Manufacturing Study: Time to Act or Else?

In Indiana, we make things. Engage in a discussion about that topic today, and it’s typically referred to as advanced manufacturing. No matter the name, it’s important.

On a national level, the State Science & Technology Institute summarizes a recent study by Booz & Co. and the University of Michigan’s Tauber Institute for Global Operations.

The authors point out three significant findings that emerged from the study. First, contrary to popular belief, U.S. manufacturing has been much more productive. Currently, U.S. companies produce about 75 percent of the products consumed by the nation. Second, manufacturing will remain largely regional. According to the authors, no single country will become "the factory of the world." Instead, manufacturers will increasingly locate factories close to major markets, including the U.S., Europe and Southeast Asia. Third, labor costs and currency rates are playing a decreasing role in decisions by manufacturing executives. Instead, four other factors are driving manufacturers’ choices:

  • The skill level and quality of factory employees, especially for high-tech facilities;

  • The presence of high-impact clusters;

  • Access to nearby countries with emerging consumer markets and lower-cost labor; and,

  • A reasonably competitive regulatory and tax environment.

The authors contend that if U.S. business leaders, educators and policymakers make "a series of identifiable smart actions and choices" that a manufacturing-driven economy could produce up to 95 percent of all products consumed by the nation. According to the report, the series of actions and choices includes recommendations in four policy areas:

  • Attract the best workers — currently, the U.S. faces a shortage of qualified manufacturing employees. To address this problem, policy makers must develop educational initiatives that promote engineering, relax federal immigration regulations for trained knowledge workers (e.g., H-1B visas) and establish state manufacturing education initiatives (e.g., scholarships and other programs). Manufacturing companies must also offer a more collaborative workplace experience, attract workers by attending campus recruitment events and industry job fairs, increase college internships, form partnerships with local colleges and universities and partner with other manufacturers to jointly support specialized training programs.

  • Invest in high-impact clusters — In the context of manufacturing, clusters are essential to grow geographic concentrations of interconnected companies, suppliers, service providers and associated institutions. State and local governments can encourage clusters by investing in infrastructure—roads, ports, rail lines and communication links—for centers that have begun to form organically. However, studies have shown that governments should not seek to micromanage cluster creation.

  • Build a future with Mexico — Mexico offers a cost-conscious and attractive alternative to China and other distant offshoring sites. By developing production facilities there, manufacturers can tap a relatively low-cost labor pool and maintain tight links with R&D talent and facilities in the United States.

  • Simplify and streamline the tax and regulatory structure — Policymakers should reduce taxation levels and tax code complexity. In the Booz & Company survey, 61 percent of respondents cited government regulations and policies as having a negative impact on their companies’ U.S. manufacturing output.