The Evolution and Future of Manufacturing …Valley of Death Zones Valley of Death Zones U.S....

The Evolution and Future of Manufacturing Competitiveness

2014 Manufacturing Summit: The Road Ahead

Franklin Furniture Institute Mississippi State University

Jack McDougle President & Founder

Blutre Strategies, Inc.

change is constant and faster than ever

time to reach 50 million users

38 years

75 years

13 years

4 years

3 years

50 days

only 35 days for the Angry Birds app

when President Lincoln was assassinated, it took 21 days for the news to reach England

if you graduated college in 2004

these companies didn’t exist

0 200 400 600 800 1000 1200 1400

Facebook

United States

Indonesia

Brazil

Facebook

facebook boasts the 3rd largest population

facebook’s market cap - surrounded by some impressive companies

Rank Company Market Cap 22 Coca-Cola $177 B 23 Anheuser-Busch InBev SA/NV $174 B 24 Bank of America $173 B 25 Merck $165 B 26 Total $154 B 27 Facebook $151 B 28 BP $148 B 29 Citigroup $147 B 30 Amazon.com $145 B 31 Sanofi $136 B 32 Disney $136 B

2222222222222227777777777 Facebook $1511111 BBBBBBBBBBBBBB 28 BP $148 B

information flows more freely than ever

•  4 billion email accounts in 2014

•  more than 300 billion emails per day

•  more than 50 billion instant messages per day

•  U.S. Post Office handles ~600 million pieces of mail per day

Source: The Radicati Group, Inc.

data is exploding •  90% of the world’s data created in the last 2 years •  if you stacked a pile of CD-ROMs on top of one another

until you’d reached the current global storage capacity, it would stretch 50,000 miles beyond the moon

•  every hour, enough information is consumed by internet traffic to fill 7 million DVDs. Side by side, they’d scale Mount Everest 95 times

•  there are 30 billion pieces of content shared on Facebook every day

1 week of the New York Times

contains as much information

as a lifetime in the 18th century

stunning and rapid transformation of global business

unprecedented appetite for resources

8.5 billion people by 2030 7 billion in 2014

95% of consumers will live outside of the U.S.

Source: World Bank

growing global middle class creates huge opportunities & challenges

we need to produce as

much food in the next 40 years as we have in the

last 500

Source: Commonwealth Scientific and Industrial Research Organization

Georges Seurat interpreted by Chris Jordan

106,000 aluminum cans

the number used in the U.S. every 30 seconds

2 million plastic beverage bottles

the number used in the U.S. every 5 minutes

at current consumption rates, we will need 2 planets by 2030

Source: 2012 World Wildlife Fund's "Living Planet Report"

manufacturing is the greatest innovation in

history

Population 7 billion 6 billion 5 billion 4 billion 3 billion 2 billion 1 billion

0 500 1000 1500 2000

massive impact of the industrial revolution

Source: Angus Maddison's "World Population, GDP and Per Capita GDP, 1-2003

$17,356

GDP per capita

the 20th century was the American century

unmatched economic prosperity

the world’s arsenal of democracy

the great ages of economic development have resulted in higher living standards

Hunting and fishing

Agriculture

Industrial

Information

The developed world

The developing world

divergence between “thinking” and “making”

Basic R&D On-going operations

Applied R&D

Tech Transfer and Commercial-

ization

Scale-up Start-up

Innovation process Production process

Significant national focus Innovation clusters and government support Multiple collaborative efforts Government and private sector investment

Limited national focus Lack of coordinated efforts Barriers to production at scale Few government investments and incentives Regulatory and tax policy hurdles

Start-up Scale-up On-goingoperations

Basic R&D Applied R&D Tech transfer andcommercialization

Government

Universities

Angels

Venture capital

Private equity

Debt financing

Foreign sovereign wealth funds

Valley of DeathZones

U.S. Advantage China Advantage

Illustrative and signals bulk of investment focus. Exceptions can always be found.

scaling production is difficult in the U.S.

manufacturing is changing rapidly

wrong public image of manufacturing

Advanced Materials/Composites

Additive Manufacturing

Bio Manufacturing & Bioinformatics

Flexible Electronics Manufacturing

Industrial Robotics

Nano Manufacturing

Advanced Forming/Joining/Welding

Advanced Sensing, Measurement, & Process Control

Visualization, Informatics and Digital Manufacturing

Advanced Manufacturing & Testing Equipment

Chemical Processing

research

development

engineering

production

sales distribution

logistics

customer service

marketing

support

Manufacturing Enterprise

a more comprehensive view of the manufacturing enterprise

For example:

GE’s Big Room

innovation is thinking and making

Basic R&D

On-going operations

Applied R&D

Tech Transfer and

Commercial-ization

Scale-up Start-up

Government and private sector support and collaboration

manufacturing is knowledge-intensive

new uses for emerging technologies: additive manufacturing / 3D printing

"DNA origami" to make nanobots

robots that can respond to chemical cues and operate inside a living animal

Retain product weight Lower operating costs Increase productivity Extend shelf life 2-3 times Increase nutritional value Improve hygiene

