Governments can make or break an industrial sector, global execs agree

Posted on 3 May 2013

A country’s manufacturing success is heavily dependent on government policies, according to more than 70 global executives interviewed for a report for the World Economic Forum, who spell out the actions required by the US, Germany, Japan and others to increase manufacturing.

Manufacturing for Growth’, authored by Deloitte Touche Tohmatsu for the Forum, finds that executives globally need governments to simplify taxes and protect free and fair trade as a priority, as well as stronger energy and infrastructure policies.

They also demand focused education and workforce frameworks to promote industry, and 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 CEO 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 is based on extensive input from chief executives and other senior executives, as well as industry, academic, and policy leaders worldwide. It examines three senior developed economies – the US, Germany and Japan – as well as Brazil, China and India.

It says the United States will likely succeed as a global manufacturer if it can offer lower corporate tax rates, while developing policies that support domestic energy production and crafting education programmes that lead to a rise in the number of highly skilled workers.

In contrast, executives who participated in the report felt that 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 labour and material costs

The executives surveyed 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 labour laws.

Japan, the world’s fourth biggest economy, is recognised internationally for its best practices in manufacturing, but must contend with a shrinking population, high taxes, and limited access to natural resources, the report say.

To remain competitive, the executives suggest that Japan develops monetary policies that help stabilise exchange rates and fix inflation. It should also consider lowering tax, developing employment policies that recognise today’s diverse labour market, and strengthen its policies supporting long-term investment in science and technology.

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%. But to reach this growth, the global executives view that the country will likely need to implement less restrictive labour laws, invest in globally competitive infrastructure, and relax policies governing the levels of foreign direct investment.

“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,” said Tim Hanley, global leader for manufacturing at Deloitte Touche Tohmatsu.