While the rise of Manufacturing 4.0 digitization and business model innovation is poised to enhance innovation, agility, and productivity, it also has the potential to widen the disparity between countries that are already “haves” and “have-nots” when it comes to the competitive health of their manufacturing sectors.
That’s the conclusion of a new study by the World Economic Forum which, not surprisingly, finds China, Germany, Japan, the Republic of Korea, Singapore, Switzerland, and the United States most prepared to improve their global competitiveness by leveraging emerging digital technologies and the new business models they enable. The WEF’s “Readiness for the Future of Production Report 2018” study examined the manufacturing sectors of 100 countries which, taken together, account for over 96% of the global manufacturing value added.
The report defines readiness as the ability of a country’s manufacturing sector “to capitalize on future production opportunities, mitigate risks and challenges, and be resilient and agile in responding to unknown future shocks.”
Of the 100 countries studied, 25 were describe in the report as “leading” manufacturing countries, or those in the best position to benefit from the changing nature of production. Leading countries, the study notes, already account for 75% of global manufacturing value added and are poised to press their advantage in the future, at least in part because of their ongoing technology investments. Approximately 70% of robot sales, the report notes, today take place in China, Germany, Japan, the Republic of Korea and the United States.
As leading companies continue to advance, the report warns, “The future of production could become increasingly polarized in a two-speed world.” The report adds, “The assessment highlights the potential for widened disparity between countries, as well as the challenge of achieving inclusive growth in the future through production alone.”
Ten countries were described as “legacy” manufacturing countries, those with a strong production base today that are at risk for the future, in many cases because they are failing to keep up with innovations that will drive future production trends such as technology/innovation and human capital improvements. Those countries include India, Mexico, and the Russian Federation.
Seven countries were identified by the report as having “high potential” manufacturing economies. That means they have limited current production bases but, because of their investments in technology, human capital, and other drivers of future production, they have the capacity to increase production in the future. Those countries include Australia, Hong Kong, Norway, and the United Arab Emirates.
The majority of countries studied fall into what the report calls “nascent” manufacturing economies. These are described as countries with “a limited production base today that exhibit a low level of readiness for the future.” These include many countries in Africa, South and Central America, the Middle East, and Eastern Europe. But they also include some European manufacturing economies such as Greece.
The report recommends that leading companies continue to drive the adoption of new production methods and technology to sustain competitive advantage. “The worst case is for leading countries to rely too much on current success and not create a burning platform for transforming production practices, potentially resulting in a shrinking production base in the future as other countries leapfrog,” the report warns.
Countries described as having legacy manufacturing sectors, on the other hand, “need to avoid getting squeezed between more advanced leading countries, which can offer more advanced manufacturing, and nascent countries that can offer lower cost labor,” the report warns. “This starts with improving the institutional framework, investing in human capital and boosting technology platforms and innovation capacity.”
Authors of the WEF report created the readiness assessment by evaluating 100 manufacturing economies in two broad dimensions: The current “Structure of Production” of the country’s manufacturing sector, specifically the complexity and scale of production; and what the report calls the “Drivers of Production,” six key enablers that, the report says, “position a country to capitalize on emerging technologies and opportunities in the future of production.”
The report identifies those six key drivers as technology and innovation; human capital; global trade and investment; institutional framework; sustainable resources; and demand environment.
The manufacturing economies that scored the highest in each dimension defined by the report were those of Japan and the U.S. Largely because of the complexity and size of its economy, Japan was ranked number one by the report on the “Structure of Production” scale. It was ranked number 16 on the “Drivers of Production” scale.
But the report noted that, “Japan faces challenges related to human capital, with an ageing and shrinking population as well as lower migration than comparable countries. Japan has room for improvement on the sustainable resources driver as well.”
The report ranked the U.S. manufacturing economy number one on the “Drivers of Production” scale, noting, “The United States is globally renowned for its ability to innovate and is currently at the forefront of major developments surrounding the emerging technologies of the Fourth Industrial Revolution. Furthermore, its ability to develop, attract and retain advanced human capital capabilities is supported by strong higher education institutions.”
The report also noted that recent corporate tax cuts by the federal government will strengthen U.S. manufacturing companies.
But, the report noted, in the U.S. manufacturing economy, “policy and regulatory uncertainties, relating to immigration and free trade agreements, for example, still remain. As one of the world’s largest contributors of carbon emissions, improvements in the efficiency and sustainability of its energy sources should be prioritized.”
The WEF recommended that policy makers use its findings to refine strategies for making their manufacturing sectors able to compete more effectively in a rapidly-changing future. “Leaders from both the public and private sectors need to work together to address key challenges, build on opportunities and define joint actions at the national, regional and global level,” the report advises.