The Transition Towards Manufacturing Capabilities

The Transition Towards Manufacturing Capabilities

The manufacturing sector is also subject to transitions as economies develop and the share of manufacturing changes (A), so do their capabilities. This involves higher added-value and increasing complexity taking place (B) in three stages that characterized by different manufacturing concerns and policies:

  • Comparative advantages. In the earlier stages of economic development, the concerns are about which comparative advantages a country already has because of its factor endowments. Some may be permanent (e.g. resources), while others may be temporary (e.g. cheap labor). This stage tends to be a stage developing the national input factors and make them available to the global market.
  • Competitiveness. Later, the focus moves on improving national comparative advantages through strategies aiming at promoting them (standards, infrastructure, education, finance, etc.). For instance, investments in infrastructures such as ports, rail, and highways generally promote the competitiveness of the area they are taking place in. This stage tends to be efficiency-driven.
  • Capabilities. In an advanced stage, maintaining and improving competitiveness in light declining comparative advantages (e.g. global competition) becomes a priority. This stage tends to be innovation-driven since it is a key factor in creating value in manufacturing. This requires the convergence of corporate, government, and social interests aiming at developing capabilities that involve a flexible workforce and an array of supporting infrastructure (transport, utilities, telecommunication).

Developing capabilities are particularly relevant since, at some point in the economic development process, a nation is starting to lose its competitiveness since its input costs are getting higher, and the share of manufacturing starts to decline.