Tag Archives: China

Innovation Lessons from Ukraine and China for the DoD

Ukraine Satellite Image from Capella Space

GUEST POST from Steve Blank

Portions of this post previously appeared in ‘War On the Rocks’

Looking at a satellite image of Ukraine online I realized it was from Capella Space – one of our Hacking for Defense student teams who now has seven satellites in orbit.

National Security is Now Dependent on Commercial Technology

They’re not the only startup in this fight. An entire wave of new startups and scaleups are providing satellite imagery and analysis, satellite communications, and unmanned aerial vehicles supporting the struggle.

For decades, satellites that took detailed pictures of Earth were only available to governments and the high-resolution images were classified. Today, commercial companies have their own satellites providing unclassified imagery. The government buys and distributes commercial images from startups to supplement their own and shares them with Ukraine as part of a broader intelligence-sharing arrangement that the head of Defense Intelligence Agency described as “revolutionary.” By the end of the decade, there will be 1000 commercial satellites for every U.S. government satellite in orbit.

At the onset of the war in Ukraine, Russia launched a cyber-attack on Viasat’s KA-SAT satellite, which supplies Internet across Europe, including to Ukraine. In response, to a (tweeted) request from Ukraine’s vice prime minister, Elon Musk’s Starlink satellite company shipped thousands of their satellite dishes and got Ukraine back on the Internet. Other startups are providing portable cell towers – “backpackable” and fixed. When these connect via satellite link, they can provide phone service and WIFI capability. Another startup is providing a resilient, mesh local area network for secure tactical communications supporting ground units.

Drone technology was initially only available to national governments and militaries but is now democratized to low price points and available as internet purchases. In Ukraine, drones from startups are being used as automated delivery vehicles for resupply, and for tactical reconnaissance to discover where threats are. When combined with commercial satellite imagery, this enables pinpoint accuracy to deliver maximum kinetic impact in stopping opposing forces.

Equipment from large military contractors and other countries is also part of the effort. However, the equipment listed above is available commercially off-the-shelf, at dramatically cheaper prices than what’s offered by the large existing defense contractors, and developed and delivered in a fraction of the time. The Ukraine conflict is demonstrating the changing character of war such that low-cost emerging commercial technology is extremely effective when deployed against a larger 20th-century industrialized force that Russia is fielding.

While we should celebrate the organizations that have created and fielded these systems, the battle for the Ukraine illustrates much larger issues in the Department of Defense.

For the first time ever our national security is inexorably intertwined with commercial technology (drones, AI, machine learning, autonomy, biotech, cyber, semiconductors, quantum, high-performance computing, commercial access to space, et al.) And as we’re seeing on the Ukrainian battlefield they are changing the balance of power.

The DoD’s traditional suppliers of defense tools, technologies, and weapons – the prime contractors and federal labs – are no longer the leaders in these next-generation technologies – drones, AI, machine learning, semiconductors, quantum, autonomy, biotech, cyber, quantum, high performance computing, et al. They know this and know that weapons that can be built at a fraction of the cost and upgraded via software will destroy their existing business models.

Venture capital and startups have spent 50 years institutionalizing the rapid delivery of disruptive innovation. In the U.S., private investors spent $300 billion last year to fund new ventures that can move with the speed and urgency that the DoD now requires. Meanwhile China has been engaged in a Civil/Military Fusion program since 2015 to harness these disruptive commercial technologies for its national security needs.

China – Civil/Military Fusion

Every year the Secretary of Defense has to issue a formal report to Congress: Military and Security Developments Involving the People’s Republic of China. Six pages of this year’s report describe how China is combining its military-civilian sectors as a national effort for the PRC to develop a “world-class” military and become a world leader in science and technology. A key part of Beijing’s strategy includes developing and acquiring advanced dual-use technology. It’s worth thinking about what this means – China is not just using its traditional military contractors to build its defense ecosystem; they’re mobilizing their entire economy – commercial plus military suppliers. And we’re not.

