The manufacturing competitiveness of the United States, Germany and Japan the three manufacturing superpowers of the 20th century are all expected to decline during the next five years. But those countries will still be a force to be reckoned with.
They are all showing some signs of slippage in competitiveness over the next five years, Craig Giffi, vice chairman of Deloitte LLP, said June 23 at the National Press Club in Washington.
But even with the rise of China, India and Korea the United States, Germany and Japan are still very formidable and very competitive, he said.
But clearly what had been the world order in the second half of the late 20th century is giving rise to new manufacturing paradigms, said Giffi, who is the U.S. national industry leader for consumer and industrial products at Deloitte.
Giffi unveiled a new research report, the 2010 Global Manufacturing Competitiveness Index, which was produced by Deloitte's parent company, Deloitte Touche Tohmatsu of New York, and the Washington-based Council on Competitiveness. The report was sponsored by the Department of Commerce.
Five of the top 10 countries in terms of manufacturing competitiveness and six of the top 12 are in Asia.
The global competitive landscape for manufacturing is undergoing a fundamental transformational shift that will reshape the drivers of economic growth, high-value job creation, wealth creation, national prosperity and national security, said Deborah Wince-Smith, president and CEO of the Council on Competitiveness. The epicenter for manufacturing continues to shift to emerging markets and Asia, in particular.
John Engler, president and CEO of the National Association of Manufacturers, argued that the drop in U.S. competitiveness reflects policies not in place and the amount of risk this Congress and this administration is imposing on business.
Whether it's environmental policies, tax policies, or health care, everywhere we look is uncertainty and risk and all that uncertainty on key policy issues makes business hesitant to make investments, Engler said.
The more than 400 global CEOs and senior manufacturing executives surveyed for the report said access to talented scientists, engineers and highly educated production workers who can deliver innovation is the key driver of global competitiveness. Those factors far outstrip traditional factors such as cost of labor and materials; energy cost and polices; and economic, trade, financial and tax systems, they said.
The council which comprises CEOs, labor leaders and university presidents plans to develop a national strategy for competitiveness in manufacturing by late 2011 to deliver to President Obama and Congress.
A robust manufacturing sector is essential to attracting and retaining high-value investments, increasing exports, spurring innovation and creating high-value jobs, said council Chairman Sam Allen, who is also chairman and CEO of Deere & Co. of of Moline, Ill. U.S. manufacturing is losing ground and we need to reverse that.
There are a lot of things that the U.S. is already doing that is very, very good, he said. But we must find a way to lead the world in energy-efficient, sustainable, low-carbon manufacturing and to make consistent gains in technology market leadership and keep those jobs in the U.S. All too often U.S technologies are giving rise to non U.S. jobs.
James Quigley, CEO of Deloitte Touche Tohmatsu, agreed. Robust manufacturing is the foundation of our economic growth and our economic security, he said. We will need strong manufacturing competency and leadership to move forward to make advances in manufacturing and in clean energy.
The survey said that in 2015, the top three countries in manufacturing competitiveness will still be China, India and South Korea, but with South Korea's relative strength declining.
Brazil will replace the United States as the fourth most competitive country with the U.S. dropping to fifth and its relative strength declining. Similarly, Mexico will move past Japan into the sixth position with Japan sliding to seventh and declining in relative strength.
U.S. CEOs surveyed felt that technology transfer and adoption and intellectual property are the country's two top competitive advantages. By contrast, they were most discouraged by the disadvantages resulting from government intervention and ownership of companies, corporate tax policies and rates, health-care policies, product-liability laws, and immigration laws.
The U.S has the second highest tax rate among developed countries [only Japan is higher] and is one of only five countries that taxes earnings, Allen said. And since 1990, it is the only developed country where tax rates are going up.
According to the report, non-production expenses add almost 18 percent to U.S. manufacturers' costs relative to those firms' major trading partners. We need to have more attractive tax policies in place, he said. The current high-tax environment discourages capital investments and erodes competitiveness.
Despite that, CEOs around the globe said that government investments in manufacturing and innovation and the legal and regulatory systems in countries ranked only sixth and seventh on the factors driving global manufacturing competitiveness.
The top issue is being able to get the right workforce in place, Giffi said. Developing economies are spending a lot on education in science, technology and engineering and on developing the talent of in-country workers. That is what makes them competitive and challenging.
The survey said traditional manufacturing countries will find it increasingly difficult to fill positions as skilled workers retire and younger workers in those countries lack technical education.
The challenge for the U.S. is how rapidly we accelerate our migration to this new manufacturing paradigm and do that in parallel with making sure we have the trained workforce to operate in that area, said Wince-Smith. China's doing a lot with getting their workforce aligned with the future and we need to do that too, rather than being concerned with training workers for 20th-century skills.
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