4/22/2014

MVS 4A11
Emerging Trends in
Advanced Manufacturing with
Focus on Competitiveness
GROTE K.T
201004071
UNIVERSITY OF JOHANNESBURG












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DECLARATION
I Klaus Thomas Grote hereby declare that this Assignment is wholly my own work and has not
been submitted anywhere else for academic credit either by myself of another person.
I understand what plagiarism implies and declares that this assignment is my own ideas, words,
phrases, arguments, graphics, figures, results and organization except where reference is explicitly
made to anothers work.
I understand further that any unethical academic behaviour, which includes plagiarism, is seen in
a serious light by the University of Johannesburg and is punishable by disciplinary action.

Signed Date 22/04/2014


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ABSTRACT
This document is directed at the discussion of globalization in the context of competitiveness. It is
shown that there are several key factors that influence a manufacturing companys level of success,
some of which are market size, access to skilled workforce, ease of doing business in that region,
utilization of advanced manufacturing technologies, and the list goals on. The paper also highlights
those factors that are commonly related to manufacturing competitiveness and success on a global
level and pervade across all manufacturing industries, ranging from industries like electronics, to
automotive and even pharmaceutics.


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1 INTRODUCTION

This review aims to address trends in advanced manufacturing in the context of competitiveness.
In order to tighten the definition of this statement and narrow the range of discussion a definition
of what a trend is as well as what is meant by advanced manufacturing are provided. The term
trend refers to the general direction in which something is changing or developing and a trend
analysis refers to the analysis of those changes over time [1]. Equally important is the definition
of advanced manufacturing taken from [2] whose definition is derived from peer reviewed
literature (sources such as [3], [4], [5], [6] and [7] ) and industry press that was published between
1990 up to 2011. Advanced manufacturing in the context of this document improves current
materials, products and processes and/or creates completely new ones through utilizing science,
information technology, engineering, tools and methods of high-precision, high performance
worker force and novel organizational and business models. Thus this document will highlight the
way in which advanced manufacturing has changed and will change over time, and will also
include those factors that drive this change where these changes are all amalgamated by the need
to remain competitive.

Countries such as Japan, Germany, Korea, UK and USA have been well established manufacturing
leaders for the past few decades, under the guidance of a few common goals directed at
strengthening their manufacturing base and spotting opportunities to exploit emerging
technologies which pop up either locally or across borders. Interestingly enough countries such as
China and Brazil who have rapidly accelerated in the domain of manufacturing indicate similarly
aligned goals with those long established manufacturing leaders mentioned and so one needs to
wonder whether or not some basic trends exist that dictate the trajectory of growth in advanced
manufacturing. In addition, how valuable is the identification of these trends and to what degree
will they influence ones competitive edge?
Advanced manufacturing from the perspective of government is of ineffable importance,
especially in light of the detrimental economic effects that followed from the recent financial crisis
in 2008, and for the aforementioned countries it is even seen as a matter of national security. This
is why the maintenance of technological superiority is vital and competitiveness in the global
manufacturing sphere is fierce. A booming manufacturing sector is not only reflective of a growing
or stabilizing economy, but it also provides a great platform for job creation, exports and further
skills development [2]
Regardless of whether the drivers are job creation, national security, sparking innovative solutions
or creative ideas or maintaining a competitive edge - one fact remains clear and that is many
countries are prioritizing the development of policies, technological infrastructure and a national
culture that promotes manufacturing and associated manufacturing advances.


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2 CRITICAL REVIEW OF LITERATURE

2.1 Introduction

To maintain a competitive edge in manufacturing it is crucial for manufacturing firms to ensure
that they are located in such a way as to take full advantage of their environment and market. This
is crucial especially in countries looking to develop an advanced manufacturing sector and attract
the foreign investment necessary for further development of advanced manufacturing sectors.
Finding the ideal geographic location can likely ensure minimized costs in bringing products to
market and thus maximization of revenues in markets both locally and globally. Other factors that
strongly influence competitiveness of manufacturing firms are skilled workforce, national
educational level, available technology, and governmental policies influencing the ease with which
business may be done.

2.2 The Role of Location Factors

Making the decision to set up base in a specific region/regions requires complex decision making.
These decisions are influenced by a number of factors called "location factors", developed to
identify different facets of what makes a region (or country for that matter) a desirable location for
production. Essentially the essence of these location factors is driven by production cost
minimization, market and marketing potential [8].
To the misfortune of any prospective manufacturer there does not exist a list of enumerated
location factors due to the fact that different factors are evaluated differently from the vantage of
different modelers, however [2] has compiled a list of commensurable location factors from
several data sources regarding the economic comparativeness for investment in advanced
manufacturing sectors. This of course is a major driver of manufacturing competitiveness as a
whole because a monetary influx provides a means of acquiring the physical, technological and
people resources necessary to compete in todays advanced manufacturing environment.
Corroboration of the statement made vis--vis the contextual value of location factors being at the
discretion of the modeler can be emphasized by making reference to the competitive indices
generated by different studies. Table 2.1 below indicates such instances.






