McKinsey Global Institute MEDA presentation - Fall Conf 2014
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Maryland's manufacturing sector is relatively small compared to the rest of the US, accounting for only 4% of employment and 5.8% of GDP. While Maryland has gained some jobs recently, they are not in traditional manufacturing industries. Manufacturing is important not just for jobs but for driving broader competitiveness through productivity gains, technology innovation, exports, and R&D spending. New disruptive technologies could transform manufacturing by changing economies of scale and democratizing innovation beyond just large firms. Policies to link small and medium firms to large firms and education, attract foreign investment, support exports, and provide access to technology could help revitalize US manufacturing ecosystems.
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McKinsey Global Institute MEDA presentation - Fall Conf 2014
- 1. McKinsey Global Institute MEDA 2014 Fall Conference October 2014 Advancing manufacturing in Maryland: What matters
- 2. 1 Maryland’s manufacturing base is diverse–but relatively small compared to the rest of the US SOURCE: US Census; Brookings Institution; McKinsey Global Institute analysis 8.2 12.4 4.0 5.8 Share of employment Share of GDP US MD Manufacturing in the US versus in Maryland Percent 692.0 -14.4 Ongoing recovery in the US vs. Maryland Thousands of jobs in manufacturing sector Salisbury High tech Aerospace Electrical goods Appliances Baltimore Diversified mfg Computers and electronic products Cumberland Resource-intensive Furniture Apparel Wood products Hagerstown Resource-intensive Leather goods Textile mills Beverages Washington DC Diversified mfg Biotech and life sciences Computers and electronic products Major manufacturing clusters in the state
- 3. 2 Maryland’s employment gains are not in traditional manufacturing industries SOURCE: US Cluster Mapping Project, Institute for Strategy and Competitiveness, HBS; McKinsey Global Institute analysis 0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0 7.5 -0.8 -0.7 -0.6 -0.5 -0.4 -0.3 -0.2 -0.1 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0 1.1 1.2 1.3 1.4 Change in employment since 1995 Percent Share of US employment Percent IT services Insurance Logistics Publishing Electrical equipment Biopharmaceuticals Apparel Fabricated metals Furniture Paper products Chemical products Automotive Upstream metals Plastics Construction products Food processing Aerospace Capital goods Communication equipment and services Hospitality Finance Education Business services Employment size in MD
- 4. 3 Manufacturing matters—but not just for jobs
- 5. 4 Manufacturing matters—but as a driver of competitiveness SOURCE: McKinsey Global Institute analysis of various US state, federal and European data sources Direct economic contributions Productivity gains are passed on to consumers as lower prices Technology innovation results in spillover effects Provides solutions to societal challenges such as reducing energy and resource consumption Indirect contributions Exports 70% 61% R&D spending 77% 67% Productivity growth 37% 30% 90% N/A 24% Value added 16% 12% 6% Employment 14% 8% 4% Value-added growth 20% 12% Employment growth -24% -22% 6% -16%
- 6. 5 0 5 10 15 20 25 30 35 40 0 5,000 10,000 15,000 20,000 25,000 30,000 Manufacturing employment % of total employment GDP per capita 1990 PPP-adjusted dollars United States United Kingdom Taiwan South Korea Mexico Japan India Germany Canada Brazil Employment follows inverted U-shape as an economy prospers SOURCE: McKinsey Global Institute analysis
- 7. 6 Local and regional demand matters
- 8. 7 US manufacturing employment trends SOURCE: US Bureau of Labor Statistics; McKinsey Global Institute analysis US manufacturing employment Million 12 11 15 13 9 14 16 17 10 18 20 19 2014 Sept 1980 1990 2000 2010 January -1.5 -0.5 -5.8 +0.7
- 9. 8 -3 -2 -1 0 1 2 3 4 5 6 7 Productivity Real value added 1980 85 90 95 2000 05 2010 US manufacturing value added and productivity growth 5-year moving average of annual growth, 1980–2010 Demand growth did not match productivity in the last decade SOURCE: US Bureau of Economic Analysis; US Bureau of Labor Statistics; McKinsey Global Institute analysis
- 10. 9 Four demand-driven industries are driving recent US job growth SOURCE: US Bureau of Labor Statistics; McKinsey Global Institute analysis Gross and net job gains in US manufacturing in the recovery Thousand jobs, Jan 2010 to Sep 2014 26 38 102 96 45 52 54 156 204 239 693 Net gains Electr- Other onics Printing, textiles Gross gains 853 Rubber Other and plastics Food, bever-age Primary metals Mach-inery Fabri-cated metals Autos, other transport 35% of 2010 employment 80% of new jobs since 2010
