Despite reports heralding the decline of U.S. manufacturing, industrial companies in North America see their competitive position improving in the next five years, a new survey by Deloitte and the National Association of Manufacturers found.
Optimism among manufacturers was a key finding of the “Made in North America” survey of 321 manufacturing executives in the United States, Canada, and Mexico.
Looking ahead, 57% of manufacturing executives in the United States predicted that their companies would be better positioned against their primary competitors five years from now. That compared with 41% who thought they were currently ahead of their competition. Only 11% expected that they would be worse off in five years. Among Mexican manufacturers, 49% expected a stronger competitive position in 2012, while 46% of Canadian executives reported similar optimism.
Craig Giffi, chairman of the Global Manufacturing Industry Practice of Deloitte Touche Tohmatsu, said the backdrop of a declining housing market and rising energy prices made the optimism reflected in the survey surprising. “Even without those elements, it would have surprised us,” he told Managing Automation in an interview.
As a place to do business, North America ranked high on the five-year scale in all business areas except manufacturing production. More than a third of respondents said that in the disciplines of sales and marketing, IT, customer service, and R&D/engineering, for example, North America would increase its competitive position in the next five years; 40% to 50% of respondents in each case expected more of the same in that time span. Sixty-one percent of respondents, however, anticipated that North America would be less competitive for production operations in 2012.
And yet, the Deloitte/NAM survey found that 44% of the executives surveyed plan to expand production in the United States — the largest block of votes for any location. The next most popular sites for production operations were China and Mexico, both on the expansion list for 37% of the companies surveyed. Both India and Canada were on the agenda for 24% of survey takers.
Technology progress may help that effort, according to Deloitte’s Giffi. “They believe the investments they’ve made there are indeed making them more competitive,” he said. “They are definitely using automation to improve their capability.”
The primary impediment to enhanced competitiveness among North American manufacturers was labor costs — 71% of respondents considered these costs a “significant” or “extensive” barrier — followed by tax policy and work rules, each at 66%. Government bureaucracy followed closely at 65%, while raw material prices notched 56% of the votes. Not surprisingly, North American executives ranked labor cost and tax policy as the top priorities for government intervention. The availability of skilled labor ranked as the third-most important area demanding government attention, according to the findings.
Executives’ feelings toward NAFTA belied the cold reception the free trade agreement has received in recent election-related discussions. Of the North American manufacturers surveyed by Deloitte and NAM, 49% considered NAFTA a positive influence on their businesses; 41% said it had a neutral effect; and 10% reported a negative impact.
"NAFTA has had a positive effect on productivity and competitiveness,” said Frank Vargo, NAM’s vice president of international economic affairs, in announcing the results. “The general public feeling, though, is that NAFTA is a loser. This is due to large trade deficits, but much of this is in energy. Excluding energy, trade deficits with NAFTA have actually fallen."
The survey also probed manufacturers’ plans for innovation and R&D, and found that 48% of North American manufacturers consider themselves at an advantage in the areas of product and service innovation and integrated R&D/fast time to market; 13% and 17% of respondents, respectively, thought they were at a disadvantage in these areas. The factors that respondents said would best promote innovation and R&D were tax cuts (79%), intellectual property protection (75%), company R&D spending (74%), and access to capital (74%). In each of those categories, less than 40% thought the government was having a positive effect on those efforts.
In summing up his advice to manufacturers, Giffi said the competitive leaders would be those able to most effectively globalize and adapt to new products, customers, and markets while still promoting existing products. “Those that continue to expand that market and then wrap their manufacturing capabilities around that innovation agenda … are the ones that are the most successful,” he said.