Consistent Characteristics of Competitive Manufacturers

Feb. 26, 2010
CEOs around the world say that the U.S. is no longer the most competitive location for manufacturing, says Deloitte.

Earlier this week, President Obama sat down with more than 150 CEOs at the Business Roundtable. The topic: Competitiveness. The president's comments: We need to nurture the industries of the future.

I think most of us would agree with this sentiment. So the real question is: What exactly do competitive industries look like -- and what specifically do we need to nurture?

At Deloitte, we are looking at this very question. Working with the Council on Competitiveness, we are concluding a multi-year survey on global competitiveness in manufacturing to learn how CEOs and other senior leaders view manufacturing industry competitiveness around the world.

While we won't have the final survey results until the spring, and more CEOs are responding each day, our work has already revealed findings that should cause us all to pause, take stock, and formulate a new path forward.

Though the U.S. remains the world leader in "share-of-manufacturing-value added," CEOs around the world are telling us that the U.S. is no longer the most competitive location for manufacturing. While it won't surprise any of us if China is at the top of the list when all the results are in, it should concern us that the U.S. looks to be losing ground and becoming less competitive over the next five years, with countries like Brazil and Korea leapfrogging us (the U.S. is already behind China and India in the eyes of the CEOs we've heard from.)

Interestingly, another recent survey we conducted, in conjunction with the Manufacturing Institute, polled a broad cross-section of average Americans, capturing their perspectives on the importance of manufacturing to the U.S. economy. The survey revealed that Americans believe a strong manufacturing industry is critical to our economy, and the most important industry to our future prosperity. The survey also revealed that the public sees manufacturing as the most attractive industry for future job creation.

While this type of research will continue throughout the year, including a number of face-to-face discussions with senior manufacturing executives around the world, I can already outline several characteristics that I believe will be inherent to the leading manufacturing organizations of the future. Chief among these are:

  • Global Orientation: Successful, sustainable manufacturers will be global, even if they never manufacture products outside their home nation. They will open their business processes to benefit from collaboration with partners around the world. They will pursue their markets and their customers in every corner of the world.
  • Innovators and Champions of "the New": Innovation of products, processes, services, and sales will be the most important competitive differentiator of leading manufacturers around the world. The development of new products and services for new markets, as well as new products for existing customers, will be a recurring theme for best-in-class performers.
  • Intersection Conductors: Innovation will occur at the intersection of ideas (intellectual capital), investment (financial capital), talent (human capital) and infrastructure (physical capital) -- and winners will outpace their rivals developing and deploying their capital through superior leadership, collaboration and technology diffusion, as well as product and service commercialization capabilities.
  • Developers of Best Customer & Supplier "Assets": Leading manufacturers will not only have best-in-class suppliers but also best-in-class customers. They will derive competitive advantage from the creation of assets in the form of networks of suppliers and customers that play a significant role in innovating new products, processes and services, and commercializing them.
  • Leaders in Supply Chain Effectiveness (Not Just Cost Effectiveness): Effective global supply chains will become increasingly important, while the focus on lowering labor costs will wane. As a result, the definition of productivity for winners will be inclusive of all facets of their manufacturing enterprise and interaction with their business environment.
  • Sustainability & Carbon Challenge Pioneers: The energy and carbon challenge will be transformational for manufacturing competitiveness and the stimulus necessary to create a manufacturing renaissance in America, especially once the recession wanes and energy demand returns to normal. In addition, the carbon footprints of manufacturing operations and manufactured products will be increasingly important differentiators of pioneering winners.
  • Masters of Risk & Resiliency: The most successful manufacturers will be both agile in confronting risks and resilient in adapting to disruptive change - in effect using it to their advantage.
  • Skillful Private Sector-Public Sector Partners: Successful manufacturing enterprises will strategically partner with the public sector around infrastructure development, talent development, and research capabilities. Success for the U.S. will require coordinated State-Federal competitiveness strategies in collaboration with the private sector.
  • Drivers of Dominant Regional Clusters: Regional clusters will become increasingly important and dominate success in manufacturing as both the public and private sector learn the power of focus, collaboration, and strategic choice. Leading manufacturers will collaborate with competitors, the public sector, suppliers and customers to develop such clusters.
  • Creators of Value Added Jobs: Nations and manufacturing enterprises will be significantly differentiated by their focus on value added job creation as opposed to job retention. Positive manufacturing job creation will be most consistently correlated to innovation in the base of manufacturing capabilities and the creation of new enterprises.
  • Winners of the Talent & Infrastructure Wars: The ultimate battleground commonly shared by both nations and manufacturing organizations will be for talent and the development and deployment of world class infrastructure. On these two issues -- talent and infrastructure -- the success of nations and manufacturing organizations are intimately tied.

What we are seeing here, especially given the increased intensity of competitiveness in the wake of the Great Recession, is that there are common factors shared among leading, successful manufacturing companies -- and, as a result, there are implications for nation-states themselves. Which brings us back to the questions at hand: How will we know which industries to nurture for the future? And how can the U.S. remain among the most competitive locations for manufacturing, and the prosperity that arises from a strong industrial base?

While the answers to these questions are still far from definitive, I'd say we already have some pretty good clues.

Craig Giffi, Vice Chairman and National Industry Leader for Consumer & Industrial Products, Deloitte LLP. He also serves as a trustee of The Manufacturing Institute and has been the strategic leader of Deloitte's ongoing effort on global manufacturing competitiveness, working closely with the Council on Competitiveness. In addition, he is the co-author of Competing in World Class Manufacturing -- America's Twenty First Century Challenge.

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