- 11. 10 105 100 95 90 85 80 75 70 65 60 55 50 0 14 51 58 63 68 73 80 1998 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 Diverse industries with very different employment trajectories SOURCE: US Bureau of Labor Statistics; McKinsey Global Institute analysis Manufacturing employment by industry group in the United States, 1998–2013 Index: 100 = January 1998 Energy-/resource-intensive commodities Labor-intensive tradables Global technologies Manufacturing overall Global innovation for local markets Regional processing
- 12. 11 Suppliers matter– not just large firms
- 13. 12 Net exports, 2012 Nominal $ billion -34 151 -246 -45 -195 -276 Total 1 -23 306 -27 -69 Health, education, and public services Services Knowledge-intensive manufacturing Capital-intensive manufacturing Labor-intensive manufacturing Primary resources -321 7 98 -104 -499 280 425 -133 207 -645 Advanced economies run a large trade surplus in knowledge-intensive manufacturing but the United States is an exception SOURCE: IHS Global Insight; McKinsey Global Institute analysis
- 14. 13 The US trade deficit in knowledge-intensive manufacturing has grown since the mid-1990s Net exports, 1980–2012 $ billion, real (2005) -150 -200 -250 -300 0 -100 150 -50 100 50 2000 Chemicals, including pharmaceuticals Medical, precision, and optical Non-automotive transport equipment 1980 85 90 95 05 10 2012 All knowledge-intensive manufacturing Motor vehicles, trailers, and parts Semiconductors and electronics Computers and office machinery Machinery, equipment, and appliances Electrical machinery -0.2 -0.6 -0.1 -0.7 Overall trade balance as a share of GDP -1.3 -2.0 -2.0 SOURCE: IHS Global Insight; McKinsey Global Institute analysis
- 15. 14 What’s coming next matters
- 16. 15 Innovation used to be (and still is) dominated by large firms SOURCE: Bureau of Economic Analysis; US Department of Commerce; NSF Science Resource Statistics, 2009; McKinsey Global Institute analysis All other 16 Govern-ment 10 Multinationals 74 Aggregate US R&D spend in manufacturing 100% = approximately $300 billion Larger capital requirements for manufacturing R&D than for software or Internet innovation Longer cycle times in hardware Limited access to advanced technology platforms Low VC activity in hardware vs. software and Internet solutions Small manufacturers embedded in supply chains of large firms Disadvantages for small firms in manufacturing innovation But new technologies disrupt the status quo
- 17. 16 Disruptive technologies can transform manufacturing SOURCE: McKinsey Global Institute Smarter, cheaper robots More flexibility in labor vs. automation Less scope for labor arbitrage Internet of Things New source of value—from “intelligence” Importance of software, services, solutions Additive manufacturing Faster to prototype, customize, go to market Shorter innovation cycles Advanced materials Opportunity to optimize design to value Ability to customize performance and products
- 18. 17 Transformative impact of technology in manufacturing Change in economies of scale—variety of scale options New source of value from information-driven intelligence Proliferation of product variants, faster response times, efficiency, and tailoring BOTTOM LINE: Democratization of innovation— not just large firms any more
- 19. 18 A new perspective on manufacturing: Next-shoring Proximity to demand Proximity to innovation SOURCE: McKinsey Global Institute Long-term competitiveness Healthy supplier ecosystem Local and regional demand Technology and innovation
- 20. 19 Five examples to revitalize manufacturing ecosystems SOURCE: “5 things the U.S. could do to revitalize manufacturing”, WSJ, June 6 2014; McKinsey Global Institute Productivity and Innovation Credit provides tax credits or payouts for investments in IP, automation and IT, R&D, workforce training Follow Singapore’s lead Link up SMEs with large firms and education providers to support workforce development, especially where firms don’t have scale Model Germany’s business links Help firms attract FDI, esp. from emerging economies looking to invest but that need help navigating the manufacturing landscape Tap new investors from China Support direct exports through online platforms, aggregation, and assistance with supply logistics, customs and market rules, etc. Consider the eBay and Alibaba model Create “technology access centers” to allow access to advanced technology platforms for R&D, prototyping and even basic learning Adopt Canada’s technology approach ILLUSTRATIVE
- 21. 20 @mckinsey_mgi Download these and our other reports at www.mckinsey.com/mgi Sree_Ramaswamy@mckinsey.com An economy that works: Job creation and America's future (June 2011) Disruptive technologies: Advances that will transform life, business, and the global economy (May 2013) Manufacturing the future: The next era of global growth and innovation (November 2012) Next-shoring: A CEO’s guide (January 2014)