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Table 2-1: Location factors from reports on competitiveness for manufacturing [9], [10].
Category

UNCTAD World
Investment
Prospects Survey
(UNCTAD
2009)

Deloitte Manufacturing
Competitiveness Index
(Deloitte Council on
Competitiveness 2010)
World Economic
Form Global
Competitiveness Index
(WEF 2011)
Factor
Group/Sample
Size

241 400 13 400
Market Size and
Growth

Size of local market
Market growth

-- -Market size
-Macroeconomic
environment
Regional
Market/Trade
Regional market
access
-- Goods market efficiency
Labor Force Issues
labor
Availability of
skilled
Talent-driven innovation Higher education and
training
Business
Environment
and Governance

-Stable and business
friendly
environment
-Government
effectiveness

-Legal and regulatory
system
-Quality and availability
of
health care
-Economic, trade,
financial, and
tax systems

-Goods market efficiency
-Health and primary
education
Institutions
Access to Capital and
Direct Incentives

-Incentives
-Access to capital

-- Financial market
development
Labor Costs Cost of labor Cost of labor and
materials
Labor market efficiency
Natural Resources

Access to natural
resources
-Cost of labor and
materials
-Energy cost and policies
--
Infrastructure
Quality
Quality of
infrastructure
Quality of physical
infrastructure

Infrastructure
Support for Research
and Innovation


-- Government investments
in
manufacturing/innovation

Innovation
Technological readiness

Reviewing the table makes apparent that Deloitte Manufacturing Competitiveness index does not
consider market size as a location factor which is contrary to the position information provided by

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the UNCTAD World Investment Prospects Survey (WIPS) and that of the World Economic Global
Comparativeness Index. Furthermore location factors also differ in importance when moving from
sector to sector. An example of this is demonstrated by considering how the Global
Competitiveness Index focuses on wide range economic competitiveness, whilst there are those
that attend to component sectors of manufacturing or those making up the components of
component sectors of manufacturing. In addition, studies have shown that there are certain factors
that influence the success of advanced manufacturing companies and while there exists a general
trend, factors such as industry type may potentially influence the value of these factors to some
degree.

The WIPS survey, in analyzing general manufacturing, electrical and electronics equipment,
automobiles and pharmaceuticals spheres concluded that those location factors which exude the
greatest gravity for manufacturing industries are market growth and size, skilled labor force and
reduced volatility regarding performance of manufacturing business sectors [9]. In addition it
should be restated that there are indeed differences in each of the subsectors attributable to their
industrial individualities. An example would be a comparison of company response to market
growth in electrical versus automobiles manufacturing sectors, while electrical and electronics
shows close to 20% allocation of company responses, the automobiles industry sits at
approximately 12% company response as indicated in figure 2.1 below.

Figure 2.1: Relative importance of different location factors for different manufacturing industries [2]

A study conducted in 2009 by the OECD further bolstered this information with its findings
drawing a correlation for medium to high-technology manufacturing industries indicating a
proportionality between their success and market size, agglomeration and level of skilled labor.
The influence of ease of conducting business due to government influences (policy and regulations

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for example) was also positively correlated, however to a sub-par degree and so in other words,
market size is indeed an important factor when competing in advanced manufacturing as it
indicates a manufactures success and furthermore, potential for success [11].
In general complex decision making finds impetus at different intensities based on the stimuli or
driver involved. These drivers have been quantitatively ranked in terms general importance,
highlighting the potential influence of certain aspects in making decisions that will lead to the
ability of a manufacturer to place at the vanguard of competitive manufacturing. DMCI, in an
attempt to address the value of drivers involved in complex decision making managed to garner
the information in Table 2.2 below.

