The Next Decade will be of Manufacturing

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During the next decade, major investment the world over, in developed as well as developing nations, will be in manufacturing.

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The Next Decade will be of Manufacturing

  1. 1. Copyrights 2013, Shridhar Lolla. All rights reserved. The Next Decade will be of Manufacturing Shridhar Lolla, lolla@cvmark.com Draft To be edited and completed Civilization grew from gathering, farming and animal hunting to villages and organized trading. And then, manufacturing provided the efficiency to multiply human skills into high value add enterprises. Improved quality of life supported by myriads of products led to the creation of service industry. In the natural course, society and nations pass through three sectoral layers classified as Primary (Agri + Mining), Secondary (Manufacturing) and Tertiary (Service) sectors. As nations develop and the quality of life improves, they migrate from predominantly agricultural society to service sector oriented economy. The sectoral contribution of GDP of a country can tell us where it is in the development stage of quality of life. Developed countries have a higher % of their GDP contributed by service sector, while less developed ones have a high % of their GDP from agri and mining sector. But it does not mean that they do not have significant manufacturing activities in nominal terms. A high contribution of manufacturing sector to the GDP of a nation marks its transition to service sector. This phenomenon of migration of nations from primary sector through secondary to tertiary has become a matter of great debate among economists as there are trends exceptional to this. A more recent school of thought is that manufacturing is not a transition stage for an economy to service economy, rather it is a bedrock and a necessary step on which service economy grows. The migration of national economies across the sectoral layers has happened with remarkable linearity. A few decades back 25 % GDP of the US consisted of manufacturing. Now it is around 12% (although US still remains the global leader in manufacturing). However, the decline in share of manufacturing in its GDP to 12% is now being seen suspiciously by another factor than the natural shift in the sectoral spread to GDP. It is strongly believed that massive migration of manufacturing work from US to abroad was a major reason for this reduction. Invented by US enterprises and management gurus, outsourcing was considered one of the breakthrough management concepts to dramatically lower cost of operations. Alas! a larger and deeper impact is boomeranging on major economies. After decades of outsourcing, the US has learnt the adverse impact of manufacturing outsourcing the hard way: 1. It led the US as a nation to skip innovation cycle and lose quite a few future technologies. Despite its domination as world leader it missed the opportunity to master the now ubiquitous technology of LCD and LED. 2. The US lost millions of jobs as its enterprises outsourced jobs to other countries. Enterprises saved cost and re-imported the things made abroad much to the chagrin of the citizens and erosion of manufacturing competency. 3. Above two had direct impact on the overall economy and now we hear of bankruptcy of manufacturing Cities and Towns. Bankruptcy of businesses seems to be a passé. The capital of automobile industry, the pride of America and the haven for engineers, Detroit filed for bankruptcy recently.
  2. 2. Copyrights 2013, Shridhar Lolla. All rights reserved. The US administration saw it coming quite a few years back. But the reality struck only during last 5 years. However, much before it could become endemic, the US has begun retrieving the situation on a war footing that is becoming of a true world leader. Its leaders have taken the pitch to reclaim its manufacturing supremacy to an unprecedented level by any definition. The US is seeing a mega wave of commitment to ensure that things consumed in the US are made locally. The whole nation seems to be committed to make manufacturing bedrock of its GDP, jobs, social justice and economic stability. To know the what extent 'reclaiming manufacturing supremacy' is getting into the psyche of the US, have a look at the latest exclusive documentary film on manufacturing that urges not just manufacturers but also consumers to make their unique contribution to this movement. This film has been released with all the fanfare of a mega Hollywood blockbuster. This is just an indication how intensely the US, its leaders and people feel about the need to make things locally to have a stable economy. Here is the link to the trailer of the movie American Made ; more about it can be found at the website http://theamericanmademovie.com/ The key agenda now translated into industry forums to reclaim its manufacturing supremacy is called Reshoring, which is in addition to massive innovation and creation of new digital and hi tech factories. The current wave is in bringing factories created abroad back home, making the products locally and providing jobs to US citizens. This is not just a minor push or nudge by the senators or congressmen. It is now an all round movement. Realizing their folly and how much they have hurt the local economy, now