The study, conducted by global management consulting firm Booz & Company with the University of Michigan's Tauber Institute for Global Operations, found that the future of U.S. manufacturing depends on decisions that are currently being made by the private and public sectors. Today, U.S. manufacturers provide about 75% of the products that Americans consume. But that number could soar to 95% within a few years, if business and government leaders take the right actions. Conversely, if the sector remains neglected, that output could fall by half, meeting less than 40% of U.S. demand. The report is based on a sector-by-sector analysis of U.S. industrial competitiveness, along with a survey of 200 manufacturing executives and experts.
"As labor costs and currency rates play a smaller part in manufacturing decisions, there is an opportunity for U.S. business leaders and policymakers to rise to the challenge and create conditions that support manufacturing," said Arvind Kaushal, Booz & Company Partner. "The potential for a rebound is there, but only if the right actions are taken."
Indeed, the survey confirmed that manufacturers see resilience in the sector, in spite of today's challenges. More than 65% of survey respondents said that they intend to continue investing in new U.S. manufacturing assets and technologies through 2025, and many are shifting manufacturing activities back from Asia and Latin America to the U.S., Canada, and Mexico.
Four sectors of manufacturing competitiveness
Based on the relative economics for each manufacturing segment, the study charted the likely success of U.S. industries by classifying their prospects into four different categories:
1. Global leaders. Aerospace, chemicals, machinery, medical equipment, and semiconductor industries have a critical worldwide advantage stemming from their high investment scale, established intellectual property, skilled workforces, and close ties with customers.
2. Regional powers. Food, beverages, and tobacco; nonmetallic mineral products; wood products, and petroleum coal segments, among others, benefit from the U.S. as their largest market. Mexico and Canada offer additional markets for these companies.
3. On the edge. Paper, plastics, electrical equipment and components, computer equipment, fabricated metal products, pharmaceuticals, printing, and certain automotive equipment companies are besieged by low-cost overseas competitors. They could become global competitors themselves or see their operations displaced to other countries.
4. Niche players. Textiles, apparel, leather, furniture, and appliances companies serve small-scale niche markets through domestic operations, while most production is outside the U.S.
Although several sectors show the potential for growth, the study found that overall more than 50% of U.S. manufacturing jobs are at risk -- along with nearly 50% of the value added by U.S. manufacturing. This is largely due to several pressures pushing manufacturers outside the U.S. Labor costs are less and less the crucial factor; others include regulatory restrictions and declines in manufacturing education and professional status compared to other countries like China.
"If U.S. companies rush toward emerging economies without continuing to invest in their own country, American manufacturing could fall woefully behind in new plant and production technology, losing its innovation edge and making revival more difficult," said Tom Mayor, Senior Executive Advisor for Booz & Company. "Fortunately the U.S. has a strong base to build on, and manufacturing can reach long-term competitiveness by focusing on the right priorities."
The report calls for the private sector and policymakers to concentrate on four actions to provide the greatest momentum for manufacturing:
1. Think and grow regionally. The U.S. needs to build a better future with Mexico, shifting less-demanding, labor-intensive processes to that country while helping to build a safer consumer economy there and retaining highly skilled work in the U.S.
2. Develop and attract skilled talent. The U.S. needs more robust manufacturing education programs, immigration reform, and promoting the attractiveness of manufacturing careers.
3. Foster high-impact clusters. The public and private sectors can build geographical concentrations of suppliers, service providers and academic institutions, reinforced by investments in infrastructure.
4. Simplify and streamline the tax and regulatory structure. The official U.S. statutory corporate tax rate stands at 39%. Closing the gap between statutory and effective rates (typically 28%) would be a revenue-neutral way to put U.S. manufacturing on a level global playing field.
About Booz & Company
Booz & Company is a leading global management consulting firm, helping the world's top businesses, governments, and organizations. Our founder, Edwin Booz, defined the profession when he established the first management consulting firm in 1914.
Today, with more than 3,300 people in 60 offices around the world, we bring foresight and knowledge, deep functional expertise, and a practical approach to building capabilities and delivering real impact. We work closely with our clients to create and deliver essential advantage. The independent White Space report ranked Booz & Company #1 among consulting firms for "the best thought leadership" in 2011.
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