Earlier this year the Global Manufacturing Competitiveness Index was published jointly by Deloitte Touche and the Council on Global Competitiveness. This significant report is based on detailed survey results from over 500 manufacturing executives worldwide. It is conducted tri-annually and evaluates countries' manufacturing capabilities and environments.
The big headline from this year's survey is that the United States is predicted to beat out China as the most competitive manufacturing nation in the world by 2020. This is something to take pride in, considering the U.S. was ranked only fourth in 2010 behind China, India, and South Korea. This year we run a very close second to China but in four years China, Germany, Japan, and India will follow us in that order.
Countries that are developing and implementing advanced manufacturing processes into the future are favored in this year's results. That gives an edge to countries with a long history of sophisticated manufacturing development. That said, talent availability is consistently chosen to be the most important factor in global competitiveness. Cost competitiveness, productivity, strong supplier network, and infrastructure are also among the handful of competitiveness drivers.
Why is China losing its lead? Although a labor rate of $3.30 an hour is a fraction of that in developed countries, it's five times their 2005 rate. There is also concern about China's future labor shortage caused by the country's one child policy. Between 2010 and 2025, China's labor supply will see a net reduction of 180 million workers. The country's bureaucracies are also a frustration, noting that establishing a new business takes months instead of about 11 days in the U.S. China will remain a manufacturing powerhouse well into the future, but if a company is in China solely because of their cheap labor, then it's time to reassess.
As for the United States, the world regards us highly because of our innovative spirit and strength in R&D investment. We have a highly educated and talented workforce, in spite of the global skilled labor shortage, and investment capital is accessible. Tax incentives, strong infrastructure, and sound energy policy all count in our favor. Survey respondents believe predictive analytics and the application of IoT in manufacturing processes are essential for manufacturing in the future, and the U.S. is at the forefront of these developments.
As China directs itself toward developing more advanced manufacturing, and as wages rise, opportunities are created for other countries to step in and be what China was 20 years ago. Collectively nicknamed the "Mighty Five," Malaysia, India, Thailand, Indonesia, and Vietnam (MITI-V) are all forecast to be ranked within the top 15 most competitive countries by 2020, and many of the largest multinational manufacturers are already well established within the MITI-V.
Before partnering with a less established country, a manufacturer must consider some less conventional factors along with the standard business attributes. For example, how corrupt is their government, or what is the likelihood of a military takeover? Can your ex-pats live safely? Will your proprietary information remain proprietary, unlike in China, as many claim?
As the MITI-V countries develop at different paces, each has its strengths and weaknesses for manufacturers looking for an alternative to China. India is well known for software development and call centers, but has nurtured its manufacturing environment. English is spoken widely there, and 1.5 million students graduate annually with engineering degrees, but it has a reputation for corruption and excessive bureaucracy. Its labor costs are half that of China's, but well above Vietnam and Indonesia.
Malaysia, a worldwide leader in solar photovoltaic production, has a highly developed infrastructure and a skilled workforce. But its investment growth has slowed since the news of a major investment scandal pointed to the highest government levels. Vietnam, with a labor rate of about $0.50 an hour, is attractive for less advanced manufacturing needs and offers generous tax incentives. It is developing its infrastructure aggressively and is the country expected to benefit most should the TPP agreement pass.
How would you rate your own company's competitiveness in terms of innovation, talent stability, and other factors that an entire nation's competitiveness is rated on? If you had been offered to take the survey, would you have responded differently based on your own experiences and insights? The report is a helpful guide to evaluate different manufacturing options, and to review how your own company fits into the always changing manufacturing playing field.
Curtis Williams has been in manufacturing management and operations for more than 25 years. Contact him at firstname.lastname@example.org.