DoD’s Civil/Military Orphan-Child – the Defense Innovation Unit

In 2015, before China started its Civil/Military effort, then-Secretary of Defense Ash Carter, saw the need for the DoD to understand, embrace and acquire commercial technology. To do so he started the Defense Innovation Unit (DIU). With offices in Silicon Valley, Austin, Boston, Chicago and Washington, DC, this is the one DoD organization with the staffing and mandate to match commercial startups or scaleups to pressing national security problems. DIU bridges the divide between DOD requirements and the commercial technology needed to address them with speed and urgency. It accelerates the connection of commercial technology to the military. Just as importantly, DIU helps the Department of Defense learn how to innovate at the same speed as tech-driven companies.

Many of the startups providing Ukraine satellite imagery and analysis, satellite communications, and unmanned aerial vehicles were found by the Defense Innovation Unit (DIU). Given that DIU is the Department of Defense’s most successful organization in developing and acquiring advanced dual-use technology, one would expect the department to scale the Defense Innovation Unit by a factor of ten. (Two years ago, the House Armed Services Committee in its Future of Defense Task Force report recommended exactly that—a 10X increase in budget.) The threats are too imminent and stakes too high not to do so.

So what happened?

Congress cut their budget by 20%.

And their well-regarded director just resigned in frustration because the Department is not resourcing DIU nor moving fast enough or broadly enough in adopting commercial technology.

Why? The Defense Ecosystem is at a turning point. Defense innovation threatens entrenched interests. Given that the Pentagon budget is essentially fixed, creating new vendors and new national champions of the next generation of defense technologies becomes a zero-sum game.

The Defense Innovation Unit (DIU) had no advocates in its chain of command willing to go to bat for it, let alone scale it.

The Department of Defense has world-class people and organization for a world that no longer exists

The Pentagon’s relationship with startups and commercial companies, already an arms-length one, is hindered by a profound lack of understanding about how the commercial innovation ecosystem works and its failure of imagination about what venture and private equity funded innovation could offer. In the last few years new venture capital and private equity firms have raised money to invest in dual-use startups. New startups focused on national security have sprung up and they and their investors have been banging on the closed doors of the defense department.

If we want to keep pace with our adversaries, we need to stop acting like we can compete with one hand tied behind our back. We need a radical reinvention of our civil/military innovation relationship. This would use Department of Defense funding, private capital, dual-use startups, existing prime contractors and federal labs in a new configuration that could look like this:


Create a new defense ecosystem encompassing startups, and mid-sized companies at the bleeding edge, prime contractors as integrators of advanced technology, federally funded R&D centers refocused on areas not covered by commercial tech (nuclear and hypersonics). Make it permanent by creating an innovation doctrine/policy.

Reorganize DoD Research and Engineering to allocate its budget and resources equally between traditional sources of innovation and new commercial sources of innovation.

  • Scale new entrants to the defense industrial base in dual-use commercial tech – AI/ML, Quantum, Space, drones, autonomy, biotech, underwater vehicles, shipyards, etc. that are not the traditional vendors. Do this by picking winners. Don’t give out door prizes. Contracts should be >$100M so high-quality venture-funded companies will play.

Reorganize DoD Acquisition and Sustainment to create and buy from new 21st century arsenals – new shipyards, drone manufacturers, etc. that can make 1,000’s of extremely low cost, attritable systems – “the small, the agile and the many.”

  • Acquire at Speed. Today, the average Department of Defense major acquisition program takes anywhere from nine to 26 years to get a weapon in the hands of a warfighter. DoD needs a requirements, budgeting and acquisition process that operates at commercial speed (18 months or less) which is 10x faster than DoD procurement cycles. Instead of writing requirements, the department should rapidly assess solutions and engage warfighters in assessing and prototyping commercial solutions. We’ll know we’ve built the right ecosystem when a significant number of major defense acquisition programs are from new entrants.

  • Acquire with a commercially oriented process. Congress has already granted the Department of Defense “Other Transaction Authority” (OTA) as a way to streamline acquisitions so they do not need to use Federal Acquisition Regulations (FAR). DIU has created a “Commercial Solutions Opening” to mirror a commercial procurement process that leverages OTA. DoD could be applying Commercial Solutions Openings on a much faster and broader scale.

Integrate and create incentives for the Venture Capital/Private Equity ecosystem to invest at scale. The most important incentive would be for DoD to provide significant contracts for new entrants. (One new entrant which DIU introduced, Anduril, just received a follow-on contract for $1 billion. This should be one of many such contracts and not an isolated example.) More examples could include: matching dollars for national security investments (similar to the SBIR program but for investors), public/private partnership investment funds, or tax holidays and incentives – to get $10’s of billions of private investment dollars in technology areas of national interest.

