CEO of Fernweh grouppresident of Avail Infrastructure Solutions and president of Ayna.AI.
getty
The US industrial economy has been long “undervalued, undervalued and misunderstood.” Despite being the backbone of our country’s economic growth and prosperity, this sector is often overshadowed by the more glamorous service and technology sectors.
But as the world looks to the future, a resurgence seems to be underway. At the forefront are companies with an unwavering passion for innovation. These high-tech manufacturing companies, referred to as the ‘titanium economy’, move forward with advanced solutions and technologies – much like the durability and corrosion-resistant properties of titanium. The opportunities this sector offers are many, and hopefully by the end of this article I have inspired you to pay attention to this quiet but vital sector.
Contents
Misconceptions
One of the main reasons for a historical undervaluation of this industry is the negative perception of manufacturing and industry as dirty, polluting and low-skilled. This couldn’t be further from the truth. Not only has the industrial sector made great progress in becoming more sustainable and environmentally friendly, with many companies investing in renewable energy sources, energy efficiency measures and cleaner production processes, many of the companies in this sector can serve as crucial leaders in the transition to a green economy.
This undervaluation also leads to the titanium economy being historically undervalued. A focus on volatile sectors over long-term value appreciation and stability has led many pundits and investors to move away from industrial companies with solid and recurring earnings. While stocks in the more glamorous sectors can fluctuate in the short term, the industrial sector is a key driver of long-term economic growth and stability. The industrial sector provides a solid foundation for the economy by creating quality jobs, generating wealth and supporting other sectors of the economy.
Creating value
It is true that enormous value has been created in the digital sector over the past 20 years. Software companies were able to scale incredibly quickly without requiring massive footprints. However, it seems likely that secular trends will once again focus on manufacturing advances.
This refocused interest on the industrial sector can best be illustrated with an example. Take the example of electrical infrastructure. Achieving a carbon neutral economy will require massive investment in new transmission lines and substations, along with the deployment of energy storage systems, to ensure that renewables can reliably replace fossil fuels.
Another micro-vertical, aviation, requires massive funding to upgrade ground service equipment (GSE) infrastructure that can meet the increasing sustainability demands of net-zero aviation.
These new technologies to be deployed are incredibly sophisticated projects that require decades of production know-how and cannot be easily learned or replicated by a line of code.
While climate change is just one of the tailwinds likely to refocus the primacy of the titanium economy, there are many other sectors, such as quantum computing and 5G, that have the potential to dramatically improve efficiency and reduce costs, creating a even further disruption from the titanium economy.
Action needed
Despite a strong foundation, the domestic industrial base has faced numerous challenges in recent years due to offshore competition, including globalization, physical restructuring and a lack of investment in domestic industrial technology.
Business as usual risks the United States losing its industrial base to competition abroad. Action is needed for the US to maintain its preeminent position as a manufacturing superpower in the world. As investors, we can support the titanium economy by helping companies define what looks good.
Support the titanium economy
Sometimes industrial company leaders struggle to understand what success looks like. Many of these companies operate in a few micro-verticals or are family businesses where they don’t have a clear definition of being successful. As investors, we can help leaders stay accountable by setting goals and measuring results continuously and automatically.
Change is also needed at the level of government policy. Consider making education, including full apprenticeships, part of career and technical education (CTE) programs. Many of the companies I talk to are strapped for students interested in roles in production. Providing technical education and apprenticeships helps attract students while providing them with the experience and training they need for permanent employment.
In this regard, I would recommend that companies move beyond internships that engage students on a part-time or limited basis and create full-time apprenticeship programs, where we can encourage skill-building and long-term skill development, enabling students to get a sense that they have skin in the game.
Another area that I think could be incredibly important is for industry to petition the government to lead the way by following models like Germany’s Meisterschules, partnerships between education and industry in critical areas like robotics and advanced production.
Federal governments can also develop or create government bonds National Development Banks which can help many small and medium industrial companies finance their capital expenditures during this critical period. Historically, research and development (R&D) spending enabled the US to have a world-class industrial sector, but R&D investment in countries such as Germany and South Korea threaten the competitive advantage of the US.
Invest in this space
By investing in leading companies within such micro-verticals, the industrial sector can become more efficient, productive and innovative, leading to broader economic growth and greater national competitiveness. Many of the companies I’ve worked with in this area are pioneering companies that struggle to access affordable capital and often don’t have the most up-to-date operating systems. When these companies invest in areas such as innovation, education and technology transformation, they can create value through greater efficiency while becoming more environmentally friendly.
As mentioned earlier, the titanium economy has historically been undervalued, but this need not be the case. By investing in this sector, we can create a cleaner, more prosperous, and safer America.
Past performance is not an indication of future results. This information has not been independently verified and should not be used in making investment decisions or be interpreted as investment advice.
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