop new technologies and products that would alleviate her problems. Consequently the Germans have turned in the only direction logical to them: to the east.

Trade ties betwene Bonn and East Germany, though not widely publicized, are strong and growing stronger. In conjunction with the Soviet pipeline project--called by some the "Deal of the Century"--West German manufacturers are scheduled to sell hundreds of millions of dollars worth of pipe, steel, turbines, and other products to the USSR.

"The message in the Siberian pipeline deal is clear," wrote David Nussbaum, a former editor of Business Week, in his book, The world after oil: the shifting axis of power and wealth (Simon and Schuster, New York, 1983). "The Soviet Union offered West Germany a lucrative market for its heavy industrial products. Moscow did not import computers, semiconductors, or robots from Germany; it took steel pipe and turbines.

"Germany, for its part, could not sell those products anywhere else in the world, so it provided extremely cheap financing for the Soviets to allow the deal to go through," Nussbaum continued. "The Dela of the Century may be the first of many to follow as Germany falls behind in the race for the technological heights of the 1980s and slides away from the west." China waking up?

For the short term, it appears that mainland China could become a more lucrative market for US-made farm and industrial machinery, and also for certain kinds of US-spawned technology.

According to one recent report from the World Bank, that organization will lend as much as $2 billion a year to China by 1990. Most of the funding is expected to go into industrial, energy, and transportation projects.

Early in January of this year, the Chinese government and Deere & Co, Moline, IL, agreed on the sale of $25 million in Deere farm equipment, plus the sale of manufacturing technology for the six tractor models. Deere will build the equipment in Waterloo, IA, and in one of its plants in West Germany.

Also, Mack Trucks Inc, Allentown, PA, is reportedly close to signing a deal with China for $7.1 million in logging and oilfield equipment. Shipments from Mack's US plants to China could reach as much as $44.5 million a year in 1985. The deal includes assistance with assembly facilities in China.

American companies could also become involved in several major railway, hyropower, oil-field, and coal-mining projects in China. All this activity reportedly stems from China's current plan to reach the west's 1975 level of technology by the end of the century. Short term, therefore, Beijing could prove a welcome customer to many American metal-products manufacturers.

Long term, however, the prospects are not overly promising. China has a habit of switching its economic policies radically and almost overnight, as though by whim. Mao's Cultural Revolution left the country starved for educated engineers, scientists and managers, and even today few students are allowed to study in the west.

without cultivated technical and managerial minds, China has little hope of catching up--not with the west, not even with South Korea or Taiwan. What China must import, she cannot export, so as long as her plans hold firm, and as long as relations remain warm with the US, some American producers will benefit. The new Japan

The Japan of today is far different from the Japan of five years ago, and certainly different from the myth about her that many of us hold. By 1990, we may scarcely recognize her, for the island nation is opening to imports of foreign goods and to investments by foreigners.

The great change was signaled on Dec 1, 1981, when Prime Minister Zenko Suzuki replaced Rokusuke Tanaka, exclusionist head of the Ministry of International Trade & Industry (MITI), with Shintaro Abe. He's an internationalist who's inclined toward freer trade, and who's expected to work closely with the Ministry of Foreign Affairs.

Why the shift toward internationalization? Because, for the past decade, Japan has been buffeted by high energy costs, stagnation in the domestic economy, and stiffer restrictions on imports of her products by governments of the European Economic Community and the US.

At home, MITI lost much of its power to control Japanese industry on Dec 1, 1980. On that date, the ministry was stripped of its authority to decide who could go into what business and when. MITI continues to steer government funds into selected R&D and high-tech areas, but private enterprise is turning more and more to private equity financing.

In electronic components, Japan is pushing to dominate the world market for semiconductors. By late next year, say industry observers, Japan's producers will be able to build 75 percent of the sophisticated equipment needed to turn out VLSI chips.

Computers is another market that the Japanese have targeted. Here the national goal is to win 30 percent of the world market--including 18 percent of the US market--by 1990.

According to a report in Business Week (Dec 14, 1981), their strategy for computer marketing will be much like the one that worked so well for autos and consumer electronics: "Start at the low end of the product spectrum, establish a reputation for excellence, and then get customers to trade up."

In robotics, Japan's export push has already begun, as evidenced by the stepped-up advertising by Hitachi, Fanuc, Seiko, and others. The domestic market is nearing saturation; major robot builders are achieving economies of scale; and foreign manufacturers are ready and willing to automate.

At the same time, Japanese robot builders, aided by MITI, are developing more "intelligent" robots with vision and tactile sensing. Reportedly, Nippon Electric Co (NEC) has developed an assembly robot that can position a part to within [plus-or-minus] 0.000 04" (4/100,000"). Developments such as these may well ensure Japan's place as premier supplier of robots in the decades ahead. Where the people will be

Suppose we do succeed. Suppose we automate our plants, hold the lead in new technologies, and develop new products that many people want. Who, besides ourselves, will buy our products?

Only people buy products, so part of the answer lies in determining where the people will be. In this regard the United Nations has been of help.

Part of that organization, the Fund for Population Affairs, makes annual reports on population censuses and forecasted trends in population. As shown in the table, by the end of this millenium, Europe is expected to grow by only 6 percent, and North America--including Mexico--some 20.5 percent.

Much larger growth in population is forecast for the "less-developed" or "underdeveloped" regions: South Asia, 48 percent; Latin America and the Caribbean, 55.5 percent; and Africa, 81.5 percent.

And what will all those people buy? Not many personal computers, or videotape recorders, or $12,000 Buicks. More likely they'll be prospects for food, and farm machinery, and utensils, and perhaps a few Jeeps and low-cost TV sets.

That assumes, of course, that they can afford the basics. The growth of even a modest consumer economy requires a stable government, a sound economic policy, level if not lower energy costs, and a national debt that allows a worker to keep a decent percentage of his wages.

It seems clear that technical and economic assistance to the poorer nations of the world is not charity after all, but merely enlightened self-interest. Indeed, a failure to provide assistance could lead to disastrous consequences.

Among those who have voiced a warning is the German philosopher Karl Jaspers, author of the book, The future of mankind (R Piper & Co, Munich, 1958). "Today, the global picture of unequal growth shows the western nations approaching a standstill, while the pace of Asian, African, and Latin American growth quickens from year to year," he wrote.

"The Chinese have increased from 315 million in 1911 to 470 million in 1941, and some 650 million today (1958); the Indians increased by 50 million from 1931 to 1941. The impression of all these Indian and East Asian masses--hungry, restless, rising like a tide that may engulf the globe once they are in possession of technology and arms--is overwhelming.

"These masses may not yet be a menace," Jaspers warned, "but the menace they will be in a few decades must be considered now."
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Title Annotation:Insight:2034
Publication:Tooling & Production
Date:Mar 1, 1984
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