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 / Spring 2014 / Issue 74(originally published by Booz & Company)


America’s Real Manufacturing Advantage

The changes under way will increase productivity, efficiency and innovation, speed-to-market, and flexibility, which will in turn lead to a powerful new cycle of growth and value creation: an era of virtual-to-real manufacturing. As a result, the trade-off between efficiency and customization—which has constrained manufacturing since the Industrial Revolution began—will no longer be nearly as important, and manufacturers will gain new abilities to create and maintain products that more specifically fit what people want and need.

The advanced manufacturing facilities of today and tomorrow are clean and replete with robots, computers, lasers, and other ultramodern machine technologies. The most common tool a production worker carries at the newest auto plants in the Carolinas, Michigan, and Tennessee is not a wrench or screwdriver. It’s an iPad. The next chapter is about to be written in the history of industry. Among manufacturers, competitive advantage will flow to those that can adapt most quickly in this changing environment.

With a proven track record in innovation, software development, and university education, the United States is poised to reassert the manufacturing leadership it has been ceding to competing countries in recent decades. And the economic stakes for doing so are high. If the opportunity is seized aggressively, it will provide increasing numbers of skilled, well-paid jobs that can support the middle class in the 21st century. Beyond job creation, manufacturing plays a vital role in promoting innovation and long-term competitiveness. Every dollar generated by manufacturing supports US$1.48 of additional economic activity, according to the Manufacturing Institute, compared with $0.54 for retailing. And although manufacturing accounts for 12 percent of U.S. GDP, it provides nearly 70 percent of private-sector R&D and 90 percent of patents issued. If the U.S. can recharge its manufacturing prowess, it will accelerate its own economic growth—and that, in itself, could be an engine promoting growth around the world.

But whether the U.S. can seize the opportunity is not certain. Competitive advantage in the 21st century will be influenced by factors such as cheap energy and wage rates—but it will be decided by the ability of countries and regions to enable advanced design and manufacturing. Action is needed now to reinforce the innovation culture in the U.S., to nurture the kinds of institutions that can support a vibrant manufacturing industry, and to build new types of educational support, including the apprenticeships and other experience-based programs that will help the U.S. workforce.

Competitive advantage in the 21st century will be influenced by factors such as cheap energy and wage rates—but it will be decided by the ability of countries and regions to enable advanced design and manufacturing.

Deconstructing the Renaissance

Although some aspects of the new manufacturing renaissance have been gaining force for several years, their impact is just now being noticed. They include renewed investment in U.S. manufacturing plants and equipment, and some re-shoring of production jobs from Asia and other places. Much of this activity, however, reflects renewed competitive advantage that may not continue to increase at its recent rate as the underlying trends change.

The most visible of these trends has been the availability of inexpensive shale-based oil and natural gas in the United States. By lowering energy prices and broadening access to the supply of gas, this has created a competitive advantage for the country as a manufacturing location. By late 2013, natural gas was selling in the U.S. at roughly a third the price it commanded in Europe, and at a quarter of the price in Asia. This makes the U.S. particularly attractive for manufacturers in energy-intensive industries such as chemicals and fertilizer, steel and aluminum, and plastics. For well over a decade, there had been little U.S. investment in these businesses; some seemed in danger of departing altogether. Now, as a result of new energy supplies, some $100 billion of investment is flowing into energy-intensive manufacturing industries in the U.S., with more than 100 new plants planned or under construction.

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  1. Robert D. Atkinson and Stephen J. Ezell, Innovation Economics: The Race for Global Advantage (Yale University Press, 2012): Why the U.S. needs a coherent innovation policy to remain competitive, from two officers of the Information Technology and Innovation Forum.
  2. Peter Cappelli, Why Good People Can’t Get Jobs: The Skills Gap and What Companies Can Do About It (Wharton Digital Press, 2012): The director of Wharton’s Center for Human Resources makes a case for changing the way talent is developed, recruited, and retained.
  3. Kaj Grichnik and Conrad Winkler, Make or Break: How Manufacturers Can Leap from Decline to Revitalization (McGraw-Hill, 2008): Former Booz & Company consultants show how top companies are reinventing themselves to compete in a new world.
  4. Andrew N. Liveris, Make It in America: The Case for Re-inventing the Economy (Wiley, 2011): The chairman and CEO of Dow Chemical makes the case for manufacturing in the United States.
  5. Gary P. Pisano and Willy C. Shih, Producing Prosperity: Why America Needs a Manufacturing Renaissance (Harvard Business Press, 2012): Two professors at Harvard Business School show why manufacturing really matters in an innovation-driven economy.
  6. Harold L. Sirkin, Justin Rose, and Michael Zinser, The US Manufacturing Renaissance: How Shifting Global Economics Are Creating an American Comeback (Knowledge@Wharton, 2012): Analysis and recommendations for U.S. manufacturing from the Boston Consulting Group.
  7. Vaclav Smil, Made in the USA: The Rise and Retreat of American Manufacturing (MIT Press, 2013): An authoritative history of U.S. manufacturing by a noted business historian and author.
  8. Gene Sperling, “The Case for a Manufacturing Renaissance,” speech delivered at the Brookings Institution, July 2013: The director of the National Economic Council discusses U.S. competitiveness in advanced manufacturing.
  9. For more thought leadership on this topic, see the s+b website at:
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