Manufacturing the bedrock of economic development

Manufacturing is more relevant to the global economy than ever, especially as a driver of job creation, according to Jennifer McNelly, executive director at the Manufacturing Institute.

Is manufacturing becoming less relevant in modern economies?

The link between a thriving manufacturing industry and a prosperous economy is strong and direct. When manufacturing investments are strong, a multiplier effect ripples across the economy, creating jobs and growth in other industries. In fact, manufacturing has the largest multiplier of any sector.

To support a prosperous economy and increase productivity, manufacturing must be an integral part of a country’s economic development.

Manufacturing is the industry upon which the economic successes of industrialised nations are built. Today, technology and innovation drive growth within the sector and keep the industry current. Modern manufacturing is again changing the global economic landscape and influencing the direction of our future. Manufacturing supports infrastructure – port, rail and road infrastructure are manufacturing clusters.

What’s more, manufacturing employment in developing countries and economies is growing rapidly. From 133 million jobs in 1970, manufacturing employment grew to 383 million jobs in 2010, according to Unido figures.

Since the start of this century, industrialising economies accounted for a growing share of the world’s manufacturing value. This trend is the result of a gradual shift of production from industrialised to industrialising countries to benefit from cheaper labour, largely improved infrastructure and lower social costs. This has also favoured the growth of industrialising countries’ domestic markets for industrial goods thanks to higher incomes and a fast-rising middle class.

It is critical for both developed and developing states to recognise and understand the relationship between economic prosperity and increasingly sophisticated manufacturing techniques. When a nation moves towards more advanced manufacturing capabilities, it enables the production of more diverse and sophisticated products by using more advanced equipment and processing technologies. Thus it opens the door for growth of jobs that demand higher skill levels at higher wages. This will in turn enable the nation to establish its own capabilities to innovate and set new economic development opportunities.

What is the single greatest factor influencing global manufacturing in 2015?

A skilled and educated workforce, or rather the lack of it, is the greatest influence in global manufacturing. As manufacturing requires more advanced and technological skills, the competition for talent continues to grow. Without a skilled workforce, manufacturers lack not only the talent pipeline they need to sustain and grow production, but also lack the innovative capabilities to develop new products, processes and services.

Access to a highly skilled and educated workforce is the most critical element for innovation success. Increasingly, companies report they cannot find individuals with the skills required for today’s advanced manufacturing workplaces. These skill shortages pervade all stages of manufacturing – from engineering to skilled production.

The key to closing this growing skills gap is public-private partnership – where the education system provides industry-based training and is supported by private sector standards and on-the-job learning.

Governments are starting to shift their focus from promoting competitiveness to the development of capabilities, which is a more effective strategy to improve competitiveness. Instead of focusing on decreasing different costs, the capabilities approach focuses on increasing added value provided by manufacturing. Policymakers are increasingly looking to engage with the private sector to align their incentives, especially regarding skills and human capital development, innovation and trade policies.

Industries with skills and competency-based education enables students to directly control the focus of their career development. Aligning manufacturing education with industry standards sets high expectations and establishes an effective and critical talent pipeline.

Give us one example of a country or industry that has adapted successfully to advanced manufacturing.

In the early 20th century, US manufacturing was the pinnacle of innovation and efficiency. However, in the late 20th century, manufacturing in the US had become bloated and slow to respond to customer demands. Between 1990 and 2010, US manufacturing engaged in a prolonged transformation adopting new procedures, such as lean, just-in-time manufacturing, increased automation and technology. This transformation was difficult, as the US lost of 20 per cent of its manufacturing plants and 30 per cent of its manufacturing workforce. By the end of the 2008-09, recession, US manufacturers had significantly improved their processes and integrated technology to where they could successfully compete globally in any sector. Since then, there have been five consecutive years of job growth and widespread belief in an American manufacturing renaissance.

Now, the challenge the US faces has changed from lacking global competitiveness to finding enough workers to sustain the growth and strength of the industry. In a clear example of adaption, US manufacturers have mounted a national campaign called Manufacturing Day to open their doors, showcase the things they make, and recruit the next generation of skilled workers. Manufacturers across the country are getting engaged and investing in partnerships such as the Dream It. Do It ambassadors’ programme, initiatives to attract women into the industry, and mentor and sponsorship strategies. It is this type of conscious engagement and innovative planning that has allowed US manufacturing to thrive.

If you could see one thing happen in Abu Dhabi, what would it be?

Manufacturing provides a way to improve living standards for global communities and individual families. From increased GDP, to lower unemployment, to a better quality of life, manufacturing can be the answer for a multitude of complex issues. The Global Agenda Council for the Future of Manufacturing needs to collaborate with the other councils in Abu Dhabi to help realise the possibilities that manufacturing can bring to both developing and developed countries.

Individuals are motivated by increasing their quality of life; the private sector is motivated by higher returns and shareholder value; and policymakers by increased jobs and disposable income.

There is a need to align incentives using a common denominator or “language”. By identifying and establishing a common framework to describe manufacturing capabilities and competencies, the council will be able to address the fundamental drivers behind the future development of manufacturing.

The council has developed several case studies to demonstrate the best practices and lessons learnt on the drivers of change for global manufacturing. These case studies will drive public-private partnerships, as the open dialogue between firms, policymakers, workers and industry states grows at a local, national and global level. As manufacturing grows, so do the benefits for individuals, companies and policymakers.

* Courtesy WEF

Follow The National's Business section on Twitter