business leaders have joined the movement. Apple has started working on building its own manufacturing plant in the US. Seeing which its supplier Foxconn has committed building huge manufacturing facility in the US. Following this are GE and Ford, who have shown strong commitment to Reshoring and their commitments have already moved beyond blueprints. Do not be surprised if major US manufacturers like GE become synonyms to Reshoring. Not just American companies, Toshiba, and Lenov are also opening up new production facilities in the US, given the strong demonstration of reducing cost of manufacturing there. Now the commitment to reclaim manufacturing supremacy is nothing less than war by the US, what does it mean for the rest of the world? Say, India. To my earlier article, one of the readers mentioned that increasingly Indian is becoming a dependent economy. Owing to which it is likely that India will be massively impacted by Reshoring. Especially because India's next level of growth is going to come from massive investment in infrastructure and manufacturing. Indeed, the Planning Commission of India squarely admits that India's next 2 decades of growth would only come from manufacturing. The question is what happens if major auto and engineering players decide to shift a part of their investment from India to the US. There is another school of thought though, which says that Indian manufacturing has not been such a major player in global manufacturing as china, korea and japan have been. India has its own problems. It leapfrogged manufacturing by a level that made service sector over 60% of its GDP. Now it realizes that the historical growth of the past is not sustainable since it was not an inclusive growth. It has become clear to economists and planners that India's last decade of growth of ~8% is now not achievable unless manufacturing sector grows dramatically. (Heard of why IT companies are working overtime to pursue government of India to roll out e-governance projects!)
  3. 3. Copyrights 2013, Shridhar Lolla. All rights reserved. Manufacturing exports have always been a lion's share of Indian's overall merchandize export, while engineering product exports has been over 1/3rd of merchandized export. Expect that there will be a competitive backlash as made in US goods pickup. We must also start understanding that when manufacturing is being restored to the US, there is real innovation in both manufacturing technology and manufacturing management. This will bring several folds of improvements in the overall competitiveness of US manufacturing. Not just is quality and functionality of products but also in cost and speed of delivery of products. Thus far Indian manufacturers had a very easy face of competition, which has been coming from China. Whenever a major consignment of goods comes from China to India, Indian Manufacturers would run up to the government asking for favors or sanctions. Now when made in US goods come to India, it is a wonder, what response will they have. Sometime it forces me to double check the commitment made in the new manufacturing policy and see it in the light of competition that is going to come from all over places, not just china and the US. Of course, Department of Commerce recognized the un-sustainability of the emerging scenario and prepared a Strategy paper for Doubling India’s Exports in three years (2010-11 to 2013-14). Check the Report of the Working Group on ‘Boosting India’s Manufacturing Exports’ Twelfth Five Year Plan (2012-17). But it is necessary to acknowledge that there are several obstacles to clear off, as inc.com's article does a reality check on Indian manufacturing. That brings us to the real question. China found its way to build massive economy by finding its own way of manufacturing. Earlier, Japan showed the world how to innovate manufacturing. Despite the emergence of China and Japan as global manufacturing, Germany's machine and engineering excellence kept its niche positioning. What's about India's way of manufacturing. Doesn't India need a new approach to manufacturing? Doesn't India need a much much higher level of vigor to jump up its manufacturing GDP? The threat to export is real because dramatic improvement in manufacturing is a necessity for India due to 2 reasons: 1. Eradication of massive employment and under employment problem : The new manufacturing policy has committed 100mn new jobs by 2022. 2. Inclusive growth: to reclaim its historical growth of ~8% from the current sub 5% to be completed..... ________________ The question of what's really India's way of manufacturing and which approach naturally fits into its local conditions such that it gives it a competitive edge, has been a matter of constant investigations and validation. More recently, we have this issue answered in a now available book. 'Building Manufacturing Competitiveness'. It dovetails a breakthrough management methodology to the growth of an industry and the agenda of a nation. The underlying approach of this book is now being followed by several organizations in India and abroad. For more details, please check following links: eBooks Version: https://www.smashwords.com/books/view/311306 Kindle Version: http://www.amazon.com/dp/B00CIZR1LQ Paperback Version: https://www.createspace.com/4257639%20

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