Preserving U.S. Manufacturing Competitiveness Requires New Strategies

In the aftermath of an election cycle in which manufacturing emerged as a key point of contention in many races, several groups are taking stock of the state of U.S. manufacturing competitiveness. The 2012 edition of the Global Manufacturing Competitiveness Index, based on a survey of senior manufacturing executives, projects that the U.S. will fall from third most competitive nation to fifth over the next five years. In order to stave off declining competitiveness, authors of a McKinsey Global Institute report suggest that manufacturing be viewed as a critical driver of U.S. innovation, requiring flexible federal intervention as the lines between manufacturing and services become blurred.

The 2013 Global Manufacturing Competitiveness Index, published by Deloitte and the Council on Competitiveness, draws on a survey of more than 550 CEO and senior international manufacturing leaders to depict the changing global landscape. China continues to occupy the top spot as most competitive manufacturing economy, despite a recent slowdown in economic growth. China's abundant low-cost labor and material and strong government investment in manufacturing and innovation appear poised to preserve its competitive edge. The U.S. currently ranks third, but is projected to fall to fifth by 2018. Survey respondents found the recent focus on manufacturing in the U.S. encouraging, but cited a sense of uncertainty in the regulatory and taxation systems as a major concern.

Survey respondents cited talent and labor-related issues as the most important factors in judging the competitiveness of nations and in evaluating their trajectory over the next few years. The quality and availability of researchers, scientists and engineers led as the most important single factor in manufacturing competitiveness, followed by the quality and availability of skilled labor. While the U.S. scored well in these areas, it performed less impressively in the second group of factors, which account for a country's economic trade, financial, and tax system. Respondents found the U.S. tax system overly complex and burdensome.

Download the 2013 Global Manufacturing Competitiveness Index at: http://www.deloitte.com/view/en_GX/global/industries/manufacturing/3e4898b27c50b310VgnVCM3000003456f70aRCRD.htm

The McKinsey Global Institute's analysts argue that preserving the U.S. manufacturing edge is vital to the country's economic prosperity because of its outsized contributions to trade, R&D and productivity. Doing so will require a significant reassessment of federal policies as manufacturing itself evolves and splinters into new market segments. Policymakers need to adjust their expectations about job creation within manufacturing companies, and view manufacturing firms as drivers off the overall economy, according to the report.

The line between service-oriented firms and manufacturing-oriented firms has begun to disappear as manufacturing firms employ more workers in customer service, R&D, information technology and other tasks typically associated with the service economy. At the same time, service companies are widely engaging in small scale production that would have been associated with manufacturing in the past. The blurring of the line between service and manufacturing suggests that policymakers should focus on the innovative power of manufacturing firms to increase productivity and create ripple effects throughout the economy instead of job creation at individual manufacturing companies.

Download Manufacturing the Future: The Next Era of Global Growth and Innovation at: http://www.mckinsey.com/insights/mgi/research/productivity_competitiveness_and_growth/the_future_of_manufacturing.