Buy where we can; build where we must. Congress mandated that the Department of Defense should use commercial off-the-shelf technology wherever possible, but the department fails to do this (see industry letter to the Department of Defense).

Coordinate with Allies. Expand the National Security Innovation Base (NSIB) to an Allied Security Innovation Base. Source commercial technology from allies.

This is a politically impossible problem for the Defense Department to solve alone. Changes at this scale will require Congressional and executive office action. Hard to imagine in the polarized political environment. But not impossible.

Put Different People in Charge and reorganize around this new ecosystem. The threats, speed of change, and technologies the United States faces in this century require radically different mindsets and approaches than those it faced in the 20th century. Today’s leaders in the DoD, executive branch and Congress haven’t fully grasped the size, scale, and opportunity of the commercial innovation ecosystem or how to build innovation processes to move with the speed and urgency to match the pace China has set.


Change is hard – on the people and organizations inside the DoD who’ve spent years operating with one mindset to be asked to pivot to a new one.

But America’s adversaries have exploited the boundaries and borders between its defense and commercial and economic interests. Current approaches to innovation across the government — both in the past and under the current administration — are piecemeal, incremental, increasingly less relevant, and insufficient.

These are not problems of technology. It takes imagination, vision and the willingness to confront the status quo. So far, all are currently lacking.

Russia’s Black Sea flagship Moskva on the bottom of the ocean and the thousands of its destroyed tanks illustrate the consequences of a defense ecosystem living in the past. We need transformation not half-measures. The U.S. Department of Defense needs to change.

Historically, major defense reforms have come from inside the DoD, at other times Congress (National Security Act of 1947, Goldwater-Nichols Act of 1986) and others from the President (Roosevelt’s creation of the Joint Chiefs in 1942, Eisenhower and the Department of Defense Reorganization Act of 1958.)

It may be that the changes needed are so broad that the DoD can’t make them and Congress needs to act. If so, it’s their time to step up.

Carpe diem. Seize the day.

The full article originally appeared on Steve Blank’s blog

Image credit: Capella Space

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America Drops Out of the Ten Most Innovative Countries

America Drops Out of Top 10 Most Innovative Countries

The latest Bloomberg Innovation Index is out (2021 edition), and South Korea has risen to first place, taking the title back from Germany, while the U.S. fell out of the Top 10 completely.

Seven of the top 10 places went to European countries while the USA and China slipped.

“Intensifying competition between the U.S. and China is reshaping the innovation landscape. For the U.S., fears about losing intellectual property to a geopolitical rival are undermining support for the open innovation system. For China, fear of being cut off from foreign technology is accelerating investment in R&D capacity at home.” — Bloomberg Chief Economist Tom Orlik

The rankings are based on dozens of criteria centered around seven metrics:

  • For patent activity
  • For research personnel concentration
  • For tertiary education
  • For technology company density
  • For productivity
  • For manufacturing value added
  • For research and development expenditures

Bloomberg Innovation Index 2021 Chart Part 1
Bloomberg Innovation Index 2021 Chart Part 2
Bloomberg Innovation Index 2021 Chart Part 3

The Bloomberg Innovation Index tries to measure and rank countries on the ability of their economies to innovate, which will be a key theme at the annual World Economic Forum in Davos, Switzerland taking place Jan. 26-29.

While spending on research and development continues to be important, shifts in productivity and education effectiveness (among other factors) will continue to encourage significant changes in the index from year to year.

“In the year of Covid and facing the urgency of climate change, the importance of innovation fundamentals only increases. Innovation is often measured by new ideas, new products and new services, but its their diffusion and adoption that is the real metric of success.” — Catherine Mann, Global Chief Economist at Citigroup Inc.

What do you think?

Does Bloomberg get it right or are there other innovation rankings or indexes that do a better job?

Which is more important to the relative innovativeness of a country, efforts by the government or by industry?

Which countries do the best job of achieving successful public/private partnerships to encourage innovation?

