U.S. manufacturing on brink of great comeback or great downfall: report

Booz & Co. report suggests the future of U.S. manufacturing depends public and private sector strategy

September 7, 2011   by Staff

NEW YORK—A new study shows that the U.S. manufacturing sector could either prosper and spur economic recovery, or degrade to where it may never fully recover.

And it all depends on decisions made by private and public sectors, according to the study by Booz & Co. and the University of Michigan’s Tauber Institute for Global Operations.

Booz & Co. is a New York-based global management consulting firm with offices in 60 countries and more than 3,000 employees.

U.S. manufacturers currently provide about 75 per cent of the products that Americans consume. But that number could soar to 95 per cent within a few years if business and government leaders take the right action, the report suggests.

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,” says Arvind Kaushal, Booz & Company partner. “The potential for a rebound is there, but only if the right actions are taken.”

More than 65 per cent of survey respondents say 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.

Based on the relative economics for each manufacturing segment, the study charted the likely success of U.S. industries by classifying their global potential.

Global leaders: Aerospace; chemicals; machinery; medical equipment; and semiconductor.

Companies serving these markets have a critical worldwide advantage stemming from their high investment scale, established intellectual property, skilled workforces and close ties with customers.

Regional powers: Food; beverages; tobacco; nonmetallic mineral products; wood products; and resource segments.

Companies in these markets will benefit from the U.S. as their largest market while Mexico and Canada offer additional markets.

On the edge: Paper; plastics; electrical equipment and components; computer equipment; fabricated metal products; pharmaceuticals; printing; and automotive equipment.

These companies are besieged by low-cost overseas competitors. They could become global competitors themselves or see their operations displaced to other countries.

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 half of U.S. manufacturing jobs are at risk – along with half 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 crucial, but regulatory restrictions and declines in manufacturing education and professional status compared to other countries like China, are factors hampering growth.

“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,” says Tom Mayor, senior executive advisor at Booz & Co.

Click here to download the full report, “Manufacturing’s Wake-Up Call”.

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