A New Era of Global Manufacturing

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Written by Monica Gray, Video Correspondent

Does manufacturing really matter these days? This was the big question of the World Economic Forum’s (WEF) “Future of Manufacturing: Opportunities to Drive Economic Growth” report in April 2012. In summary the findings revealed that indeed manufacturing does still matter. In May 2013 the WEF, in collaboration with Deloitte Touche Tohmatsu Limited, published a follow-up report, Manufacturing for Growth: Strategies for Driving Growth and Employment. Based on discussions with more than 70 chief executives and other senior executives, as well as workshops with industry, academic and policy leaders held over the course of 2012, the second report puts forth policy recommendations for the manufacturing sector in six countries: Germany, Japan, the United States, Brazil, China, and India. The key drivers behind a successful advanced manufacturing strategy, the report reveals, are a competitive tax system, free and fair trade, education and talent development, energy efficiency, and technology and innovation.

Spearheading the work of both reports is John Moavenzadeh, Senior Director and Head of Mobility Industries at the World Economic Forum USA. What follows is a transcript of his interview with Diplomatic Courier Senior Video Correspondent Monica Gray, in which Mr. Moavenzadeh explains the fundamental role that manufacturing has to play in global economic growth and job creation for emerging economies and developed markets alike.


[DC:] I want to start out with a big picture question about manufacturing in this report that you have put out: what is the Future of Manufacturing report?

[JM:] Well, we’ve actually put out two reports over the past two years; the first one was the Future of Manufacturing report, which essentially asks the question, “How is the global manufacturing ecosystem changing, what are the drivers of change in the system of how goods are produced around the world, and actually, what is the significance of manufacturing—does manufacturing even matter?” So these were some of the questions that we posed in the first report. The second report was more along the lines of, “well what do we do about it? What are the actions that policy makers in particular need to take, the nuances of the learnings from the first report that we hope that business and government change-makers understand, to take action, to move forward, to realize the opportunity that promoting and facilitating advanced manufacturing has to offer?”

[DC:] The move toward integrating public-private partnerships (P3s) in American foreign policy started in part by growing fiscal austerity in Washington. And what does advanced manufacturing have to offer – what were three of the key takeaways from your reports?

[JM:] Well on the first report, what we found was first of all to the question of does manufacturing even matter, the answer was a clear “yes.” So some of the most interesting work that we came across was work that was conducted by Ricardo Hausmann, who’s an economist at Harvard, with his partner Caesar Hidalgo, who’s with MIT (Massachusetts Institute of Technology). And they did some work looking at how countries have evolved the economic growth development path that various countries have followed.

They couldn’t look at what countries make, because there’s no good data for that, but they could look at what countries export, and they used that as a proxy for production data. And to put it quite simply, what they found is the greater the diversity and the level of sophistication of the products that a country is capable of making, the stronger the economic growth. It’s a great predictor of future economic growth. So that was a compelling finding, that manufacturing is important.

Of course, there’s a number of arguments that the manufacturing sector is important because of the so-called multiplier—that the number of jobs created for every manufacturing job or for every dollar of economic contribution for manufacturing is very high. What we actually found—I think the most important factor related to manufacturing—is the linkage to innovation.

So manufacturing matters, but advanced manufacturing really matters. So what do we mean by advanced manufacturing? There’s two dimensions: we mean the capability to design, engineer, produce, market, and distribute advanced products, and also the technology that goes into the production of products. And some very, very simple products like diapers, for example, can have very advanced technologies and process technologies behind them. So it’s a bit of a matrix that spreads across these two dimensions of advanced products and advanced processes for making those products.

[DC:] Based on your research, what is the optimal environment in which to breed innovation?

[JM:] A number of different factors we came across. I think education is hugely important, the education system, many business leaders, many government leaders pointed to the significance of STEM education—science, technology, engineering and mathematics—clearly an important factor. But indeed many more touched on what I would say maybe are softer factors related to the education system. Things like encouraging creative thinking, embracing diversity, because what we’ve seen is that diverse teams have a higher innovation capability than more homogenous teams. So if people learn how to work with people who are different from them and who think differently from them, that is a factor in encouraging a more innovative environment.

I would also add, the culture of taking risk, the culture of not embracing failure, but accepting failure and realizing that failure is part of the innovation process. Those cultural dimensions are very, very important.

[DC:] In terms of accepting failure, do you see a lot of variance between cultures?

[JM:] People often point to the innovation ecosystem and the innovation culture of Silicon Valley as a model for the world, where serial entrepreneurs wear a badge of honor. So I do think, yes, that there is a cultural element in that oftentimes the American culture toward innovation is seen as a strength.

[DC:] In terms of building public-private partnerships, based on your research, what advice would you offer a young person who’s trying to build an effective public-private partnership right now – what should they do, what should they avoid?

[JM:] I would suggest to first try to understand the incentives behind the different stakeholders; understand which stakeholders are related to the issue on both the public side and the private side, and what are their incentives. I think that starting from that position helps to see the forest from the trees, and helps to achieve success. I’d say another element is simply to be passionate and persistent about the issue.

