China Committee

2010/09/08

Global Manufacturing Competitiveness Index

Talent is viewed as key to success, and China seen as the strongest in manufacturing competitiveness

Access to talented workers capable of supporting innovation is the key factor driving global competitiveness at manufacturing companies – ahead of ‘classic’ factors typically associated with competitive manufacturing, such as labor, materials and energy, according to a recent report. China is seen as the strongest in manufacturing competiveness currently and in five years, backed by a relatively low-cost base and an abundant pool of high skilled talent.

These are the findings of the 2010 Global Manufacturing Competitiveness Index, a research report from Deloitte’s Global Manufacturing Industry group and the U.S. Council on Competitiveness. The report is based on the responses of more than 400 chief executive officers and senior manufacturing executives worldwide to a survey conducted in late 2009 and early 2010. It also draws on select interviews with key manufacturing decision makers.

A key finding of the report was that talent-driven innovation ranked the most significant driver of competiveness in most markets. The top three drivers – talent-driven innovation, cost of labor and materials, energy cost and policies – remain relatively stable across all geographic regions, with the most notable differences being Mexico and South America, where ‘quality of physical infrastructure’ outranked talent.

“A strong manufacturing sector is a crucial component of a country’s intellectual capital, innovation capacity, and economic prosperity. In today’s environment, manufacturing competitiveness is driven by an empowered talent base, especially as manufacturers around the world integrate technology platforms and interfaces into their products,” said James Quigley, CEO, Deloitte Touche Tohmatsu. “From the Americas to Europe and from Asia, to Africa, understanding the public policy and market forces that shape the manufacturing landscape is essential to winning in the global economy.”

 Newcomer economies to gain ground: China tops the competitive ranking

Geographically, the study shows the United States slipping in competitive rank from fourth to fifth by 2015, the highest ranking country to show a decline – while China and India remain in first and second place. Commenting on the competitiveness of China, Deloitte China’s Manufacturing Industry Leader Rosa Yang said there is an increase in eminence for China in the manufacturing sector over the past 10 years, particularly as regional hub for foreign outsourced production, foreign direct investments, and joint ventures. In the report, respondents perceive China as possessing strength along most of the top drivers of competitiveness, including talent-driven innovation, cost of labor and materials, energy cost and policies.

The report also identified the emergence of a new group of leaders in the manufacturing competitive index over the next five years. These include Mexico, Poland and Thailand – countries not always considered alongside longer-standing, up-and-comers like Brazil and Russia. In addition to China, not unexpectedly, Asian giants like India and the Republic of Korea are projected to dominate the index in five years, as they do now.

Further, dominant manufacturing super powers of the late 20th century – the United States, Japan, and Germany – are expected to become less competitive in five years. Other Western European nations will be similarly challenged, especially the Czech Republic, the Netherlands, Switzerland, the United Kingdom, Ireland, Italy, and Belgium – a finding made more dramatic by the continuing upheaval of the Euro.

“All Western European nations show an expected decline in rank over the next five years, which should be a cause for concern across the Continent,” says Hans Roehm, Global Managing Partner, DTT Global Manufacturing Industry Group.

The report’s research-team leader and co-author, Craig Giffi, who serves as vice chairman and national industry leader for consumer and industrial products at Deloitte LLP, in the United States, explained that the ‘epicenter’ for manufacturing continues to shift to emerging markets – Asia, in particular. “What had been the world order in the second half of the late 20th century, is giving rise to new manufacturing paradigms. But even with the rise of China, India, and Korea and the overall competitive repositioning of nations, the United States, Germany and Japan are still very competitive.”

 Competing seen as easiest in Asia, tougher in United States and Europe

The report identified a clear geographical divergence in the perception of public policy support for competitiveness. Most respondents from China think that their government makes competitiveness easy compared to respondents in Europe and the United States, with 70% of them citing government support of science, technology, and innovation as advantageous. The European respondents identified public policy support for infrastructure development (46.1%), science and technology and innovation (43.4%), and intellectual property protection (42.1%) as their advantage. Respondents in the Unites States cited intellectual property policies (75.5%) and technology policies (61.3%) as their competitive edge.

“China’s support on science and innovation is a strong boost to its manufacturing competitiveness and it further enhances the competitive edge of China. According to the guidelines on medium- and long-term programs for science and technology development, the Chinese government is also investing in its brain trust, providing incentives to Chinese scientists and engineers educated overseas to help build its science and technology base,” noted Yang. 

To download the 2010 Global Manufacturing Competitiveness Index, visit www.deloitte.com/globalcompetitiveness.