We need to take stock of our challenges and explore strategies to transform our enterprise in a way that leads us back to preeminence.
The Factors Challenging American Manufacturing
1. Economic Recessions
Since 1950, eight recessions have affected American manufacturing, resulting in an average decrease of real GDP of about 2% and a decline in manufacturing output by 7%. The manufacturing sector has lost 2.6 million jobs. According to 2004 projections by the Bureau of Labor Statistics, manufacturing employment will decline by 1% between 2002 and 2012.
2. Globalization of Markets
With increasing mobility of labor, capital, and resources, competitive advantages are no longer limited by geographic boundaries. The transfer of technologies and spread of knowledge have enabled developing countries to compete successfully with developed economies. Small nations are also emerging as ideal destinations for investments.
3. Declines in America's Share of Research and Development Spending
Research and development played a vital role in revolutionizing the products and processes of the last century and ensured the leadership of American manufacturers. Yet in the last 40 years, the intensity of U.S. research and development investments has not matched the surge in foreign research and development investments. American manufacturers face global competitors who are able to produce low-cost, high-quality, sophisticated products.
4. Growth of Outsourcing
Developing nations have made great endeavors to stabilize their political states and have created excellent infrastructures and environments for local and outside investments. These factors have stimulated the outsourcing of manufacturing functions to lower-cost alternatives outside America.
5. Changes in the Global Tariff Structure
Considerable reductions of tariff and non-tariff hurdles to trading manufactured goods internationally have brought many new players into the global market, making the competition more challenging for American manufacturers.
6. Rising Healthcare Costs
The costs of employee healthcare have risen immensely, eroding the competitiveness of American manufacturers.
7. Higher Regulatory Costs
American manufacturers have traditionally borne higher burdens with regard to regulatory costs in comparison to their global counterparts. However, even at local levels, they are overburdened, while costs continue to rise. According to Office of Management and Budget estimates, the cost of regulation imposed on American manufacturers over the last 10 years by the government has been $35 to $39 billion per year. According to a 2001 study, an American manufacturer bears a regulatory burden nearly six times higher than that of the average U.S. company.
8. Rising Energy Prices
An inability to contain energy prices and maintain energy supplies has seriously crippled production and investment, resulting in reduction of profits. In the last decade of the 20th century, America consumed 17% more energy than in the previous decade, while production in the same period rose by 4.9%.
American manufacturers, government officials, and regulators need to rethink, restrategize, and work cohesively to raise American manufacturing to a leadership position once again.