Tumultuous conditions brought on by today’s flatter world have taken such a toll on domestic manufacturers that many of them are wondering if globalization will ultimately compromise their productivity, competitiveness and profitability, according to a new Deloitte report.

Deloitte member firms in Canada, Mexico and the United States recently surveyed 321 executives of leading North American manufacturing enterprises, assessing how they are designing their organizations and managing the five key issues in the manufacturing marketplace: globalization, cost reduction, human capital, finance transformation and top-line growth.

The results of the survey, published yesterday in a report entitled Made in North America, are both heartening and surprising.

“While globalization will continue and some manufacturing jobs will follow, North America is showing significant resiliency, based on the plans of executives,” Craig Giffi, a Deloitte LLP vice chairman and the U.S. Consumer & Industrial Products industry leader, said in the announcement of the new Deloitte Touche Tohmatsu survey conducted in association with Canadian Manufacturers & Exporters, the National Association of Manufacturers and NAM’s research and education arm The Manufacturing Institute.

For one, the survey determined that companies plan to expand a variety of operations. Sales and services topped the list of planned expansion, with 76 percent planning to expand sales in the U.S., 58 percent in Canada and 67 percent in Mexico. Sourcing of raw materials and parts as well as production rounded out the top three priorities.

According to the announcement of the report:

Overall, the vast majority of respondents said North America will not lose competitive ground in those areas over the next five years. And a significant number said they believe North America will become even more competitive by 2012 in sales and marketing (45 percent), information technology (41 percent), customer service (37 percent), R&D/engineering (36 percent) and finance/accounting (34 percent). A small percentage predicted that North America will be less competitive globally in these areas by 2012, with the balance being neutral.

Overall, North American manufacturers said they are confident about their competitive position in the global marketplace and expect that to remain true for the next several years. More than 40 percent of total respondents said they are more competitive than their primary global rivals today, and 57 percent see themselves becoming more competitive over the next five years.

While less confidence is shown by executives in Canada and Mexico — only one-third of Canadian and Mexican manufacturers believe they are currently more competitive than their closest global competitors — nearly half are optimistic about their competitiveness in five years.

Manufacturers also seem to have a renewed emphasis on North America as the home for actual production facilities, hoping to turn around an area that has been lagging. North America — the U.S. in particular — was cited as the No. 1 likely location in the short term.

The only dark spot in the long term is production capability, with more than half of survey respondents (61 percent) saying they expect North America to become even less competitive globally as a site for production by 2012. The key barriers to making production competitive globally were: labor cost (71 percent); tax policy (66 percent); work rules (66 percent); lack of available skilled labor (51 percent); and costs of raw materials and energy (56 percent).

Nonetheless, the industry executives who responded to Deloitte’s survey continue to see North America as “a vibrant — indeed growing — manufacturing base, essential to their long-term success,” as noted in the report’s introduction:

Based on their responses, it seems they would strongly prefer North America as a hub for their manufacturing operations in an ever-expanding global economy if proper investments (both public and private) are made, and if government policies focus more on reducing or eliminating competitive barriers. This positive view extends to the impact of NAFTA [North American Free Trade Agreement], through which many executives have seen substantial positive impact on revenue growth and business performance.

Indeed, this week’s report also sheds new light on how North American manufacturers view free-trade agreements and the impact of current trade integration policies between the U.S., Canada and Mexico.

Those manufacturers that have been impacted the most by import competition may have a less favorable outlook, but based on respondents’ feedback, manufacturers overall paint a positive picture of their experiences with the NAFTA after almost 15 years.

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Resources

Made in North America: Has NAFTA Made Us Competitive?
Deloitte, June 18, 2008

United States Is No. 1 As Manufacturers Plan To Expand, New Deloitte Survey Shows
Deloitte, June 18, 2008