Table 2-2: General importance of location factors in manufacturing [11]
Driver Score [110]
Talent-driven innovation

9.22
Cost of labor and materials

7.67
Energy costs

7.31
Economic, trade, financial, and tax systems

7.26
Infrastructure quality

7.15
Investment in manufacturing and
innovation

6.62
Legal and regulatory system

6.48
Supplier network

5.91
Local business dynamics

4.01
Health care 1.81

It concludes talent-driven innovation as the most valuable, trailed by cost of labor materials, energy
costs, economic, trade, financial and tax systems. Healthcare ranked last and importance ascended
measured on a scale from 1-10.
To conclude, while it appears that the relevance or value of many location factors are left up to the
discernment of the modeler, there still exists a handful of factors that are truly correlated to the
success and competitiveness of manufacturers across broad industries of advanced manufacturing.
The fact that these commonalities exist allude to the existence of competitive trends in
manufacturing that are vital for company success and expansion. These factors are explored in
more detail in the following sections and fall under one of two classifications, namely, those

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location factors that are not easily influenced by government policies and encapsulate a wide span
of market considerations and secondly those that are readily susceptible to policy choices. In
addition, the role advanced manufacturing technologies (AMT) play in influencing manufacturing
competitiveness is also considered.

2.3 Wide Span Market Considerations
2.3.1 Market Growth and Size

A countries economic competitiveness can partly be deduced from the market size and growth
exhibited by that country. High population concentrations are seen as being attractive to investors
because of the large potential customer base and this can be seen from countries such as Brazil and
China who have used this fact as an asset in attracting potential investors [10]. Situating production
near to the population concentrations not only ensures a large potential market to sell to but cuts
transportation costs, logistical costs, and allows for the consumer to experience greater ease of
access to products. These aforementioned factors combine to increase market growth and size of
an advanced manufacturing firm, which are directly correlated to the competitiveness and success
experienced by the firm.

2.3.2 Eaves Dropping and Pre-established Network Structures

The old proverb, keep your friends close, and your enemies even closer appears to be practiced
by many firms who seem to agglomerate in the same regions and countries in the hope of being
exposed to knowledge spillovers that may be the result of suppliers working closely with
universities and research centers or information carried by workers who have changed firms. In
addition, the phenomenon of agglomeration may be driven by the fact that competitive firms are
likely to be attracted to regions where supply networks structures as well as specialized services
support structures have already been established [2]. In a similar fashion to gravity, the greater the
density of competing firms, the more other firms experience an attractive force towards that region.
The evidence for the gravitational analogy is presented in how do firms agglomerate? [12].

2.3.3 Cost of Labor

Oftentimes labor costs are indeed significant drivers of competitiveness for a manufacturing firm,
however this is not always the case. Advanced manufacturing companies tend to be R&D
orientated high-technology industries and are not innately labor intensive, particularly during
production phases. Labor is reduced through implementation of lean production methods and
reliance on automation. Furthermore, the importance of labor costs may not rank as high as say
the potential for market growth or size or any other factors for that matter. This is observed when
considering the average compensation in the Japan compared with that of Germany which are
$30.36 and $46.52 respectively, however Germany still ranks three places higher than Japan on
the Global Competitive index provided in the global competitiveness index [10]. Thus while

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labor costs are important in many instances, importance of labor costs still needs to be
contextualized before jumping to any conclusions.
2.4 Location Factors Readily Susceptible to Government Policy

2.4.1 Education and Skill Development

Among the most important components for the progression of advanced manufacturing are
workforce skills and education. A survey conducted by Deloitte Council on Competitiveness in
2010 indicated that the top ranked factor for competitiveness in manufacturing is access to high
quality labor. This labor also includes engineers and scientists. There is still uncertainty about
which skill set is best or optimally suited for manufacturing and innovation, albeit the general
consensus that countries with higher academic standards produce workforces are bent towards
producing creative and novel solutions in advanced manufacturing.

One of the primary reasons for why China has become the manufacturing giant that it currently is
can be attributed to the emphasis it has placed and will continue to place on education in ensuing
years. Starting in 2008, China ranked highest on charts of degrees awarded in the sciences and
engineering which as stated before is indicative of a nations or firms proclivity to innovatively
engage in the field of advanced manufacturing. Furthermore, by considering the figure 2.2 below,
it can be seen that there exists a clearly defined correlation between a countries skill or educational
level and readiness to compete in advanced manufacturing industries.


Figure 2.2: Comparison of Educational Level to Manufacturing Output Level in Advanced Manufacturing Industries [13]

If the manufacturing progress of china is tracked while tracking educational development in the
country, it becomes noticeably evident that as the educational level of the general populous rises

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so does access to skilled workers and therefore the result is an increased national manufacturing
output. The impact of a highly educated workforce is therefore seen to lead to spurring economic
growth and being a major factor for effectively competing in the advanced manufacturing sectors
of todays market.

2.4.2 I nfluence of Governance in Attracting Business

The quality of a locations governance has the potential to influence the perspective of prospective
investors in that government policies influence the ease with which business may be conducted.
Typically, factors considered are the cost of doing business and the degree to which intellectual
property (IP) may be guarded.

