Senior leaders and chief executive officers of manufacturing companies report that the competitive landscape for manufacturing is shifting. Although the U.S. currently ranks third among top competitive nations for manufacturing, projections indicate that the nation will slip to the fifth spot in the next five years, according to the 2013 Global Manufacturing Competitive Index.
The report, a collaborative effort between the Deloitte Touche Tohmatsu Limited (DTTL) Global Manufacturing Industry group and the Council on Competitiveness, is based on the responses from over 550 senior manufacturing executives worldwide, with 39.7 percent from North America, 28.5 percent from Asia, 21 percent from Europe, 5.4 percent from South America, and 5.4 percent from Australia.
Today, China ranks as the top competitive nation, followed by Germany. Right behind the U.S., India ranks fourth, and South Korea ranks fifth in the competitive index rankings. In five years, however, these rankings will shift with the exception of China, which executives believe will continue to lead and become even more competitive in the near future.
In five years, China will be followed by India, Brazil, and Germany on the index rankings, with the U.S. trailing all of them. The report looked at the main drivers that factor into a country’s ability to compete.
Top 3 Drivers of Manufacturing Competitiveness
1) Talent-Driven Innovation
In the survey, executives were asked to report on whether a country was “extremely competitive” with respect to talent-driven innovation. Most agreed or strongly agreed that Germany is extremely competitive (93 percent), followed by the U.S. (86 percent), Japan (83 percent), India (59 percent), China (58 percent), and Brazil (40 percent).
There are factors that drive such talent innovation, with the report noting, “Within talent-driven innovation, the quality and availability of scientists, researchers and engineers and the quality and availability of skilled production workers are ranked as the first and second most important of the 40 individual sub-components of the competitiveness drivers.”
Recruiting such talent remains a challenge for employers worldwide and in the U.S., as they struggle to fill their worker pipelines. A recent Career Builder survey, which asked employers to identify the most difficult positions to fill within their organizations (positions which stay open 12 weeks or longer), found that worldwide, IT managers/network administrators, engineers, accountants, and software developers were the hardest talent to find.
The engineering talent shortage trickles into other sectors in the U.S. Just this week, Facebook founder Mark Zuckerberg expressed frustration over the lack of engineering talent for technology companies, noting that the country doesn’t produce the “volume of engineers that companies would want to hire,” as reported by Inc.com.
2) Economic, Trade, Financial, and Tax Systems
These systems ranked as the second biggest driver of manufacturing competitiveness. The report authors note that in order to create an attractive manufacturing destination, “tax rate burdens, system complexity and stability of policies” remain major hurdles for the least competitive countries to overcome.
In this category, the U.S. ranked high, with 71 percent of executives reporting that they agree/strongly agree that the country is extremely competitive in respect to the local economic, trade, financial, and tax systems. The U.S. ranked behind Germany (73 percent), but ahead of Japan (63 percent), China (61 percent), Brazil (47 percent), and India (43 percent).
3) Cost and Availability of Labor and Materials
These factors have the U.S. ranking behind several other countries. While 90 percent of executives agreed or strongly agreed that China was extremely competitive with respect to the local cost and availability of labor, 87 percent felt the same for India, followed by Brazil (70 percent). The U.S. was far behind (39 percent) but above Germany (32 percent) and Japan (29 percent).
The report highlights one crucial point: Even though the U.S. has higher labor costs, it maintains the highest labor activity. “On the other end of the spectrum, although China and India have made significant improvements in labor productivity over the past decade, their starting points are low and, therefore, they remain far behind the U.S.”
Do you agree with these findings? What else is needed to drive manufacturing in the U.S.? Share your thoughts with us below.