Deloitte global report: Government policies seen as key to manufacturing competitiveness

Published: 13 May 2013

Government policies can either make or break a nation’s manufacturing sector, according to more than 70 global executives interviewed for a new report, “Manufacturing for Growth” from the World Economic Forum (the Forum) prepared by Deloitte Touche Tohmatsu Limited (DTTL). In this regard, many executives agreed that China's current policies, coupled with the nation's 12th Five-year plan and its focus on seven strategic emerging industries, are moving in the right direction to support its manufacturing competitiveness.

Citing executives interviewed for the report, however, Ms. Rosa Yang, Co-leader, Manufacturing Industry Group, Deloitte China said there are certain improvement areas to further advance China's competitiveness: promotion of innovations; enhancement of policy implementation efficiency; and regulations related to environment improvement. With energy and environmental challenges ranging from the cost of energy to China's ability to provide clean and sustainable energy sources, policy makers in China could be more forward thinking and strategic in making long-term resource distribution and environmental plans.

"Chinese policy makers must consider how it can help reduce environmental pollution and positively impact its future trajectory. Possible initiatives may include establishing technical specifications, standards and regulation system of green manufacturing and encouraging enterprises to focus on the development of technology and equipment that can enhance energy efficiency and resource utilization of traditional industries," she said.

In terms of promoting innovation, Mr. Ricky Tung, Co-leader, Manufacturing Industry Group, Deloitte China said much can be done to support the country's transformation to high-end manufacturing. For instance, China can consider developing an industry-led strategic transformation plan to focus on technological innovation and differentiation. It can enact policies that bring in capital and technology-intensive industries from developed countries and it should work on improving how to utilize innovations imported from other countries.

"Equally important is the development of technology talent. China is committed to developing talent in scientific and technological fields. Going forward, it should continue to improve incentive mechanisms to cultivate technical leaders and promote deeper cooperation between enterprises and academic institutions," he added.

Overall, the three-volume report, “Manufacturing for Growth,” finds that executives around the world crave government policies that simplify taxes and protect free and fair trade – along with stronger energy and infrastructure policies and more focused education and workforce frameworks. They also want science, technology, and innovation policies that promote advanced manufacturing.

“Our report reflects the broad support – from business and government – that is necessary and exists today to create a progressive, innovative enabling environment for manufacturing,” said Andrew Liveris, chairman and chief executive officer of The Dow Chemical Company and global chief executive champion of the World Economic Forum’s Manufacturing for Growth project. “Manufacturing adds value – creating more jobs than any other sector; driving innovation throughout every segment of our society; and delivering consumer solutions – all of which are the keys to long-term, sustainable economic growth.”

The report – which is based on extensive input from chief executives and other senior executives, as well as industry, academic, and policy leaders – covers different industrial nations globally. Accordingly, the United States will likely succeed as a global manufacturer if it can offer lower corporate tax rates, while also developing policies that support domestic energy production and crafting education programs that lead to an increase in the number of highly skilled workers.

In contrast, executives who participated in the report felt that perennial manufacturing powerhouse Germany has maintained its path to prosperity through innovation and new technologies, but faces challenges in the areas of energy, as well as rising labor and material costs. To address these challenges, the executives suggest that Germany should develop a realistic approach toward energy transition. It should also focus on innovation within high technology and address the rigidity of its labor laws.

Japan, for its part, has one of the largest economies in the world and is recognized internationally for its best practices in manufacturing, but must contend with a shrinking population, high taxes, and limited access to natural resources – according to executives. To remain competitive, executives participating in the research suggest that Japan develop monetary policies that help stabilize exchange rates and address inflation. Japan should also consider lowering tax burdens, developing employment policies that recognize today’s diverse labor market, and strengthening policies supporting long-term investment in science and technology.

“Manufacturers continue to face strong headwinds amidst a sluggish global economic environment,” adds Tim Hanley, DTTL Global Leader for Manufacturing. “The report reflects the global voices of executives and comes at a critical time as companies look towards both the developed markets, as well as emerging and frontier markets to lift growth and performance.”

Executives also indicate that while historically strong manufacturing nations must fight to maintain their competitive edge, emerging powerhouses will face a very different policy challenge: Balancing growth with other national needs.

Similarly, India has indicated that by 2025 it plans to create 100 million new jobs and increase its manufacturing sector’s share of gross domestic product to 25 percent.¹ But to reach this growth, executives view that the country will likely need to implement less restrictive labor laws, invest in globally competitive infrastructure, and relax policies governing the levels of foreign direct investment.

In another example, executives who participated in the report say that Brazil will need to focus on talent development, innovation, and education – with a special emphasis on science and technology. Additionally, the country needs to invest in infrastructure projects that improve logistics and transportation and continue to invest in clean and sustainable energy projects. It will also benefit from simplifying its tax system and establishing political, legal, and regulatory stability.

The report also examines the importance of public-private partnerships in amplifying the effectiveness of government policies. Almost universally, the executives interviewed for the report emphasized the need for the public and private sectors to collaborate with each other and with universities, national laboratories, and research centers and other non-profits.

To download a copy of “Manufacturing for Growth,” visitwww.deloitte.com/manufacturingforgrowth.

¹ Government of India Ministry of Commerce & Industry Department of Industrial Policy & Promotion (Manufacturing Policy Section). National Manufacturing Policy. 4 November 2011.

DTTL Global Manufacturing Industry group
The DTTL Global Manufacturing Industry group comprises around 2,000 member firm partners and over 13,000 industry professionals in over 45 countries. The group’s deep industry knowledge, service line experience, and thought leadership allows them to solve complex business issues with member firm clients in every corner of the globe. Deloitte member firms attract, develop, and retain the very best professionals and instill a set of shared values centered on integrity, value to clients, and commitment to each other and strength from diversity. Deloitte member firms provide professional services to 80 percent of the manufacturing industry companies on the Fortune Global 500®. For more information about the Global Manufacturing Industry group, please visit www.deloitte.com/manufacturing.