The integration of new technologies, sophisticated co-production practices (manufacturing of a product in two or more countries), improved supply chain management and advances in worldwide financing—all spawned by globalization—has transformed American manufacturing.

In turn, resources have shifted to sectors with competitive advantages. And due to the American ability to adapt, innovation has flourished while productivity has skyrocketed. In fact, over the last 10 years, annual manufacturing productivity rose by 4.5 percent, much faster than the 2.7 percent annual growth in overall business productivity, according to the U.S. Department of Labor.

But many foreign manufacturers also are adapting to globalization and becoming formidable competitors. Plus, since globalization has empowered companies to source and sell anything anywhere, proximity has become less relevant. Globalization also has made it easier for foreign firms to pirate intellectual property and engage in unfair trade practices.

In order to sustain or achieve a global competitive advantage, U.S. manufacturers are focusing less on price and more on product design, branding strategies, productivity, flexibility, quality, and responsiveness to customer needs. In addition, they are concentrating more on core strengths and outsourcing non-core functions. Furthermore, many producers are more attentive to new designs and fresh applications while their current products are still profitable.

New Skills Demanded

To sustain this effort, workers are increasingly striving to obtain new skills while businesses are determined to achieve greater levels of specialization. Consequently, this has put a high premium on skilled labor, which, according to the National Association of Manufacturers, already is in short supply.

The drive for greater specialization is not without consequences. The previous shift from an agrarian society to an industrial economy compelled workers to leave farms in search of factory jobs. Workers were required to learn new skills. But the skills demanded today are far more sophisticated, and probably are creating even more fear and anxiety than before.

Most Manufacturing FDI Flows to High Wage Countries

Deloitte Research indicates 85 percent of U.S. manufacturing foreign direct investment went to developed countries in 2003. The reason: the most important determinants of capital flows are political stability, education and productivity levels, communications and transportation infrastructure, the rule of law, proximity to market and the ability to repatriate profits.

This is why foreign firms operate in the United States and according to the Organization for International Investment, employed 5.3 million Americans with a U.S. payroll of $318 billion in 2006.

American-based manufacturing output continues to rise while inflation-adjusted prices and the number of manufacturing jobs continues to fall. Thus, from 1979, the year of highest U.S. manufacturing employment, through 2006, the number of manufacturing jobs fell from 19.8 million to 14.1 million. Concurrently, the value of U.S. manufacturing shipments rose from $1.7 trillion to nearly $4.8 trillion.

This article appeared in April 2007. (CM)

John Manzella
About The Author John Manzella [Full Bio]
John Manzella, founder of the Manzella Report, is a world-recognized speaker, author of several books, and an international columnist on global business, trade policy, labor, and the latest economic trends. His valuable insight, analysis and strategic direction have been vital to many of the world's largest corporations, associations and universities preparing for the business, economic and political challenges ahead.

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