2016 Global Manufacturing Competitiveness Index

2016 Global Manufacturing Competitiveness Index

2016 Global Manufacturing Competitiveness Ranking China hangs on barely - to the most competitive manufacturing nation ranking for 2016, but the US is very close and expected to take over the top spot in five years Current Competitiveness Index Country Rank 2016 2013 Index score Rank Trend China 1 100.0 1 USA 2 99.5 3 Germany 3 93.9 2 Japan 4 80.4 10 South Korea 5 76.7 5 United Kingdom 6 75.8 15 Taiwan 7 72.9 6 Mexico 8 69.5 12 Canada 9 68.7 7 Singapore 10 68.4 9 India 11 67.2 4 Switzerland 12 63.6 22 Sweden 13 62.1 21 Thailand 14 60.4 11 Poland 15 59.1 14 Turkey 16 59.0 20 Malaysia 17 59.0 13 Vietnam 18 56.5 18 Indonesia 19 55.8 17 Netherlands 20 55.7 23 Competitiveness Index in Five Years Country Rank Index score USA 1 100.0 China 2 93.5 Germany 3 90.8 Japan 4 78.0 India 5 77.5 South Korea 6 77.0 Mexico 7 75.9 United Kingdom 8 73.8 Taiwan 9 72.1 Canada 10 68.1 Singapore 11 67.6 Vietnam 12 65.5 Malaysia 13 62.1 Thailand 14 62.0 Indonesia 15 61.9 Poland 16 61.9 Turkey 17 60.8 Sweden 18 59.7 Switzerland 19 59.1 Czech Republic 20 57.4 2 Deloitte and US Council on Competitiveness I 2016 Global Manufacturing Competitiveness Index Copyright 2015 Deloitte Development LLC. All rights reserved.

2016 Global Manufacturing Competitiveness Ranking Brazil continues to struggle with little optimism for significant improvement over the next five years Current Competitiveness Index Country Rank 2016 2013 Index score Rank Trend Australia 21 55.5 16 France 22 55.5 25 Czech Republic 23 55.3 19 Finland 24 52.5 - - Spain 25 50.6 33 Belgium 26 48.3 27 South Africa 27 48.1 24 Italy 28 46.5 32 Brazil 29 46.2 8 UAE 30 45.4 30 Ireland 31 44.7 37 Russia 32 43.9 28 Romania 33 42.8 29 Saudi Arabia 34 39.2 34 Portugal 35 37.9 35 Colombia 36 35.7 31 Egypt 37 29.2 36 Nigeria 38 23.1 - - Argentina 39 22.9 26 Greece 40 10.0 38 Competitiveness Index in Five Years Country Rank Index score Netherlands 21 56.5 Australia 22 53.4 Brazil 23 52.9 Finland 24 49.7 South Africa 25 49.3 France 26 49.1 Spain 27 48.4 Romania 28 45.9 Belgium 29 45.8 Italy 30 45.0 Ireland 31 43.7 Russia 32 43.6 United Arab Emirates 33 42.6 Colombia 34 40.9 Portugal 35 40.1 Saudi Arabia 36 36.1 Egypt 37 28.3 Nigeria 38 25.4 Argentina 39 24.6 Greece 40 10.0 3 Deloitte and US Council on Competitiveness I 2016 Global Manufacturing Competitiveness Index Copyright 2015 Deloitte Development LLC. All rights reserved.

Country Rankings Brazil s Decline Adding To BRIC Breakdown The long-awaited promise of the BRIC countries as emerging manufacturing goliaths continues to unravel in the face of sharp declines in competitiveness 2010 2013 2016 2 5 4 India 8 11 20 Brazil Russia 28 29 32 Brazil joins Russia in a steep decline in the global competitiveness ranking as economic and socio-political instability takes its toll Brazil and India lag advanced global economies on talent, innovation policy & infrastructure, legal/regulatory environment, and physical infrastructure However, some hope remains for India to rejoin China in the top five manufacturing nations in the next five years, salvaging half of the original BRIC potential 4 Deloitte and US Council on Competitiveness I 2016 Global Manufacturing Competitiveness Index Copyright 2015 Deloitte Development LLC. All rights reserved.

And Search Begins For A New Low-Cost Center As China begins to pivot toward a higher value manufacturing paradigm to align with other innovation-oriented markets, where s the New China? Rapidly rising wages in China present opportunities for other emerging nations to be competitive on cost of labor and materials India, Malaysia, Vietnam, and Indonesia are emerging as alternate lowcost destinations This presents significant opportunities and challenges for companies currently operating in China that depend on a lower cost base Country India Vietnam Malaysia Indonesia Future Rank 5 12 13 15 Current Rank 11 18 17 19 2013 Rank 4 18 13 17 5 Deloitte and US Council on Competitiveness I 2016 Global Manufacturing Competitiveness Index Copyright 2015 Deloitte Development LLC. All rights reserved.

While Two Regional Pillars of Strength Emerge North America and Asia-Pacific countries establishing dominant positions as regional manufacturing centers All three North American nations are in the top ten current and future rankings for manufacturing competitiveness North America Six countries in the Asia-Pacific region feature in the top ten for current or future competitiveness United States Canada Mexico Both China and India currently provide a cost competitive manufacturing advantage, but are also leading in number of STEM graduates going forward Asia-Pacific China Japan South Korea South Korea and Japan also excel in developing critical talent indicators such as concentration of researchers and patents India Singapore Taiwan 6 Deloitte and US Council on Competitiveness I 2016 Global Manufacturing Competitiveness Index Copyright 2015 Deloitte Development LLC. All rights reserved.