Click here to see the full 2021 Bloomberg Innovation Index rankings

 
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Image credits: Bloomberg

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China Plans to Trump Innovation from Outer Space

China Plans to Trump Innovation from Outer Space

First, let me say that this is not a political article, but instead an article about a potential innovation crisis looming just over the horizon thanks to brinkmanship between China and the United States.

Second, let me say this article is not about killer satellites being launched into orbit by the Trump administration or the People’s Republic of China.

Instead this article is about the psychology of a country being backed into a corner, the measures China is likely to take to fight back when they can’t match the United States dollar for dollar in a tariff fight, the current state of the rare earth metals market and its impact on the future of innovation.

Now, some of you might be asking yourself – What the heck are rare earth metals?

Well, as the name might suggest they are metals that are not often found in dense quantities on earth. Some hypothesize that some of the best rare earth metal finds have an extraterrestrial origin. So, some might say that rare earth metals are literally alien, brought to our planet not by little green men (and women) but by blazing hot meteors smashing into the earth. Rare earth metals are so valuable to collectors and to high tech manufacturers that there are groups of modern day Indiana Jones clones out there racing around the world to be the first to claim the next meteor strike before someone else does (see article) and the Chinese government made a conscious choice to invest in trying to corner the market.

Why?

Because rare earth metals are CRUCIAL to all of the technology that empowers the innovation economy.

There was a 60 Minutes segment from three years ago that CBS recently refreshed and re-aired now that it is again timely given the United States vs. China trade war but they have since moved it to Paramount+. It provides a great introduction to rare earth metals and the role they play in the innovation economy, but this Financial Times video does a good job as well:

(updated 60 minutes video available has been moved to Paramount+)

About the only substantial change in the video is that China’s dominance has dropped from 90% of global production to 80% of global production.

Here is a chart showing the production of rare earths in 2018 in the world (data source):

Rare Earth Data

As the chart shows, China has about 40% of the world’s rare earth metals, but is responsible for 75% of the world’s production of rare earth metals. The military machine of the United States relies on rare earth metals to operate, along with green energy, high technology, electric cars, you name it – nearly every innovation direction we’re trying to go in – relies on rare earth metals.

China has cut off countries from rare earth metals before, most notably Japan, and now they are threatening to do it again to the United States (one article highlighting the threat not just to the United States, but to Europe as well). China is also threatening to begin blacklisting individual technology companies not sympathetic to its cause in the battle of egos and stare down between these two economic superpowers. You have to imagine this would include being cut off from rare earth metals.

So, is the innovation train, this pace of unrelenting technological advance and change, about to come a grinding halt?

I guess we’re all about to find out…


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Launching an iPhone before Apple

Launching an iPhone before AppleWe live in an amazing age. An era when barriers to entry and barriers to scale sometimes seem to decreasing faster than the size of semiconductors. If Moore’s law states that the number of transistors per square inch doubles approximately every two years, what would you call the similar increase in speed to scale that has emerged over the past decade?

Two weeks ago I came across a couple of videos showing not one, but two different companies who are already shipping clones of Apple’s iPhone 6, a phone that Apple hasn’t yet been able to announce and get out the door?

Do we live in an amazing era or what?

The first video is of the iPhone 6 clone called the Wico i6:

The second video is of an iPhone 6 clone called the Goophone:

Now, people are very loyal to Apple (at least outside of China) and so this is likely to impact their business very little. But would the same be true in your business?

What would the impact be to your business if a competitor launched your new flagship product before you could?

Are you creating an overall solution that is more valuable than every existing alternative and likely to be widely adopted when you launch it?

If not, shouldn’t you be?

After all if you’ve been following me for any length of time you’ll know that my definition of innovation is the following:

“Innovation transforms the useful seeds of invention into widely adopted solutions valued above every existing alternative.”

By this very definition, these clones may attempt to copy the inventions contained in the iPhone 6, but if Apple has truly packed any innovation into their forthcoming handset, it will take more than copying the look and feel of their hardware and GUI to steal any of their innovation thunder.

Innovation is of course all about value, and so any true innovation will not only excel at Value Creation, but the creators will also have put a lot of effort into Value Access AND Value Translation. Follow the link for more on my value innovation framework.

