Deloitte global report: Government policies seen as key to manufacturing competitiveness
Southeast Asia needs stronger energy and infrastructure policies
Petaling Jaya, 23 May 2013 — Government policies can either make or break a nation’s manufacturing sector, according to more than 70 global executives interviewed for a new report, “Manufacturing for Growth” from the World Economic Forum (the Forum) prepared by Deloitte Touche Tohmatsu Limited (DTTL).
For Southeast Asia, Hugo Walkinshaw, Executive Director in Deloitte Southeast Asia’s Consulting practice highlighted, “There is now an increased focus across Southeast Asia on government policies that simplify taxes and promote fair trade. However, in most countries in the region, there is a need for stronger energy and infrastructure policies, as well as an investment in the development of education and workforce frameworks. All these can create an environment where innovation in science and technology can progress, and this in turn promotes advanced manufacturing, which is the goal for many countries.”
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.”
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 worldwide – the United States will likely 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 programmes 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 recognised 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. To remain competitive, executives participating in the research suggest that Japan develop monetary policies that help stabilise exchange rates and address inflation. Japan should also consider lowering tax burdens, developing employment policies that recognise today’s diverse labor market, and strengthening policies supporting long-term investment in science and technology.
“Manufacturers continue to face strong headwinds amidst a sluggish global economic environment,” adds Tim Hanley, DTTL Global Leader for Manufacturing. “The report reflects the global voices of executives and comes at a critical time as companies look towards both the developed markets, as well as emerging and frontier markets to lift growth and performance.”
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 gross domestic product to 25 percent1. But to reach this growth, executives view that the country will likely need to implement less restrictive labor laws, invest in globally competitive infrastructure, and relax policies governing the levels of foreign direct investment.
“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.
The report examines the status of country-level policies, identifying and analysing how policy is driving competitiveness in six key nations.
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 potentially have between US$1 and US$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 United States (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 emphasised 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.
To download a copy of “Manufacturing for Growth,” visit http://www.deloitte.com/view/en_MY/my/industries/manufacturing/index.htm.
1 Government of India Ministry of Commerce & Industry Department of Industrial Policy & Promotion (Manufacturing Policy Section). National Manufacturing Policy. 4 November 2011.