A report issued June 23 indicates that access to talented workers capable of supporting innovation is the key factor driving global competitiveness at manufacturing companies - well ahead of "classic" factors typically associated with competitive manufacturing, such as labor, materials and energy. Further, difficulties accessing the right kind of talent are likely to contribute to the United States becoming less globally competitive in the next five years.

These are the findings of the 2010 Global Manufacturing Competitiveness Index, a research report from Deloitte's Global Manufacturing Industry group and the U.S. Council on Competitiveness. The report is based on the responses of more than 400 chief executive officers and senior manufacturing executives worldwide to a survey conducted in late 2009 and early 2010. It also draws on select interviews with key manufacturing decision makers.

"At its broadest level, the study confirms that the global competitive landscape for manufacturing is undergoing a transformational shift that will reshape the drivers of economic growth, high-value job creation, national prosperity and national security," according to Deborah L. Wince-Smith, president and chief executive officer of the U.S. Council on Competitiveness.

The study's key finding about the growing importance of talented scientists, engineers and properly educated production workers is derived from a ranking system that asked the respondents to assign a numbered score of importance between one and 10 to a list of factors affecting industry competitiveness.

Drivers of global manufacturing competitiveness

  Rank   Drivers                                   Driver Score
                                                    10 = High   1
   ----                                   -------   = Low
                                                    -------------
  1      Talent-driven innovation                            9.22
  2      Cost of labor and materials                         7.67
  3      Energy cost and policies                            7.31
          Economic, trade, financial and tax
  4       systems                                            7.26
  5      Quality of physical infrastructure                  7.15
          Government investments in manufacturing
  6       and innovation                                     6.62
  7      Legal and regulatory system                         6.48
  8      Supplier network                                    5.91
  9      Local business dynamics                             4.01
  ---    -----------------------                             ----
  10     Quality and availability of healthcare              1.81
  ---    --------------------------------------              ----

  Source: Deloitte and US Council on Competitiveness -2010 Global
  Manufacturing Competitiveness Index


The report shows that while the overall top three competitive drivers (talent-driven innovation, cost of labor and materials, energy cost and policies) remain relatively stable across all geographic regions, there is some variance in their importance by region -- especially in Mexico and South America, where talent did not rank number one. In these two countries, 'quality of physical infrastructure' ranked the highest.

"A strong manufacturing sector is a crucial component of a country's intellectual capital, innovation capacity, and economic prosperity. In today's environment, manufacturing competitiveness is driven by an empowered talent base, especially as manufacturers around the world integrate technology platforms and interfaces into their products," said James Quigley, chief executive officer, Deloitte Touche Tohmatsu. "From the Americas to Europe and from Asia, to Africa, understanding the public policy and market forces that shape the manufacturing landscape is essential to winning in the global economy."

Newcomer economies to gain ground - as the United States slips
The report identified the emergence of a new group of leaders in the manufacturing competitive index over the next five years. These include Mexico, Poland and Thailand - countries not always considered alongside longer-standing, up-and-comers like Brazil and Russia. Not unexpectedly, Asian giants like China, India and the Republic of Korea are projected to dominate the index in five years, as they do now.

Current competitiveness      Competitiveness in five years
                               -----------------------------
                          Index Score                       Index Score
                             10=High                           10=High
  Rank     Country name       1=Low    Rank     Country name    1=Low
  ----                                 ----     ------------ -----------
    1          China                10     1       China              10
    2          India              8.15     2       India            9.01
            Republic of
    3          Korea              6.79     3 Republic of Korea      6.53
          United States of
    4         America             5.84     4       Brazil           6.32
                                              United States of
    5         Brazil              5.41     5       America          5.38
    6          Japan              5.11     6       Mexico           4.84
    7         Mexico              4.84     7       Japan            4.74
    8         Germany              4.8     8      Germany           4.53
    9        Singapore            4.69     9       Poland           4.52
    10        Poland              4.49    10      Thailand          4.35
    11    Czech Republic          4.38    11     Singapore          4.30
    12       Thailand             4.17    12   Czech Republic       3.95
    13        Canada              4.11    13       Canada           3.71
    14      Switzerland           3.07    14       Russia           3.47
    15       Australia            3.07    15     Australia          3.40
    16      Netherlands           2.90    16       Spain            2.63
    17    United Kingdom          2.82    17    Netherlands         2.63
    18        Ireland             2.78    18    Switzerland         2.62
    19         Spain              2.67    19    South Africa        2.52
   ---         -----              ----   ---    ------------        ----
    20        Russia              2.58    20   United Kingdom       2.51
   ---        ------              ----   ---   --------------       ----