Putting The Squeeze On European Countries Most European nations expected to slip in the overall competitiveness rankings in the next five years European Country Current Rank Future Rank Germany 3 3 United Kingdom 6 8 Switzerland 12 19 Sweden 13 18 Poland 15 16 Turkey 16 17 Netherlands 20 21 France 22 26 Czech Republic 23 20 Finland 24 24 Spain 25 27 Belgium 26 29 Italy 28 30 Ireland 31 31 Romania 33 28 Portugal 35 35 Greece 40 40 Germany and the UK are the only European nations forecast to remain in the top ten global manufacturing markets going forward In fact, only two European countries (Czech Republic and Romania) are expected to show any improvement in their relative rank position over the next five years, leaving most of the region vulnerable to global competitive pressures 7 Deloitte and US Council on Competitiveness I 2016 Global Manufacturing Competitiveness Index Copyright 2015 Deloitte Development LLC. All rights reserved.

Meanwhile, It s Back To The Future At The Top Traditional manufacturing powerhouses of the 1980 s are back atop the global rankings by focusing on core competitiveness attributes, including talent #1 #4 2010 2013 2016 Future #1 #1 #2 #2 #3 #3 #4 #1 #2 #3 #4 Shift to higher value, advanced manufacturing forms a new battleground for global competitiveness going forward US is leading the way having surpassed Germany and closed the gap to China over the last five years #6 #8 #6 #8 A resurgence from the UK results in a top ten position going into the next five years #17 #10 #15 Executives ranked US, Germany, & Japan highly competitive in Talent, Innovation, Legal/Regulatory Environment, and Physical Infrastructure key drivers of global manufacturing competitiveness 8 Deloitte and US Council on Competitiveness I 2016 Global Manufacturing Competitiveness Index Copyright 2015 Deloitte Development LLC. All rights reserved.

What Drives Manufacturing Competitiveness? For the 2016 Index, Global CEOs point to talent (again), cost competitiveness, and workforce productivity as the top three drivers of manufacturing competitiveness 1 Talent Market Forces 7 Physical Infrastructure 2 3 4 Cost Competitiveness Workforce Productivity Supplier Network Global Manufacturing Competitiveness 8 9 10 Economic, Trade, Financial & Tax System Innovation Policy & Infrastructure Energy Policy 5 Legal & Regulatory System 11 Local Market Attractiveness 6 Educational Infrastructure Government Forces 12 Healthcare System 9 Deloitte and US Council on Competitiveness I 2016 Global Manufacturing Competitiveness Index Copyright 2015 Deloitte Development LLC. All rights reserved.

Focus On Talent Is Critical Going Forward Consistently identified as the top driver of manufacturing competitiveness, talent is a significant pain point, specifically for advanced technology companies The aging of engineering and manufacturing workforces, without appropriate knowledge transfer, is exacerbating a skills shortage not only in the US but also in other developed and developing nations - Executive Interviewee US retains a leadership position in research, technology and innovation having created a strong foundation over the last century that includes an educational system that fosters creative thinking, superior talent, and world-class universities but, the R&D competitiveness gap is narrowing rapidly as countries like China have been aggressive in attracting and nurturing STEM (Science, Technology, Engineering, and Math) talent resulting in a significant challenge in the form of a talent shortage and widening skills gap over the next decade 10 Deloitte and US Council on Competitiveness I 2016 Global Manufacturing Competitiveness Index Copyright 2015 Deloitte Development LLC. All rights reserved.

Challenges, Sure But, Also Opportunities A host of issues face US manufacturing companies looking to spur growth through innovation going forward, the question is how to capitalize while avoiding pitfalls Challenges Challenges faced by US companies include: a significant talent shortage and widening skills gap uneven and weak foreign market conditions and business environments coping with weak Intellectual Property (IP) laws and behavior globally the high cost and complexity of compliance in an uncertain US regulatory environment Opportunities Long-term global trends that will help provide opportunities for US companies to spur growth and innovation, include: an expanding middle class and rapid urbanization across Asia continued and plentiful low cost energy in North America attractive demographics across North America increased global demand for commercial aircraft the rapid technological advances in the auto industry (e.g., autonomous vehicles) increased output in the US chemicals and industrial machinery sectors 11 Deloitte and US Council on Competitiveness I 2016 Global Manufacturing Competitiveness Index Copyright 2015 Deloitte Development LLC. All rights reserved.

Industry Innovation Playbook In order to grow and succeed in the highly competitive global innovation space, companies can follow some overarching themes for strategy development 1. Think like a venture capitalist and take best practices from successful start-ups 2. Take a portfolio approach to innovation projects and investments 3. Adopt a risk-tolerant mentality to allow some of the higher risk, higher reward efforts to proceed 4. Operate outside of traditional walls to take advantage of collaboration opportunities 5. Understand there is no singular solution or path to achieve innovation success 6. Have a strategic focus regarding resource allocation, alignment and activities as well as incentives 7. Be explicit about innovation ambitions and goals and organize accordingly 8. Perseverance pays: Fear of failure or failure to bounce back when met with failure will relegate an organization to a role as followers 9. Look beyond product innovation to transform other elements of your business system. 10. Diagnose your capabilities and be realistic about them; address as required 12 Deloitte and US Council on Competitiveness I 2016 Global Manufacturing Competitiveness Index Copyright 2015 Deloitte Development LLC. All rights reserved.

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