Manufacturing & services: A changing landscape


In 2014, one of the "big three" management consultancies published its findings on the state of the American manufacturing industry: Among the 25 largest manufacturing exporters globally, the US ranked second as a competitive manufacturing location. The results came as somewhat of a surprise considering that only one-tenth of American workers find employment in the manufacturing industry today, compared to the one-quarter that did so in the 1970s.

Experts at the Massachusetts Institute of Technology argue that China has played a major role in the decline of the American and other countries' manufacturing industries by flooding the market with cheaper imports, but the truth is that the declining share of manufacturing jobs is not a recent phenomenon. In fact, according to data compiled by the OECD in 2013, the share of manufacturing jobs is either low or waning in nearly every economy in the world.

In the early 1990s, more than 60 percent of manufacturing value added could be attributed to just six industrialized states  ̶  the US, Germany, Japan, the UK, Italy and France. The global industrial landscape has changed considerably over the past 25 years, and many economists nowadays are whispering about the "deindustrialization" of the traditionally industrialized nations. In a recent study on Industry 4.0, a leading European strategic consulting firm cites three main factors for the decline in manufacturing employment in mature economies. First, major productivity gains through new technologies have automated many processes that previously required manpower. Second, advanced economies have experienced a loss in market share due to newly emerging competitors. Finally, a range of activities, from facility management to logistics and even site maintenance, have been outsourced to the service industry.

Whereas the majority of wealthy countries today achieved their current status through the process of industrialization, emerging market nations have been forced to take an entirely different route and are finding out how important nonmanufacturing industries are as well. As indicated by recent global economic performance data, emerging market economies have experienced an impressive decade of economic growth, no thanks to declining manufacturing job shares, but to stronger services sectors. Services comprised just one-half of global output in 1980, while these days, services account for 70 percent. The figures from Brazil and India are especially striking. In Brazil, 67 percent of GDP is derived from the service industry, and 55 percent in India. Though the manufacturing industry is still quite strong in China, the service industry there still makes up for a larger proportion of GDP (43 percent).

The esteemed economist and social scientist Jeremy Rifkin contends that a new industrial revolution is upon us  ̶  a revolution during which we will reach extreme levels of productivity with the help of technological advancements. This isn't the end of manufacturing  ̶  the industry is simply evolving. Productivity levels are already increasing and the marginal costs of goods and services are on the decline. If Mr. Rifkin is correct in his prediction of what's to come, shifting regional trends in the manufacturing and services industries will not be the only evident changes in the global economy. Rifkin argues that we will be forced to reconsider our age-old approach to economics and witness the democratization of the global economy.


Further links:

» Bloomberg Business: Why Factory Jobs are Shrinking Everywhere

» Roland Berger: Think Act - Industry 4.0