Global Manufacturing, 2015

Global Manufacturing 2015

Source: United Nations Statistical Division.

There is little evidence behind the optimal share of GDP manufacturing should have, implying that a high share is not necessarily associated with high development levels. While manufacturing accounted for about 26.7% of the global economic output in 1970, this share decreased to around 16.5% in 2015. Meanwhile, the level of manufacturing output increased substantially, as well as the level of economic development. Still, a low relative share of manufacturing is associated with economic development problems. Countries with a share of less than 8-10% are generally underdeveloped as such figures are associated with limited economic diversity and capabilities to generate added value. Countries with high growth and productivity levels tend to have a higher share of their GDP in manufacturing than the average.

The global manufacturing landscape is complex, with multinational production networks and different levels of integration into these networks. It is composed of three main groups:

  • Developed Economies. Manufacturing remains focused on the economic triad (North America, Western Europe, and Japan), being the entities able to successfully undertake industrialization based on mass production in the first half of the 20th century. They saw the emergence of large manufacturing firms that were among the firsts in the post-WWII setting to benefit from the liberalization of trade by exporting their surpluses. This was also associated with the setting of social contracts (labor relations) that defined the nature of the respective manufacturing system (e.g. Japanese lifetime employment system or the German model focusing on higher added value). The industrial preeminence of developed economies and their manufacturing models were challenged by outsourcing and offshoring in emerging economies. Still, these forces are implemented by their manufacturing firms that have successfully captured a large share of the resulting added value (e.g. repatriation of profits by multinationals). While gains in manufacturing output remained significant for the United States, Western Europe, and Japan, some countries experienced an absolute decline in their manufacturing output (e.g. United Kingdom, Hong Kong, Luxemburg, Finland, Iceland). The challenge for the manufacturing sector of developed economies involves keeping a balance between the forces of offshoring, their disruptive impacts on national labor markets, and the development of new added-value manufacturing activities.
  • Emerging Economies: Represent economies that were able to substantially benefit from the convergence of trade liberalization and offshoring by becoming the recipient of manufacturing investments from foreign firms as well as emerging domestic firms. This includes the periphery of Western Europe (Eastern Europe, North Africa, Turkey), East and Southeast Asia (South Korea and Taiwan being the early adopters), and parts of South Asia (India) and Latin America (Mexico, Brazil, Argentina, Peru). They have experienced significant gains in their manufacturing output, with China accounting for the world’s largest net gain between 2005 and 2010 (967 billion current USD). The model adopted generally follows the export-oriented paradigm, often leading to distortions in the national allocation of infrastructure and labor as well as the value of the national currency. This created pressures to mobilize labor and provide infrastructure investments to accommodate a growing level of integration into global supply chains. The challenge for the manufacturing sector concerns the extent to which emerging economies effectively capture the added value and develop capabilities to fulfill a growing domestic demand as labor costs increase and social contracts become more complex.
  • Early Developing Economies. The share of manufacturing in these economies remains relatively low (commonly less than 10%) and concerns punctual developments linked to specific local resources (e.g. energy, food, mining). These specific capabilities are often controlled by multinational interests. Among the common factors behind the lack of integration into global manufacturing networks are political instability, heavy regulatory burden, lack of resources, poor transport infrastructure, small domestic markets, and low accessibility levels to the global transport system (e.g. landlocked countries). The challenge mostly focuses on the development of regulatory and infrastructure capabilities that are comparable to more advanced economies, which is often difficult to implement in a comprehensive manner.