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KEI Spotlight

President Manzullo Speaks at SIMTOS

April 20, 2014

On April 9, 2014, The Honorable Donald Manzullo, President and CEO of KEI spoke before an audience of over 400 attendees at SIMTOS during his visit to the Republic of Korea. Audience members included four sitting Ambassadors to the Republic of Korea.

Full text of the speech can be found below:

I want to thank you for the opportunity to attend SITMOS sponsored by the Korean Machine Tool Manufacturers Association (KOMMA) and this wonderful manufacturing technology show here in Seoul. 
While serving as a Member of the United States Congress for 20 years, I spent most of my time working on manufacturing issues, from raw materials through production and export controls. I was the co-founder of the House of Representatives Machine Tool Caucus and the House Manufacturing Caucus, and I have visited over 500 industrial facilities in the U.S., Europe, and Asia. 
Manufacturing in U.S. and Korea 
America’s experience with manufacturing began in 1783 with our independence from Great Britain, which prohibited most manufacturing in the colonies. But the development of manufacturing in the Republic of Korea is a much more recent event, evidenced by the fact that Namsun Machinery in Daejeon, which I visited lasted year, was established in 1950, and it is the oldest machine tool production facility in Korea. Your KOMMA Chairman, Jong-hyeon SHON, is the owner of Namsun and it is a delight to get reacquainted with him today. In the US, manufacturing contributes nearly 12 percent of the Gross Domestic Product; in the Republic of Korea, it is at least more than double the U.S. level. 
The biggest manufacturing problem for both countries: a trained workforce. 
I want to share with you what I believe is the biggest impediment to US and Korean manufacturing: the availability of an adequately trained workforce. This is a double hit for machine tool manufacturers because they need people to build their machines and, when placed in service to an industrial facility, people to operate the machines. 
The Manufacturing Institute, part of the National Association of Manufacturers (NAM) in the US, asked Deloitte Consulting to conduct a survey of over 1,100 manufacturing executives to determine the extent of their workforce shortages. Deloitte found a shortage of 600,000 manufacturing workers. Another US firm, the Boston Consulting Group (BCG), conducted a similar study and concluded that there was a shortage of skilled workers but at a lower level. Both firms appeared before my House Manufacturing Caucus and are highly credible. The 
Journal of the American Enterprise Institute (AEI), a highly respected US think tank, remarked that in the US, factory payrolls have grown from 11.46 million to 12 million at the end of 2012, demonstrating additional pressure on preparation for the manufacturing workforce. AEI said both the NAM and the BCG studies “agree that certain demographic realities will contribute to a much greater skilled workforce in the future. …the BCG study forecasts a future high-skills gap in manufacturing that could approach 870,000 machinists, welders, industrial engineers, and industrial machinery mechanics by 2020.” 
The worker shortage program in Korea is also critical, as evidenced by Kwack Eun-young, who runs a small metal welding company. She discovered that a local labor center was going to be offering foreign nationals for domestic manufacturers. She camped out the night before, but the quota expired before she could recruit. In 2006, the Bank of Korea reported the country could face a shortage of over 4.8 million workers by 2020, which is a little under 10 percent of Korea’s present population, and especially critical in light of Korea’s negative birth rate. But even if that figure is off by 50 percent, it is still astonishing. And a recent article in the Korea Herald reports that by the same year – 2020 – Korea will be facing an even greater shortage than it does now. 
While both countries have the same problem in attracting workers, the US has a population capacity while Korea has a severe shortage. In both countries there is the need to match those existing positions with workers who have the requisite skills. Ironically, there is a relatively large unemployment rate for college graduates in both countries. 
New challenges of the “Manufacturing Transformation” 
In addition to the worker shortages in the conventional or traditional manufacturing workforce, the march of technology is creating further shortages. Oxford Economics recently published an article entitled, “Manufacturing Transformation: Achieving competitive advantage in a changing global marketplace.” The report surveyed 300 manufacturing executives during the first part of 2013, with 30 percent of the companies headquartered in the US and 7 percent in Korea. Sectors represented were Aerospace and Defense; Electronics/High Tech; Industrial Equipment; and Medical Devices. The top five jobs functions were supply chain/manufacturing; product/engineering; Information/Technology (IT); strategy/corporate development; and service. The purpose of the study was to examine trends in manufacturing, and it reported that manufacturers are moving towards “a new manufacturing mindset,” which includes marrying traditional production with service so that service is not just an after sale follow up on the product, but becomes a “distinct value proposition and revenue generator in itself.” The report stated, among other things, “Workers prepared to handle the new era of service offerings may be especially difficult to find.” 