So, if you link my value innovation framework together with my definition of innovation and work to satisfy the conditions of both, you’ll see it doesn’t really matter what the competition does as long as you focus on creating value in all three areas and launching a solution truly valued above every existing alternative (including copycats, clones, or pre-emptive launches), you can still have a wildly successful launch.

So, keep innovating!


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Stoke Your Innovation Bonfire Today

Stoke Your Innovation Bonfire Today

Did you know that if you buy a paper copy of my book Stoking Your Innovation Bonfire on Amazon, you can start reading it Amazon’s Kindle Cloud Reader today?

Well you can!

Pretty cool!

And if you prefer, you can just buy the Kindle version instead.

I’m not sure if this works in every country where Amazon has a presence, but it’s worth a try if you just can’t wait for a copy of the book to be delivered. Click the country link to go to the book’s page on that Amazon site:

Yes!

Who will be the first to review Stoking Your Innovation Bonfire on Amazon in China and Japan?

Or to invite me to speak there, for that matter. 😉


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Changing Business Models Around

Changing Business Models AroundSome business models and products have been around so long that we just take them for granted, while others concepts that are becoming new business models are so new that we’re not quite sure what to expect. It is probably easiest to explain what I mean and why this juxtaposition is important by looking at a few examples. Most of these examples involve challenging our orthodoxies.

1. Coffee Shops

In the typical coffee shop pretty much anywhere in the world, the business model works like this – you buy a coffee and it comes along with it the right to take up a place at any table in the café for as long as you want. So, coffee buys you time. An article I came across on NPR highlights an entrepreneur in Moscow that has opened a restaurant that loosely translates to the Clockface Café where instead of buying coffee and getting time, you instead buy time ($4/hr per person for the 1st hour and $2 an hour after that, up to a maximum of $12 after 5 hours) and get coffee for free. Ivan Meetin, the founder, plans to open his next café in London. Meanwhile I have heard of similar operations in Paris, and by now they can probably also be found elsewhere. So, in your business what do people get for free, and what do they pay for? And is there an opportunity to change around what you charge for?

2. Waste Disposal

In many businesses, and in the creation of most products, there is waste. And in most cases, businesses pay to have this waste removed from their premises. Or there may be waste that the customer has to pay to have removed. But this doesn’t always have to be the case.

KFC, McDonald’s, Burger King, etc. used to have to pay to have their used fryer oil picked up, but now thanks to the rise of biodiesel they may even make money from this waste product.

Chicken FeetChicken processors used to throw the feet away after processing a truckload of chickens, but after they discovered that chicken feet are a delicacy in several Asian countries, they stopped throwing them away and instead started exporting them. In fact, chicken feet sell for more per pound than chicken breasts in China.

Broken OREO’s used to have no value before Cookies ‘n’ Cream ice cream (and now Cookies ‘n’ Cream OREO’s) were discovered.

And finally, I came across an example of a bottle cap concept created by designers from the Lanzhou University of Technology in China, intended to give poor children access to building blocks for play, from what was previously thrown away.

Building Caps

3. Discounts for Data

Data security and privacy is becoming an increasingly hot topic, and in the past companies would either ask customers for their data and not give them anything for it, or just not ask for it. But now we are seeing some interesting models of companies asking customers for data and instead giving them something of value in exchange. For example, Urban Outfitters rewards users that respond to promotions inside their mobile app or to users that allow its app to connect to their Twitter or Instagram accounts with points that can be redeemed for sale previews, concert tickets, or early access to new pieces. What data do you want from your customers? What is it worth to you? How could this exchange be made engaging and not be seen as a purely financial transaction?

4. The Soft Drink Category is Saturated and Cold

Soft drinks… How many people out there think that the soft drink category is a blue ocean full of incredible opportunities for unbounded growth for established soft drink makers? Most people would say that this is a mature category and a tough place for companies, full of merciless competition. But yet, people continue to innovate and challenge this orthodoxy. Witness a couple of interesting new concepts.

Shericks ShakesBritain has always been a hotbed of innovation, and the country that brought us Pret a Manger and Innocent smoothies brings us this tasty treat. Mr. Sherick’s Shakes brings people a little bit of luxury to their day in the form of their high quality milkshakes.

Meanwhile in Japan, there is a growing trend manifesting in a wave of product launches in the soft drink category that are not cold, but instead hot. Witness this example of what has always been a cold drink, Ginger Ale, being brought into the Japanese market as a hot beverage by Coca Cola’s Canada Dry unit.

