Government policies key to manufacturing competitiveness: Deloitte

Government policies can either make or break a nation's manufacturing sector, confirms a new report Manufacturing for Growth, Based on views of over 70 global executives interviewed for a new report, from the World Economic Forum (WEF) prepared by Deloitte Touche Tohmatsu Limited, the three-volume report, 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,'' emphasises Liveris.

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 was likely to succeed as a global manufacturer if it could offer lower corporate tax rates, while also developing policies that support domestic energy production and crafting education programs 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, the executives said.

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 labour 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, Deloittes's 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 per cent. 

But to reach this growth, executives view that India would need to implement less restrictive labour laws, invest in globally competitive infrastructure, and relax policies governing the levels of foreign direct investment.

In another example, executives who participated in the report say that Brazil will need to focus on talent development, innovation, and education - with a special emphasis on science and technology. Additionally, the country needs to invest in infrastructure projects that improve logistics and transportation and continue to invest in clean and sustainable energy projects. It will also benefit from simplifying its tax system and establishing political, legal, and regulatory stability.

''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 $1 and $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 emphasized 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.