Why Manufacturing Companies Must Embrace Disruptive Change to Survive

It is easy to see how ongoing investment and innovation trends are quickly bringing unparalleled disruptive change to an ever-growing number of businesses. Uber now runs the largest taxi fleet in the world while Airbnb is on track to become the world's biggest hotelier and music streaming services like Spotify have recently surpassed CD sales.

Indeed, advanced R&D activity and investments, which used to primarily be reserved for large companies that could take advantage of their economies of scale, is now increasingly being extended to start-ups and entrepreneurs who make use of disruptive technology. In turn, these companies are bringing disruptive change to an ever-growing number of traditional industries.

As the start-up boom continues to explode with no end in sight, fueled by easy access to venture capital investment for entrepreneurs, few traditional industries will go unscathed. However, rather than lamenting this obvious development, established companies should embrace these changes - and seek to tap into the new opportunities they give rise to.

Doing so in practice is, of course, easier said than done. But for those companies in the traditional industries that fail to embrace disruptive change, the consequences will be grave. Several reasons underpin this conclusion. Take the manufacturing industry, for example, which is currently confronting a number of new challenges:

First, manufacturing is no longer an industry that attracts the "best and the brightest". Tech-savvy young millennials prefer to work for technology giants like Google or start-ups like Airbnb. As a result, manufacturing companies are facing a lack of entrepreneurial spirit.

Second, the big-sized market players in manufacturing are not agile enough to accept new trends that emerge from the daily market communication of consumers. Today, the consumer wants to be involved in the process of creating the product or service - something that requires much greater flexibility and interactivity from manufacturing companies.

Third, larger manufacturing companies frequently lack sufficient funding for investments in R&D and in new communication models and channels. This is causing them to risk fall behind, as other new start-up companies emerge.

Therefore, to cope with these on-going challenges, larger manufacturing companies should embrace new ways of attracting investments and partnering with start-ups. In fact, established companies hold some unique strengths and assets that these tech-savvy start-ups can benefit from. The result is a win-win-win situation for the corporates, the startups and the consumers.

What opportunities are there then for established larger manufacturing companies to engage with start-ups? What do these companies offer start-ups that they don't already have?

Quite a lot it turns out.

For example, multinational companies already have established extensive infrastructure and distribution networks that can quickly be mobilized to internationalize a new idea. So rather than building such networks from scratch, start-ups, by teaming up with established firms, can reach new markets and tap into existing expertise very effectively.

Furthermore, big companies also have access to a unique set of services that are typically inaccessible to small companies. These include things like quality control, market research, legal protection, finances, marketing, and local market knowledge.

Collaboration between big companies and startups will have synergetic effects. For the start-ups, they get instant access to a services, know-how, experience and resource sharing or investments in the development of new ideas. For big companies, they get to tap into venture capital investments, tech-savvy ideas and a workforce with an entrepreneurial spirit. The big companies develop and grow, while the local economy gets boosted, along with the startups.

As more companies - big and small - recognize the many obvious benefits of synergetic collaboration, the number of start-up takeovers by bigger companies will increase - in contrast to the number of big M&As. Another way big companies can support startups is through establishing local incubators to engage in R&D in cooperation with talented local entrepreneurs and the academic community.

As always, change is difficult but sometimes necessary. When it comes to the manufacturing sector and other traditional industries, embracing disruptive changes through new partnerships with start-ups may be the most exciting development in decades.