  Source: Deloitte and US Council on Competitiveness -2010 Global
  Manufacturing Competitiveness Index




  Expected change in manufacturing competitiveness in five years

           Moving up                  Rank change
            Brazil                    5th to 4th
            Mexico                    7th to 6th
            Poland                    10th to 9th
           Thailand                  12th to 10th
             Spain                   19th to 16th
            Russia                   20th to 14th
         South Africa                22nd to 19th
           Argentina                 25th to 24th
         Saudi Arabia                26th to 25th



         Sliding down                 Rank change
   United States of America           4th to 5th
             Japan                    6th to 7th
           Singapore                  9th to 11th
        Czech Republic               11th to 12th
          Netherlands                16th to 17th
          Switzerland                14th to 18th
        United Kingdom               17th to 20th
            Ireland                  18th to 21st
             Italy                   21st to 22nd
            Belgium                  24th to 26th

  Source: Deloitte and US Council on Competitiveness -2010 Global
  Manufacturing Competitiveness Index


Further, dominant manufacturing super powers of the late 20th century - the United States, Japan and Germany - are expected to become less competitive over the next five years. Other Western European nations will be similarly challenged, especially the Czech Republic, the Netherlands, Switzerland, the United Kingdom, Ireland, Italy and Belgium, a finding made more dramatic by the continuing upheaval of the Euro.

"All Western European nations show an expected decline in rank over the next five years, which should be a cause for concern across the Continent," says Hans Roehm, global managing partner, global manufacturing industry group, Deloitte Touche Tohmatsu.

The report's research-team leader and co-author, Craig Giffi, who serves as vice chairman and U.S. national industry leader for consumer and industrial products at Deloitte LLP in the Unites States, went on to explain that the 'epicenter' for manufacturing continues to shift to emerging markets; Asia, in particular. "What had been the world order in the second half of the late 20th century is giving rise to new manufacturing paradigms. But, even with the rise of China, India and Korea and the overall competitive repositioning of nations, the United States, Germany and Japan are still formidable and very competitive," said Giffi.

However, the study also shows the United States slipping in rank from fourth to fifth by 2015, the highest ranking country to show a decline - while China and India remain as the leaders. "This finding deserves careful consideration as the U.S. evaluates its global competitiveness position," cautions Giffi.

Competing seen as easiest in Asia, tougher in United States and Europe
The report identified a clear geographical divergence in the perception of public policy support for competitiveness. Most respondents from China think that their government makes competitiveness easy compared to respondents in Europe and the United States, with 70 percent of them citing government support of science, technology and innovation as advantageous. The European respondents identified public policy support for infrastructure development (46.1 percent), science and technology and innovation (43.4 percent), and intellectual property protection (42.1 percent) as their advantage. Respondents in the Unites States cited intellectual property policies (75.5 percent) and technology policies (61.3 percent) as their competitive edge.

Respondents in each region also identified differing policies that inhibit competitiveness. In China, these included immigration policies (32.1 percent) and healthcare (27.7 percent); in the United States, government intervention and ownership in companies (59.2 percent), corporate tax policies (53.1 percent), healthcare policies (51 percent), product liability laws (42.9 percent) and immigration policies (32.7 percent); and in Europe labor laws and regulations (42.1 percent), environment policies (36.8 percent) and energy policies (31.6 percent).

To download the 2010 Global Manufacturing Competitiveness Index, please visit www.deloitte.com/globalcompetitiveness.