North Atlantic cod 14 days on flake ice and 14 days on nano-ice

manufacturing is more important than

highest multiplier effect

0 0.2 0.4 0.6 0.8 1 1.2 1.4

manufactuirng

agriculture

transportation

construction

arts and entertainment

information

education and health

retail trade

other services

business services Source: U.S. Bureau of Economic Analysis

manufacturing drives productivity growth

Source: U.S. Bureau of Economic Analysis

manufacturing

services

manufactured goods account

for nearly 60% of exports

manufacturing drives R&D and innovation

manufacturing dominates U.S. domestic private sector R&D investment

Source: National Science Foundation

All Industries Manufacturing Nonmanufacturing

Source: U.S. Bureau of Labor Statistics and U.S. Bureau of Economic Analysis

manufacturing pays higher average compensation

$22.29 $21.44

$11.55 $9.56

Manufacturing Workers All Workers

Wages and Salaries Benefits

U.S. manufacturing is the world’s 7th largest economy

Source: International Monetary Fund and U.S. Bureau of Economic Analysis

U.S. faces many challenges & opportunities

stubborn long-term unemployment

Unemployment

Participation rate

Source: U.S. Bureau of Labor Statistics

tension between productivity and employment

Productivity

Manufacturing employment

Source: U.S. Bureau of Labor Statistics and U.S. Bureau of Economic Analysis

11,000

11,200

11,400

11,600

11,800

12,000

12,200

12,400

U.S. manufacturing jobs are growing N

r of e

Source: U.S. Bureau of Labor Statistics

growing inability to fund strategic priorities

federal debt at $17.5 tillion or $151K per taxpayer

debt to gdp ration ~108%

2008 2011

Corporate Taxes Employee Benefits Torts Regulatory Energy

structural cost disadvantage

Source: MAPI (Updated June 2011)

last quarter of 2012: 68 regulation per day

$1 billion for manufacturing institutes

national network for manufacturing innovation

120 Fr

only France has higher structural costs

Source: MAPI (Updated June 2011)

Statutory (1997)

Statutory (2012)

Effective (2011)

United States 40.0 40.0 34.6 Japan 57.1 38.0 29.5 France 36.6 33.3 34.1 Mexico 34.0 30.0 17.5 Germany 57.4 29.4 23.8 Canada 44.6 28.0 20.5 China 33.0 25.0 16.6 Korea 30.8 24.2 29.5 United Kingdom 31.0 24.0 27.9 Taiwan 25.0 17.0 10.9

corporate tax rates remain high

Source: OECD

the U.S. is competitive but not dominant in total R&D investment

Source: OECD

4.0 19

U.S. Germany United Kingdom Japan China

Australia Canada Germany Japan Korea United Kingdom

United States

Low-technology Medium-low technology Medium-high technology High-technology

manufacturing sector composition by technological intensity

U.S. manufacturing lags Germany, Japan and Korea in technological intensity

Source: OECD

OECD Average

U.S. Canada Japan Germany U.K. Czech Republic

Poland Mexico

Science Literacy Math Literacy

U.S. students are not competitive in math and science skills

Source: U.S. National Center for Education Statistics

U.S. lags significantly in graduating engineers

Source: National Science Foundation

4.4 6.1 7.5

irst U

manufacturing competitiveness

tilting towards the U.S.

how do manufacturing CEOs view competitiveness?

drivers of global manufacturing competitiveness

Talent Driven Innovation

Physical Infrastructure

Economic, trade, financial, tax systems

Labor and material costs and availability y

Energy costs and policies

Supply networks

Local market conditions

Legal and regulatory system

Healthcare system

Government investment in manufacturing and innovation

Market Forces

Manufacturing Competitiveness

Government Forces

Source: Deloitte and Council on Competitiveness

Rank Drivers Index Score 1 Talent Driven Innovation 10.00 2 Economic, trade, financial, tax systems 8.42 3 Labor and material costs and availability 8.07 4 Supply networks 7.76 5 Legal and regulatory system 7.60 6 Physical Infrastructure 6.47 7 Energy costs and policies 6.25 8 Local market conditions 3.99 9 Healthcare system 2.48

10 Government investment in manufacturing and innovation

how do the key drivers stack up?

what is talent driven innovation?

quality and availability of a country’s skilled workforce,

including researchers, scientists, and engineers, and the resulting

ability to drive innovation

where do countries rank?

Rank Country Index Score

1 China 10.00 2 Germany 7.96 3 United States 7.84 4 India 7.65 5 South Korea 7.59 6 Taiwan 7.57 7 Canada 7.24 8 Brazil 7.13 9 Singapore 6.64

10 Japan 6.60

Rank Country Index Score

1 China 10.00 2 India 8.49 3 Brazil 7.89 4 Germany 7.82 5 United States 7.69 6 South Korea 7.63 7 Taiwan 7.18 8 Canada 6.99 9 Singapore 6.64

10 Vietnam 6.50

2013 2018

2 Germanyyyyyy 7.96 3 United States 7.84 4 India 7 65 4 Germanyyyyyy 7.82

5 United States 7.699999 6 SSSoutttttthhhhhh KKKKKKorreeaa 7 63

U.S. manufacturing slipped to #2

Source: United Nations

United States China Germany Japan Brazil

advantages and challenges of manufacturing in the U.S.

