Global Report: Government Policies Seen As Key To Manufacturing Competitiveness

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May 02, 2013, 09:00 ET

NEW YORK, May 2, 2013 /PRNewswire/ -- Government policies can either make or break a nation's manufacturing sector, according to more than 70 global executives interviewed for a new report from the World Economic Forum (the Forum) prepared by Deloitte Touche Tohmatsu Limited (DTTL).

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The three-volume report, "Manufacturing for Growth," finds that executives around the world crave government policies that simplify taxes and protect free and fair trade – along with stronger energy and infrastructure policies and more focused education and workforce frameworks. They also want science, technology and innovation policies that promote advanced manufacturing.

"Our report reflects the broad support – from business and government – that is necessary and exists today to create a progressive, innovative enabling environment for manufacturing," said Andrew Liveris, chairman and chief executive officer of The Dow Chemical Company and global chief executive champion of the World Economic Forum's Manufacturing for Growth project. "Manufacturing adds value – creating more jobs than any other sector; driving innovation throughout every segment of our society; and delivering consumer solutions – all of which are the keys to long-term, sustainable economic growth."

"The manufacturing sector is an important part of balanced economic growth and business leaders could not be more clear – effective government policies are critical for a country's manufacturing competitiveness," said Joe Echevarria, chief executive officer, Deloitte LLP. "Manufacturing companies are anchors for national and global innovation, including leading research and development."

According to the report – which is based on extensive input from chief executives and other senior executives as well as industry, academic and policy leaders – the United States will succeed as a global manufacturer if it can offer lower corporate tax rates, while also developing policies that support domestic energy production and crafting education programs that lead to an increase in the number of highly skilled workers.

In contrast, executives who participated in the report felt that perennial manufacturing powerhouse Germany has maintained its path to prosperity through innovation and new technologies, but faces challenges in the areas of energy, as well as rising labor and material costs. To address these challenges, the executives suggest that Germany should develop a realistic approach toward energy transition. It should also focus on innovation within high technology and address the rigidity of its labor laws.

Japan, for its part, has one of the largest economies in the world and is recognized internationally for its best practices in manufacturing, but must contend with a shrinking population, high taxes and limited access to natural resources – according to executives. They say that to remain competitive, Japan should develop monetary policies that help stabilize exchange rates and address inflation. Japan should also lower tax burdens, develop employment policies that recognize today's diverse labor market, and strengthen policies supporting long-term investment in science and technology.

Executives also indicate that while historically strong manufacturing nations must fight to maintain their competitive edge, emerging powerhouses will face a very different policy challenge: balancing growth with other national needs.

China, executives say, has rapidly become the world's largest manufacturing economy, but lags substantially when it comes to the environmental and energy policies required for its national health and that of its citizens.

Similarly, India has indicated that by 2025 it plans to create 100 million new jobs and increase its manufacturing sector's share of GDP to 25 percent. But to reach such lofty growth, executives feel that the country will need to implement less restrictive labor laws, invest in globally competitive infrastructure and relax policies governing the levels of foreign direct investment.

In another example, executives who participated in the report say that Brazil will need to focus on talent development, innovation and education – with a special emphasis on science and technology. Additionally, the country needs to invest in infrastructure projects that improve logistics and transportation and continue to invest in clean and sustainable energy projects. It must also simplify its tax system and establish political, legal and regulatory stability.

"Countries are now thinking more strategically about how to develop an integrated portfolio of public policies that enhance the overall innovation capability of the nation to design, develop and manufacture a wide variety of sophisticated products. That is, how to foster an advanced manufacturing ecosystem," said John Moavenzadeh, senior director and head of the World Economic Forum's Mobility Industries Team.

Additional sections of the report offer value chain analyses for key industry sectors, including aerospace, automotive and chemicals.

In one example, the report looks at the economic impact a new production facility can have on a local community, including direct and indirect jobs as well as net economic impact – determining that a single production facility can have between $1 and $4 billion annual impact on a local economy and attract significant additional private investment to the area.

"The research shows that today's manufacturing value chains are global, highly interconnected and rapidly changing," said Craig Giffi, vice chairman at Deloitte LLP and consumer and industrial products industry leader. "Countries around the world are making the policy decisions and investments necessary to develop a more skilled workforce, improve their infrastructures and drive innovation – moves that grow advanced manufacturing, create high-value jobs and seed overall economic prosperity."

The report also examines the importance of public-private partnerships in amplifying the effectiveness of government policies. Almost universally, the executives interviewed for the report emphasized the need for the public and private sectors to collaborate with each other and with universities, national laboratories and research centers and other non-profits.

The report points to several case examples of effective public-private partnerships, stressing that they have enabled innovation and technology advancement and promoted talent development. They include: the Brazilian Agricultural Research Corporation, Germany's Fraunhofer-Gesellschaft, India's National Skills Development Corporation, and SkillsUSA in the United States.

To download a copy of "Manufacturing for Growth," please see: www.deloitte.com/manufacturingforgrowth.

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