In opening remarks to the media during the recent Rockwell Automation Fair, Craig A. Giffi, Deloitte vice-chairman, US leader, consumer & industrial products, posed the question, “Does manufacturing still matter?” His answer was a resounding YES! Giffi spent the next hour explaining why.
“The advancement of manufacturing capabilities is the most important link to increasing the economic prosperity of a nation,” says Giffi. “Advanced manufacturing capabilities directly determine the ability to accelerate the economic development of a country.”
Many emerging economies are primed for rapid growth and are enabled by the complex economic infrastructures they have developed and the manufacturing knowledge and capabilities accumulated, according to Giffi. “Competition for high-value jobs will intensify as nations and companies build more and more advanced manufacturing capabilities.” This will lead to more competition for talent, for which there are now 10 million jobs with manufacturing organizations that can’t be filled, according to The Future of Manufacturing: Opportunities to drive economic growth, a World Economic Forum Report in collaboration with Deloitte Touche Tohmatsu, Ltd. “It appears very clear that each and every nation is getting better at manufacturing competitiveness with their manufacturing capability sets, and as a result, the proverbial bar is getting set higher and higher,” adds Giffi. An example is Thailand, with a GDP/capita in 1968 of $175 per year; its economic complexity index (ECI, a relative, wholistic measure of the production characteristics of large economic systems, typically whole countries) was -0.61. In 1988, when agricultural areas began shrinking and more industry was built, Thailand’s GDP/capita rose to $1,114, and ECI increased to 0.09. When the metric was last measured in 2008, Thailand’s GDP/capita had risen to $3,993, and its ECI had increased to 0.81, due to the large influx of high-tech industries.
Similarly, China has decreased levels of low-tech exports (e.g., raw materials, light industry and food) and increased exports of electronics and heavy, advanced industrial goods. China is improving its manufacturing capability sets and its knowledge, and as a result, its GDP/capita keeps increasing, which is creating a significant middle class, says Giffi. “During the economic downturn, we saw nation after nation doing extraordinary cutting, but saving their manufacturing industry practices—and in some specific sectors—putting an enormous emphasis on manufacturing jobs. Manufacturing jobs create a manufacturing innovation ecosystem, and it’s innovation that drives advanced processes, which allow a nation to prosper.”
Over the past 20 years, rapid globalization has occurred, and the global manufacturing ecosystem has experienced more change, affecting the prosperity of more companies, nations and people than at any time since the Industrial Revolution, says Giffi. Four factors have contributed to manufacturing’s globalization: free trade proliferation, digital technology infrastructures, the rise of a new global middle class and the global disaggregation of manufacturing supply chains.
Like it or not, the free-trade genie is out of the bottle, says Giffi. Before 1980, few regional trade agreements existed—mostly among six target countries (US, Brazil, Germany, India, China and Japan). Today, regional trade agreements have added to the complexity, facilitating the disaggregation of supply chains.
Digital technology has fostered the design-anywhere/build-anywhere concept, enabling manufacturing companies not only to create product designs/recipes in one country and make the products elsewhere, but also replicate their manufacturing processes and plants virtually anywhere in the world. Thus, a process/bottling plant looks and works the same in the US as it does in Russia or China.
Globally, middle class demand is expected to grow from $21 trillion to $56 trillion by 2030, with 80 percent of the growth from Asia, presenting potential for significant changes in supply chains around the world. This growing middle class will represent significant purchasing power.
There are, according to Giffi, three trends that could leave supply chains exposed to problems: rising protectionist politics, exposure to currency volatility and fading labor rate arbitrage. Some nations are stable, and others aren’t. Therefore, manufacturers are rethinking large supply chains and creating smaller, regional supply chains that are not as prone to political issues and currency problems.
The road ahead
The future of manufacturing, therefore, will be based on competition for resources and capabilities, as well as public policy, says Giffi. Affordable clean energy strategies and effective energy policies will be an important differentiator of highly competitive countries and companies.