MANUFACTURING
MEGATRENDS
LEADING MANUFACTURING INTO THE FUTURE Manufacturing’s leaders are facing unprecedented global complexity, and the sector is now powered by software and data every bit as much as by steel and electricity. The ability to access insights about how to survive and thrive has never been more critical. Every day, hundreds of senior executives rely on MAPI for solutions to their toughest challenges, which often don’t fit neatly into an organization chart. These are the big-picture issues, or megatrends, that are dramatically reshaping our industry and that MAPI is uniquely positioned to help its members navigate. We’re pleased to present a selection of insights from MAPI’s council program, our foundation, and other organizations leading manufacturing into the future. This is the exceptional power of MAPI—bringing together manufacturing executives for rich dialogue and offering cutting-edge thought leadership and economic forecasts. We’re confident that being part of MAPI’s powerful network will help you take your organization into manufacturing’s future.
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INSIDE:
MANUFACTURING MEGATRENDS Recent shifts in technologies, demographics, and markets have created a new normal for manufacturers. Those that adapt quickly will emerge more innovative and agile than their competitors. Five disruptive changes set the stage for the future of manufacturing:
INFORMATION IS THE NEW CURRENCY
THE NEW WORKFORCE
GLOBALIZED ECONOMIC RISKS & OPPORTUNITIES
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REGULATORY LABYRINTHS
TECHNOLOGY’S PROMISE & PERIL
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Information is the New Currency Thanks to unparalleled access to information on pricing and profitability, customers have never been better informed on the total cost of ownership. To succeed, manufacturers need to create new forms of value and arm themselves with data showing the superiority of their solutions.
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A typical B2B buyer is more than halfway (57%) through the purchase process before contacting sales.
35%
A total cost of ownership approach pays dividends: industrials that measure and buy based on TCO are 35% more profitable.
60% of industrial manufacturers don’t have a well-articulated formal pricing strategy.
60%
Top-performing companies are eight times more likely to take a value-based approach toward pricing.
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The New Workforce Labor markets are transforming—the manufacturing workforce is aging, it’s harder than ever before to attract talent, and women and minorities make up an increasingly large share of the workforce. What are manufacturers doing to foster inclusive environments and attract and retain the next generation of talent?
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WORKING-AGE POPULATION
1980
2020
82%
63% WHITE
1980
18%
2020
37% MINORITY
1980
6%
2020
17%
HISPANIC/LATINO
From 1980 to 2020, the U.S. white working-age population is projected to decline from 82% to 63%. During the same period, the minority portion of the workforce is projected to double (from 18% to 37%) and the Hispanic/Latino portion is projected to almost triple (from 6% to 17%).
15%
Data show that diversity pays off. Companies with gender-diverse management teams outperform peers’ EBITDA by 15%. And companies with ethnically diverse management teams outperform peers’ EBITDA by 35%.
GENDER DIVERSE
35% ETHNICALLY DIVERSE
Manufacturing’s future will be found in a younger and more diverse workforce, but younger employees are not gravitating toward manufacturing. Only 37% of U.S. adults would encourage their children to pursue a career in manufacturing. The STEM workforce is of critical importance to manufacturing yet is no more diverse today than it was 15 years ago. Women make up only 18% of the advanced manufacturing workforce (down from 19% in 2001) and African-American and Latino workers combined make up only 16%.
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Globalized Economic Risks & Opportunities With 45% of U.S. manufacturing revenue generated overseas, exposure to currency fluctuations, volatile energy and commodity prices, global supply chain disruptions, and regional economic uncertainty is at an all-time high. What are manufacturers doing to mitigate these and other risks?
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Market opportunity already plays a significant role in manufacturing footprint decisions, but for nearly 50% of companies it will be the critical decision factor by 2020.
Currency matters—25% of S&P profits are attributable to foreign currency, and a 25% gain in the dollar over a 12-month period has been linked to a 10% decline in EPS. The average U.S. manufacturer has currency exposure in four global regions, and half of U.S. companies will enter at least two new markets in the next five years, only increasing their currency exposure.
Between 2000 and 2013, goods exports as a share of manufacturing value-added rose 26%, with goods imports skyrocketing
114%
If uncertainty returned to 2007 levels, employment would rise by 3.4 million and investment in plant and equipment would grow 1.5%. The rise in political uncertainty has decreased GDP by $150 billion and reduced employment by 1.1 million.
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Regulatory Labyrinths The regulatory playing field has never been more global or less level. Ever-changing regulatory requirements make it increasingly difficult (and costly) for manufacturers to succeed globally, and force manufacturers to reallocate resources to address burdensome regulations—an outcome that hurts manufacturers, employees, customers, and taxpayers alike.
