The global manufacturing industry has undergone a turbulent time period. The large developing economies leaped into the first tier of manufacturing nations, a severe recession cut off demand and manufacturing employment dropped at accelerated rates. Manufacturing still remains immensely important to both the entire world economy. Prior decades have provided a pathway rising incomes and living standards. Still it remains a vital source of competitiveness and innovation. But the manufacturing industry has changed, bringing both opportunities and challenges and neither business leaders nor policy makers can rely on old ways of business in this new manufacturing environment.
When considering manufacturing of the future, the next era of global growth and innovation, a major report from the McKinsey Global Institute, presents a clear view of how manufacturing contributes to the global economy today and how it will probably evolve over the coming decade.
Manufacturing’s processes are changing. The way it contributes to the economy shifts as nations grow. In today’s advanced economies, manufacturing promotes innovation, trade and productivity, more than employment and growth. In these countries, manufacturing also has begun to consume more services and to rely more heavily on them to operate.
Manufacturing is entering a energetic new era. As a new global consuming class emerges in developing nations, and innovations generate additional demand, worldwide manufacturers will have greater new opportunities, but in a much more uncertain atmosphere.
The industry is also developing in ways that make the traditional view, that manufacturing and services are completely separate and fundamentally different sectors are outdated. In the United States, every dollar of manufacturing output requires 19 cents of services. In some manufacturing industries, more than half of all employees work in service roles, such as R&D engineers and office-support staff.
Manufacturing’s role is evolving. Globally, manufacturing continues to grow. It now accounts for approximately 16 percent of global GDP and 14 percent of employment. But the manufacturing industry relative size in an economy varies with its stage of maturity. When economies industrialize, manufacturing employment and output both rise rapidly, but once manufacturing’s share of GDP peaks, at about 20 to 35 percent of GDP, it falls, along with its share of employment. The reason is that as wages rise, consumers have more money to spend on services, and that sector’s growth quickens, it becomes more important than manufacturing as a source of growth and employment.
As advanced economies recover from the Great Recession, hiring in manufacturing may grow and some nations may even raise net exports. Manufacturers will continue to hire workers, both in production and nonproduction roles (such as after-sales service and design). But in the long run, manufacturing’s share of employment will remain under pressure as a result of ongoing productivity improvements, faster growth in services, and the force of global competition, which pushes advanced economies to specialize in activities requiring more skill.
In Michigan, manufacturing leaders are either changing or moving to respond to the market trends and Huron Township, the Local Development Finance Authority is helping firms by providing a variety of relocation benefits in the LDFA districts.