Causes of the work shortage problem 
We all know many of the causes of the work shortage problem: not enough or improper education; low birth rates and high aging rates in both countries, but even more so in Korea with its negative birth rate; not tapping enough women to work in the workforce; and other issues. But it’s time to focus on some solutions: 
Solutions to Workforce Shortage 
1. Apprenticeship programs. It all started with the apprenticeships, and continues today in many skilled trades. A shoemaker, baker, printer, machinist, would take in an apprentice to learn the trade, the age-old experience of learning by studying with a master. Professor Robert Lerman of The American University in Washington, D.C., is the founder of the American Institute for Innovative Apprenticeship. Dr. Lerman states that “Apprenticeships help young people gain mastery in an occupation as well as other workplace skills; they supply employers with workers who achieve strong technical and employability skills. …Apprenticeships train people by combining work-based learning with classroom instruction in a unified program that leads to a recognized and valued occupational credential. Young people, especially young men, who hate sitting through classes all day can spend part of their time making something, learning by doing, and seeing an immediate application of their course work. 
But, here’s the problem. According to a review of vocation and education and training (VET), by the Organisation for Economic Co-operation and Development (OECD) in both Korea and the United States, there is very little employer engagement and insufficient work-based training opportunities. Dr. Lerman says in the US “only about 20,000 employers offer apprenticeships compared to over 100,000 in Britain, with a population about one-fifth that of the US.” 
Unfortunately, too many employers have relegated workforce training to the government and then criticized the government for not properly training the workforce. Manufacturers have to either start their own apprenticeships programs or partner with local educational institutions and help guide those programs into actual training with resulting employment. 
A few years ago, I visited an insert injection mold facility in town that was part of my Congressional district in northern Illinois – Crystal Lake. Three of the eight employees were young men learning the tool and die profession. The owner went to area high schools, asked teachers and counselors what students might be interested, offered them part time jobs while in 
high school, and upon graduation, he hired them full time while training and paid for two years of training at a localcommunity college. When Volkswagen built its new plant in Chattanooga, Tennessee, a few years ago, it found that many of its eager applicants did not have the requisite technical skills, so it established a German-style training system (including three-year apprenticeships) at the factory. Business-run apprenticeship programs can be part of the solution to the “skills gap” in both Korea and the United States. 
2. Colleges must educate and train students for jobs that exist. On a recent trip to Cleveland, Ohio, I met a young lady who had graduated from a US college with a degree in radio broadcasting production. Those jobs hardly exist anymore because of automation in the radio industry. She’s now pursuing a Masters degree in an area where she hopes employers are hiring. Dr. Sul Dong-kun, president of Tongmyung University, a provincial college in Busan, says his primary goal is to get graduates employed! In a recent article with Korea Times, the president said, “The foremost part of our curriculum is to provide differentiated vocational education so that the students are capable of performing their jobs well at their workplace after graduation.” Sixty-seven percent of the school’s seniors landed jobs in the 2013 academic year, 11 percentage points higher than the national average employment for students graduating [other] four year universities. “The curriculum of TMU is also very unique. Of the 15 weeks in a semester, only 10 weeks of classes are run by professors and the remaining five weeks are conducted by experts or specialists from the business or industrial sector.” Higher educational institutions must train people for jobs that exist. 
3. Getting more women involved in the Workforce. Both the US and Korea have a significant number of women who could fill valuable positions in the workforce. The Economically Active population Surveys show that in Korea men participate in the workforce at the rate of 73 percent but women at 50 percent. In the US, the ratio is 70 percent for men and 58 percent for women. The issue of the lower American male workforce participation reflects a separate, special problem in the US that “a large part of the jobs problem for American men [in the prime of life] today is that of not wanting one,” as observed by Nicholas Eberstadt, economist and demographer at AEI. 
Even not accounting for the statistical unevenness where the workforce in Korea starts at age 15 anad in the US at 16, women in Korea are employed at a much lower percentage of the workforce than women in the US. However, there is a marked increase in the Korean women aged 25-29 entering the workforce, which is a result of the huge increase in the number of women who have graduated from high school and gone on to college, from 50 percent in 1995 to 84 percent in 2008. 
