This article originally appeared on the FuzeHub blog. Guest blog post by Steve Melito, Owner, Thunderbolt Business Services.
How competitive is American manufacturing? By the year 2020, the United States is projected to take the top spot in the Global Manufacturing Competitiveness Index (GMCI), a multi-year research platform from Deloitte and the Council on Competitiveness. The 2016 GMCI surveyed more than 500 of the world’s leading manufacturing CEOs and is the third such analysis in a series. Previous studies in 2010 and 2013 held promise for NYS manufacturers, but four reasons and two new programs could mean the best is yet to come.
What’s driving U.S. manufacturing competitiveness? Talent, cost competiveness, workforce productivity, and supplier network are the four factors that Deloitte and the Council on Competitiveness emphasize. For manufacturers in New York State, funding opportunities such as Global NY and START-UP NY can also promote innovation, expansion, and increased profitability. These and other initiatives for manufacturers are offered through Empire State Development (ESD), New York State’s chief economic development agency.
Understanding the Drivers
Across the United States, the 2016 GMCI reports, “talent remains number one” among drivers of manufacturing competitiveness. In the Deloitte and Council of Competitiveness study, talent is defined as “the quality and availability of highly skilled workers” who can help manufacturers embrace innovation and advanced manufacturing strategies. Although considerable media attention has been devoted to America’s manufacturing skills gap, the United States is second only to Germany in terms of talent today.
Cost competitiveness and workforce productivity are secondary to manufacturing talent, but these two drivers of manufacturing competitiveness are especially important. “In an era of sluggish economic growth,” the 2016 GMCI explains, “containing costs and increasing productivity to boost profits remains critical for manufacturers.” China beats all of its major manufacturing rivals in terms of cost competitiveness, but the study warns readers against emphasizing one factor alone. Rather, a “mosaic” of factors or drivers is what determines a nation’s overall GMCI rank.
Executives ranked “supplier network” as the fourth most important driver of manufacturing competitiveness. Globalization has increased supply chain lengths, but top-ranked nations have their own strong and diverse supplier base. Importantly, these networks include “industrial clusters focused on R&D”. The 2016 GMCI doesn’t reference a 2015 Brookings Institution report about declining R&D as share of U.S. GDP, but perhaps it should. In that study, Brookings authors Mark Muro and Scott Andes described U.S. R&D as a troubling enterprise.
Past, Present, and Future
If the predictions of Deloitte and the Council on Competitiveness are correct, the United States will take the top spot in the Global Manufacturing Competitive Index (GMCI) in 2020. China, the manufacturing competitiveness leader in 2010, 2013, and 2016, will fall to second place as it transitions towards higher-value manufacturing and adjusts to rising material and labor costs. Germany and Japan are expected to keep their third and fourth spots, respectively, in 2020.
For the United States, reaching the top of the GMCI represents the logical next step in a steady progression from fourth place in 2010, third place in 2013, and second in 2016. Longer-term, however, issues such as the manufacturing skills gap and declining R&D spending (at least as a share of GDP) could affect U.S. manufacturing competitiveness.
For now, however, the four drivers of manufacturing competitiveness are propelling America towards GMCI primacy. In New York State, funding opportunities such as Global NY and START-UP NY are helping, too. It’s a great time for U.S. manufacturing – and the best is yet to come.
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