In 2010 China took over as the world’s biggest manufacturing country by output. It might have been a shock for many, but in a sense this was history repeating itself. In 1800 China had held the same position. But then the country suffered close to 200 years of decline1.We are now living in a time when European nations are facing the highest recorded levels of unemployment in decades, and perspectives for the future have never been so pessimistic. Embedded in our collective mind, is the risk of a continuous decline for Europe in the 21st century.
An era of low growth and disruption
Since November 2008, the general context we are living in has drastically changed, and the economic world as we knew it has disappeared. Global economy has entered a low-growth phase that will surely persist for more than few years. The Western world is “stuck” in a crisis with no clear exit trajectory because of durable drivers: deleveraging of excess debt, excessive public deficits and huge external deficits for some countries. Worldwide economy is even slowing down, with emerging economies stepping back to one digit growth rates.
Consumption is entering a radically new phase2, with profound modifications of the consumers’ behaviours, choices and profiles. Lower available disposable income and buying power of the western middle class, trigger new consumption patterns: higher price awareness, long period of restrained spending, shift to sustainable products. Globalization and increasing living standards of billions of people in emerging geographies have opened up “mega markets”, characterized by a vast continuum of consumers’ classes, from the “bottom of the pyramid” to the historic middle class. Environmental concerns, rejection of consumerism, new technologies and the rise of social media, have given birth to collaborative consumption.
European economies are facing disruptive competitors from emerging countries. In the last 20 years Southern Europe has lost millions of jobs in manufacturing and more recently in R&D, whereas China has created 70 M and India 30M. Fast growing multinationals from these countries, are moving from low end / low cost production, mainly dedicated to export, towards middle range products at low cost and huge variety. The most successful of them are even moving up towards production of premium goods through acquisitions of struggling western companies. In particular Chinese companies, taking advantage of their low cost base, huge home market and advanced technology in some areas, are developing lean and ultra-dynamic innovation strategies.
On the other end, rapidly advancing technologies such as synthetic biology, regenerative medicine, advanced robotics, additive manufacturing, advanced sensors or direct digital manufacturing are seen by many as unlimited opportunities to engage in high-value innovation3 Similar observations can be made in other areas, such as health care, education, energy production or transportation. On top of that, the rise of connected technologies is creating entirely new opportunities for new products and services.
Implications for manufacturing :“make morevalue with less”
In this new period of change, Europe is desperately seeking new policies and ideas aimed at ensuring growth and prosperity. European growth can no longer depend on technology-led innovation and low-production costs or the proximity of markets. Make in the low labor costs regions and sell in the West cannot be a long term strategy anymore. Corporate strategies only based on efficiency and cost cutting cannot ensure sustainable growth.Winning companies will be those which are able to make more value with less, faster and better than their competitors.
Making value is larger than “making” things and requires an integrated system of understanding customers, R&D, design, manufacturing and delivery. It encompasses a paradigm shift, from making components to systems, from making products to delivering services, solutions or experiences. It is possible through the implementation of a user focused process of connecting and combining needs with new knowledge and technologies. It thus aims at designing attractive, desirable, sustainable and less costly to produce and operate products and services.
Making value requires also that companies are able to organize and operate their manufacturing value chain under the form of a wide connected network, drawing on skills, competitive advantages, and market insights of various world locations. They must as well enhance the proximity and interactions between manufacturing facilities, R&D centres, and clusters of dynamic partners and peers to increase options and knowledge.
To win, companies need to quickly capture new growth opportunities before they fade, and thrive during turmoil: to do so they will have to engage in a relentless quest for flexibility and excellence in quality, productivity and delivery.
Sources
1: The New Industrial Revolution, Peter Marsh, Yale book, 2012
2: Growth in a low growth economy, E. Kelly & S. Weber, 2012. Flash Natixis, 8 novembre 2012
3: Integrating Manufacturing, Design, and Innovation to Thrive in the Changing Global Economy, NAE, 2012
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