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December 15, 2012

6 things to know about the future of manufacturing

(Continued)

Moreover, more than one-third of manufacturing sector employees work in service-type jobs, such as design, marketing and office support. In globally traded high-tech industries such as semiconductor manufacturing, the number is more than half. If all the service jobs created by manufacturing outsourcing are counted, manufacturing employs more service workers in the United States (9 million) than production workers (7 million). Meanwhile, some service industries are beginning to resemble manufacturing in the way they compete globally and contribute to exports.

4. Manufacturing is diverse

A full understanding of manufacturing means knowing the subsectors. Manufacturing is not monolithic, and one-size-fits-all approaches -- by manufacturing leaders and by nations -- are not likely to succeed. We break manufacturing into five broad categories based on how labor, capital or research and development (R&D) intensive they are, and how dependent they are on low-cost transportation or high-skill talent. The five categories vary considerably in sources of competitive advantage and necessary conditions for success.

The largest group, which accounts for 34 percent of manufacturing value added, we call "global innovation for local markets." It consists of industries, such as automotive and pharmaceutical manufacturing, in which companies compete by introducing a steady stream of new products, features, and models, but also must operate in or near end markets, often because of governmental regulations (e.g., drug safety standards).

The next biggest group, "regional processing," is closely tied to local markets. Food companies, for example, need to cater to local tastes and ensure freshness. Only two of the groups are heavily traded: "labor-intensive tradeables" (apparel and toys, for example) and "global technologies," which includes electronics, a high-tech industry that relies on low-cost assembly. The difference in subsector performance can be stunning. Advanced economies, for example, run a surplus of $726 billion in goods from the "global innovation for local markets" group and a $342 billion deficit in "labor-intensive tradeables."

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