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$726 BILLION Between 1981 and 2012, more than 2,000 regulations directly affecting manufacturers were issued. That’s 1.5 per week, every week for three decades. What’s the cost of complying with merely the major regulations? Up to $726 billion every year. The U.S. corporate tax rate is higher than that of any of our major trading partners and all OECD countries. For example, corporate tax rates are 38% lower in China, 26% lower in Germany, and 11% lower in Japan. In terms of their impact on decisions around global operating footprint, manufacturers predict that within five years regulatory and tax concerns will have twice the impact. Between 1998 and 2012, the cost of complying with manufacturing-related rules grew far more rapidly (7.6%) than manufacturing output (0.4%). While Foreign Corrupt Practices Act prosecutions have plateaued, the cost of resolving alleged FCPA violations has ballooned. Only 10 years ago, FCPA resolutions cost corporations an average of about $7.3 million. In 2014, the average was $156 million. 2004 $7.3 MILLION
2014 $156 MILLION
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Technology’s Promise & Peril The digital revolution is delivering amazing opportunities, such as the Internet of Things, 3D printing, and the cloud, as well as a Pandora’s box of risks, meaning that intellectual property can be stolen and online reputations tarnished in seconds.
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Connected devices outnumber the world’s population by 50%, and manufacturing stands to gain nearly $4 trillion from the adoption of the Internet of Things, thanks to reduced costs, improved asset utilization, and improved productivity.
However, 70% of the most commonly used IoT devices contain security vulnerabilities. More than half of executives surveyed said it’s unlikely or highly unlikely that they could detect a sophisticated attack.
$3.8 mILLION The average cost of a cyber breach is $3.8 million.
Only 9% of CIOs report having an accurate inventory of personal data for employees and customers.
While 83% of manufacturers have or are in the process of developing a bring your own device policy, 80% are concerned about data loss protection.
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About MAPI Our executive education programs provide an opportunity for executives to share best practices, discuss solutions to shared challenges, and become more effective leaders. By leveraging the experiences of their peers, members use MAPI to make their enterprises more competitive and increase their personal effectiveness.
COUNCILS
FORUMS
Our 23 councils serve as membership
At our forums, executives and their teams
groups for senior executives to connect
explore topics in depth over the course of
through live meetings, webinars, and
one or two days. Topics include:
benchmark surveys:
• Advanced executive communication skills
• CEO
• Benefits
• CFO
• Compensation
• Division Leadership
• Conflict minerals
• Engineering, Research, & Development
• Corporate security
• Environmental, Health, & Safety
• Crisis management
• Ethics and Compliance
• Cybersecurity
• Financial
• Digital marketing
• Global Logistics
• Diversity and inclusion
• Human Resources
• Employment law
• Information Systems Management
• Executive Summit
• Internal Audit
• Financial planning and analysis
• Investor Relations
• Intellectual property law
• Law
• Internal audit data analytics
• Manufacturing
• Product management
• Marketing
• Sales and marketing messaging
• Purchasing
• Supplier relationship management
• Quality
• Talent development and leadership
• Risk Management
• Tax accounting
• Sales • Strategic Planning & Development • Sustainability • Tax • Treasury
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About the MAPI Foundation Manufacturing executives, policymakers, the media, and the association community rely on the MAPI Foundation’s impartial research, forecasting, and rich analyses to gain insight into the challenges facing the manufacturing sector. Our highly respected economists regularly deliver keynote presentations at major industry events and member meetings; for major media outlets, we serve as a trusted expert on the manufacturing economy. Our team of economists uses proprietary models to generate regular forecasts for global manufacturing activity, with dedicated forecasts for the United States and Europe. They also produce datadriven analyses that provide insights into major topics influencing manufacturing competitiveness, including: • Industrie 4.0 and the industrial internet • The impact of the U.S. trade deficit on manufacturing • International comparisons of pollution abatement and waste management costs • Why capital investment is lagging • America’s uncompetitive corporate tax system • Demographics and manufacturing’s future workforce • Energy trends
Data dataSources: sources Bank of America Blue Canyon Partners Cisco Deloitte Goldman Sachs HP
IBM Manufacturing Institute MAPI McKinsey Mintz Levin NERA
PwC SiriusDecisions U.S. Census Bureau
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www.mapi.net
MANUFACTURERS ALLIANCE FOR PRODUCTIVITY AND INNOVATION 1600 Wilson Blvd, Suite 1100 • Arlington, VA 22209-2594 USA 703.841.9000