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Economic, Trade, Financial and Tax Systems

2013 Global Manufacturing Competitiveness Index


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Executives attributed a number of factors to country competitiveness due to economic, trade, financial and tax systems — the second most important competitiveness driver overall. Specifically, tax rate burdens and system complexity, along with the clarity and stability of policies, are huge hurdles for less competitive countries to overcome in order to create an attractive manufacturing destination. Closely following these sub-components were the relative health of economic and financial systems overall and the comprehensiveness and competitiveness of trade policies.

Our study of six focused countries reveals that Germany and the U.S. have a significant competitive edge on this driver with almost three-quarters of the executives surveyed pointing to their importance world-wide. Also, the figure reveals that while India and Brazil fell short in their economic, trade, financial and tax systems as providing competitive advantage, China appears to be moving up the maturity path in this area with its ranking on this competitive driver on par with Japan.

Regarding the movement of goods among key trading partners, Germany appears to retain its intellectual property within Europe, whereas the U.S. and Japan were geographically more diverse in exporting its medium and high technology products. Looking at China and Taiwan, the greatest percentages of their medium and high technology exports stay within Asia.

The distribution of exports by country and technology levels as a percentage of manufacturing goods is shown in Figure 7, which also identifies the relative dynamics of manufacturing exports as a percentage of total merchandise exports and cumulative annual growth rates in manufacturing exports over two distinct time frames: (1) 1995 to 2000 and (2) 2006 to 2011. 

The dynamics in Figure 7 reveal that Germany has been able to increase its pace of manufacturing exports and hence increase total manufacturing exports from a modest one percent CAGR in 1995-2000 to 5.2 percent in 2006-2011. 

In contrast, for the U.S., the share of manufacturing exports has been steadily declining over the same time intervals, which can be explained in part due to firms’ shifting manufacturing to low-wage countries like China. It is however, interesting to note that smaller Asian nations — Singapore, Taiwan and South Korea are making their presence felt not only in terms of manufacturing competitiveness but also in their relative share of high and medium technology products.

The bottom half of Figure 7 also reemphasizes the dominance of advanced manufacturing in developed countries, each of which had more than 80 percent of 2011 manufacturing exports classified as high and medium technology-based products as compared to relatively lower shares of other emerging nations (e.g., China, Brazil and India). These results are consistent with lower-wage labor countries.

China has taken the foremost position in global trade of manufactured goods and the scale of China’s exports — the highest of the most competitive nations — can be gleaned from Figure 7. And it is manufacturing that has likely catapulted China to this position creating an internal market that now services its local market. This Figure not only shows a significant increase in the total manufacturing exports with high growth rates for China, India, South Korea and Taiwan from 2000 to 2011, but also the relative increase in their share of high and medium technology products over this period.

This is quite evident from the gradual shift of low technology jobs from China to other nations like Vietnam, Bangladesh and Indonesia. However, increases in the contribution of high and medium technology products for emerging countries such as China and Taiwan, could also be because of the processing activity in which these countries are involved. Despite the impressive growth in manufactured exports, analysis of the profile of traded goods from India (as depicted in Figures 6 and 7), shows that a large share of India’s exports continues to be in the form of low value-added, labor-intensive goods. Figure 8 provides a deeper dive into these trade flows.

From a broader perspective, the volatility of the global economy over the last several years and the lack of certainty with respect to some countries’ economic, trade, financial and tax systems remain areas of concern. This uncertainty has serious implications for policy making in respective countries.

2013 Global Manufacturing Competitiveness Index

Main page: Return to the 2013 Index overview
Continue reading: Country analyses, appendix A

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