[DC:] Switching gears a bit. A hot topic in Washington and all across the United States is job creation. How can manufacturing spur high-value job creation in America?

[JM:] I think advanced manufacturing can spur high-value job creation in America.

[DC:] What do you mean by that?

[JM:] We say this concept of advanced products—technologically sophisticated products—and technologically sophisticated processes that go into the creation of those products. For example, we in the United States have lost a lot of manufacturing employment over the past few decades in areas like toys, certain types of furniture, shoes, certain apparel, et cetera. It’s not to say that all shoes are low-end products, but relatively speaking to other products, they’re perhaps not quite as sophisticated in either the product dimension or the process dimension.

I think those types of jobs that were associated with the production of those goods are not coming back to the United States, and I’m frankly not sure if that should be, from a policy perspective, the aspiration. I think the aspiration from a policy perspective is to focus on sophisticated products, and on the medium-level skills that are often tied to the creation of those products. It’s not just the top engineers or the brilliant innovators and designers of Silicon Valley.

The medium level would be skilled trades people, welding and tool and die makers. Those types of jobs, those skills, are incredibly important because manufacturing – creating products—is about know-how. It’s not necessarily about knowledge; knowledge is something that you can look up in an encyclopedia or read in a textbook. Know-how is knowledge by doing. It’s experiential learning, and that skill set that comes with that, the people who work in production facilities, even if they’re not the brilliant, high-end engineer, they have very, very important skill sets, and if we lose those skill sets in the United States, it’s a real threat to our innovation capability.

[DC:] Would you say that there has been a manufacturing resurgence in the United States?

[JM:] I would say that there has been a significant change in the dialogue around manufacturing in the United States, and for the better. I think that in the past there was this simplistic notion that there was a services sector and a manufacturing sector, and why focus on the manufacturing sector because it’s a declining industry; it’s not future oriented. I think recently that dialogue has changed with the recognition that there is a linkage between advanced manufacturing and the innovation capability of the nation. We should value the skills that are associated with making high-end products.

[DC:] How, in your view, have emerging economies like China, India, and Brazil managed to bounce back from the economic recession—in terms of their approach to manufacturing – more effectively compared to the European Union and the United States?

[JM]: I think those nations that you just mentioned—India, China, and Brazil—each of them in many ways have a more strategic approach to manufacturing than I think the United States has had. One of the champions of our initiative has been Andrew Liveris, who is the CEO of the Dow Chemical Company, and he has been saying for a long time that countries need to compete like companies, in terms of thinking about the mix of policies that enables the facilitation of the skill set for advanced manufacturing. Fiscal policy, trade policy, energy policy, skills and talent education—it’s a number of different factors. But the message is it’s not just about one policy area, it’s an integrated and strategic approach across the government, whether it’s the government of India or the government of the United States, to thinking about more strategically as a nation, “what are our strengths, what are our weakness, what direction do we need to do to facilitate and derive the value that we’re capable of deriving from advanced manufacturing.

[DC:] What advice would you offer policymakers on how to move forward with a strategic plan?

[JM:] The message that we heard the most was to understand the perspective within other policy domains. So if that policymaker who’s watching this is involved with trade policy, try to understand what the energy policy dimension is within the United States, almost to put yourself in the shoes of a global business leader who is thinking across these multiple dimensions, and thinking very carefully about how to develop this skill set within his or her organization which is spread across the globe.

A company like Boeing, for example, an incredibly innovative, advanced manufacturing company in the United States, they may choose to open a research center in Bangalore, India, because there are certain skills related to computational fluid dynamics that are strong in Bangalore, India. It might be a skill center for that domain, which is indeed the case. When companies think about building their own capabilities, they’re also shopping for the best talent on a global basis.

[DC:] Switching topics again. How much does the strong dollar affect U.S. manufacturing?

[JM:] In general if the dollar is strong, it hurts exports.

[DC:] Looking forward, what key factors will shape the future of competition between countries and companies, both immediately and in the long term?

[JM:] The most important factor is developing the right skills within the nation. Thinking strategically about what are the jobs of the future, and how do we already educate and develop people to meet those jobs of the future.

[DC:] Are you referring to pre-kindergarten, K-12, job training, graduate school?

[JM:] The entire chain. I think right now the world is changing faster and faster, and you do have to take a step back and look at these changes and ask, “what will be the requirements for the future workforce?”

And sometimes it seems that the way that the educational system is set up right now, the way that employers train their people right now, may not be the most appropriate in terms of where the world is going.

[DC:] Even given limited resources, there’s not a particular level where you could point to that we should invest? Because there’s a big push for early childhood education and there’s a big push for job training, but there’s not one specific area that stood out in your research?

[JM:] We didn’t ask those questions. Those are great questions to ask, really great questions, and maybe when you tie it back to some of the things we said earlier in the interview in terms of fostering creativity, fostering a culture of ‘it’s okay to try things and fail,’ maybe that is more closely aligned with pre-K education. I don’t know, I think those are great questions for researchers to take a look at.

This article was originally published in the Diplomatic Courier’s September/October 2013 print edition. The three-part series of videos from this interview may be found here.