The reason the women’s workforce participation in Korea is low is addressed by Korea’s Minister of Gender Equality & Family, Cho Yoonsun, who says that since childrearing “remains almost exclusively a woman’s job….vast numbers drop….out midcareer to raise children.” She is also concerned about the long hours. “Koreans work far too long every day. In 2011, they worked an average of 2,116 hours per year, much higher than the 1,652 hour average of the OECD. That forces mothers to quit their jobs as they are unable to take care of their children.” Minister Cho is promoting a program called “Work-Life Balance” to restore more family time. 
While Korea is trying to get more women into the workplace, the US is trying to encourage women to study in the STEM fields (Science, Technology, Engineering and Math) and fill the gap of engineers and other highly trained positions in science and math. In the US, women earn less than 20 percent of bachelor’s degrees in engineering and computer sciences. A recent 
survey of freshmen US college students found 18 percent of the men listed engineering as their probable major while only 4 percent of women did. Korean women are also at the same level as their American counterparts, with women at less than 20 percent of SET (Science, Engineering and Technology) workforce. 
4. Make workers more productive by increasing motivation. The prestigious Gallup survey organization recently conducted a workforce survey conducted in 140 countries to help employers increase the productivity and motivation of their workers. Workers were placed in three classes: (1) “engaged,” those who are motivated to come to work because they have a meaningful and rewarding job by taking satisfaction in a project well-done; (2) “not engaged,” those who believe they simply have a job—not a career, and come to work just to receive a paycheck that will provide them satisfaction in areas outside of work; and (3) “actively disengaged,” those who are unhappy in their employment, with an attitude that may sabotage the long-term health of the enterprise. 
The results of their findings produced a simple conclusion: to increase jobs and become more competitive, nations should work towards increasing their share of the “engaged” workforce. Guess which nation among the industrialized nations has among the lowest number of “engaged” workers? The Republic of Korea is only at 11 percent, even less than China. Notwithstanding the fact that young Koreans score among the highest in the world on reading, math and science and the US in the middle of the pack, the US has the highest level of “engaged” workers in the world at 30 percent. Why is that? Perhaps Korea having the greatest number of working hours annually has something to do with it. Perhaps it is America’s entrepreneurial spirit and willingness to reward initiative, to bypass seniority, to listen to good ideas raised by junior employees, or by creating a culture of rewarding the best talent. 
Over the past several years, several Korean firms have launched a number of initiatives to increase the percentage of engaged workers, with some firms increasing the level to 60 percent engaged. Taek Lee, Danny Lee and Cheong Im, Gallup consultants, share ways in their report to transform Korea’s workforce by cutting through the cultural and business norms of “ho-bong” tenure-based promotion and pay system and the “group mentality” attitude which emphasizes teams rather than individuals. They conclude that though “Korean businesses invest trillions of won every year in process improvement, change management, research and development, and organizational transformation efforts….their return on investment is limited to the extent that projects are carried out by employees who lack psychological commitment to their organization’s future. …Korean companies are currently missing a huge opportunity by failing to establish conditions that maximize employees’ talents, motivation, and productivity.” 
We could talk all day about mismatches in education and occupation, such as 48 percent of employed US college graduates are in jobs requiring less than a four-year college education, or reasons why so many US and Korean college graduates are unemployed, but if we don’t have engaged workforce, all the education in the world is not going to solve our most fundamental problem of attracting the best and brightest to work at your company to better serve your customers. 
Korea and the US are at a crossroad in their economies, led by manufacturing in my opinion. Korean machine tool makers are now competing head-to-head with the US, European, and Japanese machine tool manufacturers. The new Hankook Vertical Lathe is a trusted workhorse at Dial Machine in my hometown of Rockford, Illinois, and complements and eventually will replace the old Giddings and Lewis and IKEGAI VTLs at Dial Machine. 
At one time knowledge was discovered; today it is invented. Albert Einstein said, “Imagination is more important than knowledge. For knowledge is limited to all we now know and understand, while imagination embraces the entire world, and all there ever will be to know and understand.” During my first year in Congress, I had the thrill of spending several hours with W. Edwards Deming, America’s and Japan’s architect of industrial innovation and efficiency. 
Deming’s brilliance undoubtedly spilled over to Korea. He was in his nineties and still conducting all-day seminars. Our picture together hangs prominently on my office wall. To quote one of his gems that sums up the rapidly changing manufacturing sector and its challenges to developing an adequate workforce: “It is not necessary to change. Survival is not mandatory.” So, if you want to survive and thrive, big changes may be in your future. We in American and Korea look forward to making those changes. 
Thank you for giving me the opportunity to speak to you today.