The Global Competitiveness Index (GCI) is among the most informative surveys on business
competitiveness and ranks the competitiveness of different countries on judicial independence,
corruption, protection of physical rights, effectiveness of monopoly regulation, hiring and firing
methods, corporate tax rate and their ability to protect IP rights [10]. The aforementioned are all
viewed by potential investors as being obstacles attached to developing manufacturing goods at
low costs. Figure 2.3 describes the average response to some of these factors by nine of the top
ranking countries in Deloittes 2013 Global Competitive Index ranking.


Figure 2.3: Country Respective Ranking of Factors Influencing Ease of Conducting Business [11]

Oftentimes the performance of developed nations regarding the ease with which business is done
raises some ambivalence in that even though protection of intellectual property is high,
environmental and labor regulations are stringent and act counter to the ease with which business
is done. Similarly, developing nations also pose some pros and cons. Those alluring factors worthy
of mention comprise the less stringent nature of both environmental and labor regulations. Sadly,
developing nations do however show a tendency to exhibit higher levels of corruption and there is

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greater difficulty in starting new businesses, hence the experience of diminished foreign interest
and lower scores in terms of ease of doing business.

It is important to highlight that countries in which governance protects intellectual property are far
more attractive to investors looking to invest in highly innovative sectors such as those of advanced
manufacturing. Protection of intellectual property is in fact one of the most important factors
considered in advanced manufacturing and not having the necessary structures in place to protect
such information often acts as a barrier for foreign investment. Modern manufacturing firms will
likely seek to optimize the relationship between protection of IP and degree of environmental
regulation (tax rates, minimization of corruption and the other factors should and most likely will
be considered too) to ensure the best competitive advantage.

2.5 Advanced Manufacturing Technologies in Manufacturing Competitiveness

Achieving success in the dynamic and globally competitive manufacturing market of today
requires the compulsory action of formulating strategic plans consistent with an organizations use
and investment of manufacturing technologies. In fact [14] hypothesizes that A firms level of
Advanced Manufacturing Technology (AMT) has a positive effect on its Competitive Capabilities
(CC), where AMT is defined as the utilization and implementation of computer-enhanced applied
science to the production systems of a firm.

According to [15] AMT allows for the production of highly varied product ranges thus resulting
in the penetration of economies of scope. This essentially implies that a firm possessing such
technologies will have the advantage of producing a wider range of products, ultimately allowing
for the catering of a greater market size, which as was stated early, behaves as a proxy for the
competitiveness and hence success of a manufacturing firm. Of equal importance is the fact AMT
directed investment provides a means for rapid adaptation to market demands and short product
life-cycles. This rapid response is attributable to the design of customized high quality products.
As a result of this increased adaptability, management is provided with the freedom to develop
and implement quick response strategies, effectively increasing their competitive edge in the
global market.

This increased flexibility inherent in the application of AMT leads to increased delivery
capabilities and market potential while simultaneously reducing product production cost. It is no
wonder why firms with high levels of AMT display high levels of competitive capacity and
elevated performance and customer satisfaction.


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3 CONCLUSION

Global competition (the birth child of globalization) in advanced manufacturing has resulted in a
rampant marathon towards the achievement of the agile state of advanced manufacturing, where
advanced manufacturing refers to the type of manufacturing achieved after the coalescence of
optimized location and smart technological manufacturing strategies. Countries that have been
long standing leaders in the global manufacturing industry are now being challenged by nations
who have realized the potential of advanced manufacturing strategies and technologies. As a result,
countries who once relied on low-wage pay and subsidies to raise their competitiveness are now
placing their eggs in advanced manufacturing infrastructure, and workforce improvement.

Factors possessing great bearing on a manufacturers competitiveness capacity as highlighted in
text included government policies, infrastructural development, tort and reforms regulation, level
of corruption, trade policy, tax rates development of skilled workforce and clever utilization of
advanced manufacturing technologies to increase flexibility, adaptability, market change response
times and overall product quality and appeal. By revising tax rates and creating favorable policies,
foreign investment is attracted and provides the monetary resources to incentivize workforces to
develop improved skills as well as additionally setting a platform for research and development of
advanced manufacturing technologies that provide increased flexibility and thus greater
competitive capacity.

All in all, contemporary manufacturing firms have realized that the advantage has changed its
residency from the notion of finding the cheapest labor and implementing incremental
improvements to processes of a more evolved state dependent on radical step-wise change that
prioritizes the integration of information, human innovation and technology. The benefit of this
paradigm shift pervades in the increased productivity, cost efficacy and environmental
sustainability that has come to be known as synonymous with advanced manufacturing.


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