Are the criteria for becoming a desirable manufacturing location changing?

Published on the World Bank website

STORY HIGHLIGHTS

  • New technology, including advanced robotics, industrial automation, and 3-D printing, are changing the landscape of global manufacturing.
  • Developing countries’ traditional path to development, often driven by manufacturing, may be at risk because the criteria for becoming an attractive production location are changing.
  • Although there are challenges, opportunities remain for developing countries, as long as governments take appropriate policy actions on the 3Cs: competitiveness, capabilities, and connectedness.

Throughout history, lower-income countries have relied on manufacturing, which provides jobs for unskilled workers, helps increase productivity, and drives economic growth, as a central driver of development. However, success in manufacturing and global value chains is currently concentrated in a limited number of countries. In 2015, 55% of the world’s manufactured goods were produced in high-income countries. China, the world’s largest producer, accounted for another 25%. Where does this leave other countries?

A new report from the World Bank Group’s Trade & Competitiveness Global Practice, Trouble in the Making? The Future of Manufacturing-Led Development, explains that the criteria for becoming a desirable manufacturing location are changing. Companies once influenced by the prospect of inexpensive labor costs are beginning to favor locations that can better take advantage of new technologies.

The increasing adoption of industrial automation, advanced robotics, smart factories, the internet of things, and 3D printing are transforming the manufacturing process. “The use of new technologies to produce traditional manufactured goods will be disruptive in developing economies – whether they are using the new technologies or not,” says Mary Hallward-Driemeier, Senior Economic Advisor with the World Bank Group’s Trade & Competitiveness Global Practice and lead author of the report. “If labor represents a smaller share of costs, more production may happen in richer countries, closer to consumers. Fewer businesses may move to lower-cost locations and local firms will face steeper competition. But it is not all bad news. There are new opportunities too – and that part of the story needs more attention.”

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