The Global Nature of Manufacturing

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1 Global Insight The Global Nature of Manufacturing How Global Is the Manufacturing Sector? Manufacturing is considered one of the most important industries in the world, because it plays a major role in almost any market. This sector paves the road for many other industries, including agriculture, automotive, and more. Unlike some industries, manufacturing is not entirely controlled by the rises and falls of key economies. Constant changes in the manufacturing sector throughout the 21st century have led to new challenges as well as opportunities. Today, more global economies are becoming part of the manufacturing sector. According to the Chartered Institute of Managerial Accountants, the manufacturing sector throughout the world has been changing as new manufacturing giants rise up in lower wage countries. This means that the manufacturing sector is continuing to grow and become more global.

2 Here are some of the key details you need to know about the global nature of this sector: Western economies were once the manufacturing giants, but this is no longer true. Manufacturing is experiencing a massive growth in various areas of the world, especially India and China. The global shift has moved from the west to eastern economies, with specific boosts in Asia. However, countries like the United States have seen a drop in manufacturing. Mass manufacturing with lower prices has become the norm, which means that countries that are capable of offering lower manufacturing costs have seen the highest increase in the manufacturing sector.»» The main driver of growth for the manufacturing sector has become innovation.

3 Manufacturing Today Is Already Highly Globalized Competitive manufacturing goes beyond the roles of many market sectors to become one of the most important industries in the world. Not only does it pave the way to other industries, but it also creates jobs, adds to government funds, and builds a stronger economic infrastructure. During the financial crisis that arose in 2011, which affected both the United States as well as other key countries, the manufacturing sector has been suffering. However, the sector has been growing and recovering from these issues to become a global powerhouse. As key economies recover and manufacturing once again becomes a very important part of the world s economy, roles have been changing. Some of the key changes, as noted by James Manyika include: Manufacturing becomes the workhorse for innovation, trade, and productivity instead of only offering a means to an end. The manufacturing sector has been broken up by diversity to cover numerous different distinct groups. This makes globalization even more possible.»» The new phase of manufacturing has been driven by a whole new class of global consumers: developing nations. As thesenations develop and emerge as massive consumers in the market, this creates new opportunities for the manufacturing sector.

4 Statistics indicate the changing roles of manufacturing in the global market: The manufacturing sector holds the majority of the GDP at 16%. The stages of development for emerging economies affect how quickly manufacturing grows. For example, when manufacturing reaches 20% of the country s GDP, this indicates massive growth in an economy. More consumers have money and more servicesare purchased. As you can see in this chart, manufacturing of consumer goods has begun shifting from the United States to China, Japan, and other Asian countries. China United States Japan Germany Brazil Italy South Korea India United Kingdom France Other 4% 3% 3% 2% 2% 2% 9% 12% 16% 23% 24% 0% 5% 10% 15% 20% 25% 30% Global share of value added in Global Goods for Local Markets Chart resource from McKinsey

5 Challenges for the Future of Global Manufacturing There have been challenges in the past that have withheld developing countries from offering manufacturing services. Some of these issues, according to the World Economic Forum, include: A lack in infrastructure needed to support a manufacturing sector within the country Competition from larger nations that have more capabilities to grow and develop manufacturing industries Numerous countries do not yet have the ability to offer clean energy manufacturing strategies, which are an absolute must in today s economy Innovation is a driving force in the global manufacturing sector, and not all growing countries can offer this type of innovation Talent in the human sector is required for the manufacturing sector to grow and this has been an issue in developing economies. The World Economic Forum indicates that there is a direct comparison between the complexity of a country s economy and the growth of the manufacturing sector in that economy. Complex economies have the right combination of capability, manufacturing knowledge, and sophistication needed to ensure a manufacturing sector will be able to grow and flourish.

6 So, what does this mean for the future? The global manufacturing sector is growing overall, while meanwhile, it is dropping in some areas of more developed countries in the West. The more traditional views of manufacturing are slowly being left behind while new options, innovation, and changes have become the new norm. Two issues will drive the future of manufacturing: Advanced economies are recovering from recessions, and this bounce back leads to higher consumerism and more demand for manufacturing. More countries are becoming advanced and more complex. As a result, these developing countries will create more of a need for manufacturing as well as space for a more global sector. The developing countries often include low wage options so that manufacturing can flourish in these areas without raising costs.»» These two factors will ensure global growth of the manufacturing sector, especially in emerging countries in Asia.

7 Watch for Manufacturing to Become Even More Global For many years, the majority of people considered manufacturing to be a completely Western sector. However, this is quickly changing as manufacturing continues to move to the East. Now more than ever, manufacturing is global. Because there are so many different groups and types of this sector, there is room for it to flourish throughout the world and not in one specific economy. Recovering key economies are quickly driving the demand in the consumer sector, but that isn t all. More countries are developing, and that means there is more of a need for manufacturing than ever has been seen in the past. This combination of factors means that there will be a growing need for manufacturing in emerging economies throughout the world. Manufacturing offers numerous options, from paving the road for the automotive industry to providing fully finished consumer products, this is an industry that plays a part in every other sector available. In the future, it will continue to grow, and that makes it even more important for businesses to recognize this power. People in the manufacturing industry should see beyond the turmoil of the past and recognize that there is great potential for growth throughout the world and not just in their home country.

8 Next Steps If you are in the manufacturing industry, here are some things to consider to ensure that your company is prepared to take advantage of global opportunity: Consumers expect a lower cost, which means that the need for manufacturing in lower wage countries has become more important than ever. Emerging countries are now becoming sophisticated enough to offer manufacturing resources, and that means globalization will continue. The Internet allows decision-makers and customers in this sector to access more manufacturing options than ever before.»» Having a global, multilingual online presence is critical to taking advantage of global opportunity. Contact Us To learn more about taking advantage of the global online opportunity, contact us SMART