To diversify, or not to diversify- that is probably not the big question. At least, not for everyone. But for us, a small leather manufacturer, it has been something we have wrestled with for the better part of our long history. Diversification is not a word most people would associate with the manufacturing industry these days. Instead, manufacturing probably conjures the image of a giant factory with conveyor lines and assembly stations all outfitted to produce a specific set of products with a limited variety of materials, whereas diversification sounds more suited to stock options and portfolios.
In the past, limitations of technology, access to labor, and cost effectiveness have been the driving force behind how and where manufacturing was carried out. Places like China, India, and Mexico had cheaper labor, access to the same raw materials, and fewer restrictions on how they could conduct their operations, and thus saw a huge influx of manufacturing fueled by the economies of other nations. These factories excelled at specialized production of one or a handful of particular goods or materials, drastically reducing the cost.
Recent growth of the American manufacturing sector necessitates revisiting this question. Reshoring, as this process has been called, is changing the manufacturing landscape in the states, and small manufacturers that had previously survived without too much competition in a niche industry are now facing the possibility of large companies edging them out with reduced costs and more flexible production methods.
Matched against this new competition, small manufacturers are faced with a choice; either, they focus and specialize their capabilities to offer higher quality and value for a few select products or materials (positioning themselves as a better alternative than lower-quality competition), or they expand their capabilities beyond a single industry to a few other – hopefully complementary – markets that broaden their customer base.
With over a century of history in this country alone, our family business is rich with the successes and failures of myriad philosophies on how to run an establishment. From full-tilt, single-product manufacturing to branching out into finished goods and services, our ancestors seem to have tried everything to keep our business going. Finding a balance of manufacturing diversity that could sustain us was an arduous, prolonged, and absolutely necessary process. Pressed by a recent – and nearly catastrophic – collapse of the sole industry for which we manufactured, we decided that depending on an individual market was too risky for the survival of our business. So, after a few years of experimentation, we developed a new process that yielded a material we could market to multiple industries without too much tweaking.
This decision, and the subsequent continuing success, was not easy to achieve. Ideas have been tried and tossed, new industries have been approached, materials refined or abandoned. Over the course of several years, we gradually accrued a set of offerings that we could produce easily and which were suited to a number of applications. And while this process has given us materials we can market today, it has also taught us how to be flexible as a manufacturer, how to adjust and adapt to changing demands on us and our materials.
There is no single answer that tells all manufacturers how to stay successful in this revitalizing industry. While diversifying our capabilities has proven to be rewarding for us, it’s not necessarily going to work for all manufacturers or all industries. However, as the manufacturing sector continues to grow in the US, this question is becoming an increasingly-important consideration to make.
Here are some reasons for and against diversifying that we deliberated on while discovering our own successful formula. None of these are set in stone, so don’t be afraid to edit or add your own points when thinking this through for your company.
Pros of Diversifying:
- Company no longer dependent on a single industry and it’s potential ups and downs
- Multiple industries can offer outlets for previously unusable or under-utilized material and machinery
- Slow seasons in one industry can be supplemented with work in others
- Collapse of a single industry or product won’t topple the company
- Practices common in one industry can be used in others to improve quality, speed, or other aspects of a material or production process
- Some industries are very complementary in terms of finding new clients
- Production processes could be very similar to materials or goods already produced, thus requiring minimal investment in learning new skills or acquiring new machinery
Cons of Diversifying:
- Requires potentially high upfront investment to learn how to work with new materials or produce different goods
- Possibility of decrease in quality or volume as focus on single product/material is reduced
- Learning how to work with new industries and materials can be a time-intensive investment
- Current facility may be unable to handle new demands on space, utilities, or manpower
- Multiple industries can sometimes conflict in production methods, leading to less efficient output