Canada Dry Hot Ginger AlePeople always love something new and different, even if it is something old that has disappeared from the market. This is why fashion runs in cycles, and in a mature category like soft drinks there is no reason why we shouldn’t keep these principles in mind and see if now is the time to bring something back, or to see if there is an orthodoxy that we shouldn’t now look at challenging to see if an opportunity might not be created.

Conclusion

Innovation transforms the useful seeds of invention into widely adopted solutions valued above every existing alternative. Value comes not just from physical invention, or business model innovation, but from psychological and emotional benefits as well and the creation of new psychological or emotional value can happen in any industry at any point in time, no matter how mature the category seems to be. We as humans are strange creatures and we simultaneously fight against change (and hold back innovation as a result) and embrace new things (or at least like to try them). So challenge your patterns of accepted thinking to look for opportunity and work to overcome your beliefs that everything that could be done has been done in your industry.

Keep innovating!


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The New Reinvigoration of American Manufacturing

The New Reinvigoration of American Manufacturing

As wages and shipping costs rise abroad, unemployment stays high at home, and strategic discontent with offshoring grows, U.S. Manufacturing finds itself facing its best chance at staging a comeback.

American companies are considering a reversal of offshoring and outsourcing to reduce risk, improve agility, shorten product development cycle, and improve their ability to simplify increasingly complex supply chain management.

Missing from this list is innovation, but US companies that commit to engaging American workers in their innovation efforts may also increase their ability to justify manufacturing their products at home.

As wages and shipping costs rise abroad, unemployment stays high at home, and strategic discontent with offshoring grows, U.S. Manufacturing finds itself facing its best chance at staging a comeback.

American companies are considering a reversal of offshoring and outsourcing to reduce risk, improve agility, shorten product development cycle, and improve their ability to simplify increasingly complex supply chain management.

Missing from this list is innovation, but US companies that commit to engaging American workers in their innovation efforts may also increase their ability to justify manufacturing their products at home.

Moreover, Chinese workers are now three-to-five times more expensive than some other Asian workers, leading American firms to reconsider their sites of production.

One such firm is Nike, whose innovative Flyknit technology could allow it to make shoes easily anywhere in the world by having a machine make the most labor-intensive parts of the shoe. To bring production back to the United States allows Nike to react faster to competitors or to increase the speed of scheduled product launches. In the fashion industry, speed is crucial, and onshore production could create a competitive advantage.

Other firms are taking a second look at their reliance on contract manufacturers in China and elsewhere. Companies that once saw contract manufacturing as a strategic or economic necessity are questioning the wisdom of the arrangement as they watch original design manufacturers like HTC move up-market and strengthen their brands to compete with Apple, Motorola and others.

Adding fuel to the fire are rumors of workers at plants like Foxconn smuggling out plans and components to sell to pirates to make a little cash on the side.

But more importantly, an almost religious focus on cost and increased use of standard components across whole industries has made it more difficult for one brand to differentiate their products from another in the industry – increasing price competition and squeezing margins for all.

As a result, companies like Apple are now looking to reverse some elements of their standardization and outsourcing strategy and instead become more vertically integrated. Apple has acquired a chip design firm — and even their own chip fabrication plant (fab) — in its quest to differentiate itself and control some of its basic inputs and it may still acquire another fab to continue this strategic direction. Not to be outdone, Google is acquiring Motorola, and Nokia and Microsoft are working together closer than before.

It is possible for companies to manufacture their products in the United States and make a profit. When you invest in your workers, engage their hearts and minds and involve them in the innovation process, you can not only optimize your manufacturing processes but also uncover new growth opportunities that no contract manufacturer will ever bring to you.

Companies like New Balance, Snapper Mowers, American Apparel, Caterpillar, Syntax-Brillian (Olevia TV’s), Case IH, American Bicycle Group and many others have been working hard to keep making their products in the United States.

Now is the time for the Obama administration and state and local governments to step up their encouragement of US manufacturing. In these difficult economic times, Americans would love nothing more than to stroll down the aisles of their local Walmart, Target, or independent retailer and find more products on the shelves that say Made in the USA.

This article originally appeared on The Atlantic

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