Manufacturing competitiveness is a key concern for the pharmaceutical industry. It is an issue that the industry is grappling with as many large pharmaceutical companies reconfigure their manufacturing networks amid company restructurings led by cost-savings initiatives, mergers and acquisitions, intensification in product development of biologics, and a greater strategic emphasis on emerging markets. In making decisions on manufacturing-facility rationalization and investment, pharmaceutical companies must consider not only their individual organizations’ strategies, but also broader factors in global manufacturing competitiveness. A recent analysis by Deloitte Consulting, The 2010 Global Manufacturing Index, offers perspectives from more than 400 senior manufacturing executives in various industries (including pharmaceuticals) on the drivers for manufacturing competitiveness and the countries which are the most competitive currently and which will be the most competitive in the near term (1).Drivers for manufacturing competitiveness
Overall, the classic elements of production—labor, materials, and energy—are the most important factors of global manufacturing competitiveness, according to the Deloitte report. Talent-driven innovation was ranked as the number-one driver for achieving global manufacturing competitiveness, followed by costs of labor and materials and energy costs and policies.
The next four drivers may be classified as “contributory” factors, or issues in which governments play a role in providing. The report identified four crucial factors: economic, trade, financial and tax systems; quality of physical infrastructure; government investment in manufacturing and innovation; and the legal and regulatory system. The final three factors relate to the local manufacturing network: suppliers, local business dynamics, and quality and availability of healthcare (1).
Given these factors, the report evaluated the relative competitiveness of four major regions—the United States and Canada, Mexico and South America, Europe, and Asia—based on feedback from executives in those regions. Talent-driven innovation was ranked as the top driver of manufacturing competitiveness in the United States and Canada, Europe, and Asia, although it ranked second in Mexico and South America, where executives ranked quality of physical infrastructure as the most important factor in manufacturing competitiveness (1).
Cost-related drivers also were ranked differently according to regions. Costs of labors and materials were ranked second by US and Canadian executives, but were placed fifth in importance by executives from Mexico and South America and Asia and fourth by executives in Europe. European executives ranked energy costs and policies as the second most important consideration in manufacturing competitiveness. US and Canadian executives ranked this factor fourth, executives from Mexico and South America third, and Asian executives fifth (1).
The rankings from each region are provided are as follows: (1)
Evaluating the numbers
China’s position as the number-one country in global manufacturing competitiveness is based on several factors. A highly skilled labor force, which includes scientists, researchers, and engineers, contributes to the company’s talent-driven innovation, a crucial factor for competitiveness cited by executives. The country also benefits from a low-cost labor force. The report concluded that the country’s ascent has occurred as it moves from a regional hub for foreign outsourced production to include technological-based value-added production. A similar situation is occurring in India, currently ranked second in the GMCI and second five years from now. The report cited the movement by India from a focus on low-cost back-office operations to a role as a fuller participant in research-driven and innovative product development and services as a key reason for its competitiveness. Led principally by its auto industry, Korea gained favorable marks as well. The report cited the vertical integration of many of its manufacturing companies to enhance those companies’ positions in the production value chain and a supportive industrial policy by the Korean government for infrastructure development, including industrial parks, ports, and transportation systems (1).
Although the report cited concerns over the erosion of US manufacturing competitiveness, it noted some positive signs. The US is currently ranked fourth in global manufacturing competitiveness, but that position is projected to slip one spot to number five in looking at the GMCI five years from now. The US is the largest manufacturing economy in the world, accounting for 20% of the world’s manufactured outputs, followed by China with 12%. Estimates suggest that technological advancements account for as much as 85% of US growth in per capita income. The country’s position, however, is hurt by increased levels of manufacturing outsourcing, offshoring of research and development, offshoring of customer-support functions, and increased complexity in managing longer supply chains (1).
One country to watch in particular is Russia, which ranked 20th in the current GMCI and 14th in the GMCI five years from now. Russia’s gain is largely based on perspectives from executives from China and the increased trade and cooperation between the countries in mineral and oil resources, raw materials for the aviation and other high-technology sectors, and other cross-border business. Russia also benefits from investment from countries in the European Union, which is Russia’s third-leading trading partner (1).
The global manufacturing competitiveness of Western Europe, however, as a whole is declining, according to the report. Although Germany retained the number-eight position in the current GMCI and five years from now, other Western European countries fell in the rankings. Switzerland (from 14th to 18th), The Netherlands (from 16th to 17th), the United Kingdom (17th to 20th), Ireland (18th to 21st), Italy (21st to 22nd), and Belgium (24th to 26th) are projected to decline in competitiveness. On a positive note, France will retain its ranking of 23rd in the current GMCI and in the GMCI five years from now, and Spain will move from 19th to 16th.
Part of the reason for the relative ascending and declining positions of China and Europe, for example, related to government policy. Sixty-nine percent of respondents cited government policy to foster technology, science, and innovation as an advantage in China, but only 43% did so in Europe (1). In China, the report pointed to key investment and priority by the Chinese government in investing in science, technology, and innovation. China’s entire investment in research and development is expected to reach 2.5% of its gross domestic product by 2020, but science and technology will contribute more than 60% to the country’s development. The country’s reliance on foreign technology is expected to drop to 30% or below, and the country is expected to rank among the top five countries in the world in terms of the number of patents granted to Chinese nationals and academics (1).
On the positive side, through the Seventh Framework Program, the European Commission is providing EUR 521 million ($686 million) between 2007 and 2013 to foster science and technology development. It also has initiated programs for patent reform, allocated EUR 5.5 billion ($7.2 billion) for more than 3000 projects in green innovation, and is supporting specific programs to enhance competitiveness in communication technologies (1).
In the US, government policy toward science and technology investment was considered a “neutral” policy as neither facilitating nor hurting competitiveness, according to the Deloitte report (1). Instead, respondents cited intellectual-property protection (75% of respondents cited) and technology transfer and adoption (61% cited as such) as the two main competitive advantages that US government policy offers manufacturing companies.