Advantages •  Technological prowess and size •  Research support for national laboratories and universities •  High productivity •  Certain policy actions •  Market size and sophistication Challenges •  Historical high-cost labor (starting to change) •  High corporate tax rates and other structural costs •  Slowing growth Areas to watch out •  Policy uncertainty •  Shale gas availability •  Reshoring •  Skills

advantages and challenges of manufacturing in China

Advantages to manufacturers •  Favorable policy actions •  Growing middle class •  Increasing R&D •  Advanced electronics manufacturing •  Robust raw material supply base •  Physical infrastructure Challenges •  Innovation & IP protection •  Tax burden •  Lower productivity •  Regulatory inefficiency •  Transport costs to U.S.

Areas to watch out •  Investment in strategic industries •  Slowing domestic growth •  Greater emphasis on energy and

environment •  Improving education •  Rising labor costs

the U.S. is the #1 destination for foreign direct investment

Source: UNCTAD World Investment Report

4.0 19

France Germany United Kingdom United States China* Russia Netherlands

foreign investment in the U.S. grows

Source: U.S. Bureau of Economic Analysis

1,000 19

U.S. Direct Investment Position Abroad Foreign Direct Investment Position in the U.S.

•  rising wages in China

•  decreasing availability of both low & high skill labor in China

•  reduced energy costs in U.S.

•  IP and piracy/counterfeiting losses in China

•  high rate of technology advancement is shortening the time-interval of new product demand

•  increases total cost of transportation (longer distances, etc)

•  ability to efficiently integrate suppliers

cost advantages (real & perceived) of offshoring production are diminishing

manufacturing labor costs in the U.S.

Source: Report on The Structural Cost Of U.S. Manufacturing. October, 2011

$48.93 $44.08

$41.36

$35.94 $32.42

$29.83

$24.71

$18.53 $15.80

$10.70

US labor market is the most attractive of all major developed world manufacturers

Germany France Italy U.K. Japan 0

Germany France Italy U.K. Japan

Labor costs higher in other major manufacturing economies

Productivity adjusted wages (indexed)

Source: International Labor Organization, Economist Intelligence Unit, Fraser Institute for Economic Freedom, BCG

U.S. benefits from a relatively flexible labor market

Overall labor market regulation

World Rank 112 94 72 15 14

U.S. 3

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Fully

Source: Economist Intelligence Unit, U.S. Bureau of Labor Statistics, BCG

China’s wages are growing rapidly

Ratio of average Chinese wages to U.S. wages

17% 9%

U.S. wages

2014 2015

Chinese wages

abundant natural gas provides a huge cost advantage for U.S. based manufacturers

Natural gas prices in other major manufacturing economies (indexed)

Source: International Energy Agency, BCG

Industrial electricity prices are lower in the U.S. (indexed)

0 U.S.

U.S Germany France Italy U.K. Japan China

Other Electricity Natural Gas Labor Productivity

U.S. becoming one of the developed world’s lowest cost economies

Average projected manufacturing costs of the major exporting countries compared to the U.S. 2015

Source: U.S Census Bureau, U.S. Bureau of Labor Statistics, U.S. Bureau of Economic Analysis, International Labor Organization, BCG

U.S. manufactures nearly 75% of what it consumes

Food & beverages

Petroleum& chemicals

Wood Products

Paper products

Glass, stone,

minerals

Plastics, rubber

Chemicals

Furniture Primary metal manufacturing

Manufactured goods consumed in the U.S. by sector, 2010 (%)

Transportation Goods

Textiles, fabrics

Machinery Appliances, electrical

equipment

Computers, electronics

Apparel, footwear,

accessories

Fabricated metals

GlGl Misc.

Source: U.S. Census Bureau, U.S. Bureau of Economic Analyses, BCG

7 industry clusters are becoming more attractive in the U.S.

Logistics costs as a share of product price

Source: U.S. Department of Transportation, U.S. Census Bureau, U.S. Bureau of Economic Analysis, BCG

attractive industries account for nearly $2 trillion of U.S. consumption and nearly $200 billion in imports from China

Industry Value of goods consumed

Imports from China

Transportation goods

$582 B $6 B

Computers & electronics

$467 B $122 B

Fabricated metals $262 B $10 B

Machinery $251 B $16 B

Plastics and rubber $170 B $9 B

Appliances and electrical equipment

$134 B $25 B

Furniture $75B $13 B

Source: U.S. Census Bureau, U.S. Bureau of Economic Analysis, BCG

electrical eqqquippppppppmentFurniture $75B $13 B

The Evolution and Future of Manufacturing …Valley of Death Zones Valley of Death Zones U.S....

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