MAPI: Information for Manufacturers - Manufacturing Outlook

2/21/2012

China is the world’s factory when it comes to counterfeit products: two-thirds of fake products seized last year by U.S. Customs originated in China. But Chinese consumers are growing increasingly wary of buying fakes for themselves. In fact, 95% of Chinese women between ages 28 and 35 would be “embarrassed” to carry a counterfeit handbag, according to a 2011 survey commissioned by China Market Research. That’s a seismic shift from the Chinese consumer pictured here.

Fake handbags are one thing – what about industrial products like bearings or circuit breakers? The global market for fake industrial products has never been larger, nor the risks greater. Our members recommend several best practices to help combat fake goods, but the best remedy to the global epidemic of counterfeit products is without a doubt an educated customer.

-- Cam Mackey, Vice President Sales & Marketing

Posted at 8:54 AM by 42071 | Category: Business Management | Permalink | Email this Post | Comments (0)

2/20/2012

Drawing Attention to the Manufacturing Skills Gap

Lead story in the Washington Post today: "Wanted: Skilled factory workers." Very nice report on the challenge that U.S. manufacturers face trying to find employees with the technical and math skills to operate the advanced technology found on today's shop floor. (Those who haven't been on a modern shop floor might be interested in the brief virtual tour that the Post offers.)

Yet the story skims over the fundamental reason why we have such a skills gap in this country. While part of the problem lies with the perception that American youth have of factory work -- one that is badly outdated -- a more fundamental challenge is that kids coming out of high school simply don't have the math and science skills to do the job.

That's an indictment of our school system in this country. This isn't the first evidence of such an educational failure -- over the past decade various international comparisons, including the latest Programs for International Student Assessment, have shown American students lagging well behind the front of the pack in math and science.

We're pleased that American policymakers are finally paying attention to the manufacturing sector. If they really want to help American manufacturers compete, this is one issue they should elevate into a major campaign issue.

-- Stephen Gold, President and CEO

Posted at 10:41 AM by 60789 | Category: Business Management | Permalink | Email this Post | Comments (0)

2/16/2012

Bumpy Ride Ahead for U.S. Manufacturers in Europe

It’s official: fourth quarter data have confirmed that Europe’s economy is headed south faster than expected. Both the GDP and industrial statistics paint a picture of a sharp downturn that has already turned into double-dip recessions in about half a dozen countries.

Industrial statistics surprised on the downside. Eurozone’s total production slumped 2 percent in December when compared to the previous December – a dramatic turnaround from previous months’ meager if positive growth rates. The 17 economies that use the euro recovered only a little over half the output they had lost during the recession. This is roughly the same proportion as in the United States.

Two groups of countries stand out. The first one is made up of fast growers. Among them are the core central European three – the Czech Republic, Hungary, and Poland – with annual growth of around 5-6 percent. Denmark, Finland, and Sweden make up the second group that also boasts robust increases, although less than half as fast. Trailing in the league tables are Greece, Portugal, Ireland, and Spain. More surprisingly, the Big Four – Germany, France, Italy, and the UK – now see their industrial sectors contract as well.

The double-dip recession, which we had signaled before (see our report), will not have arrived at a worse moment for the Eurozone. Most of the continent had withdrawn public stimulus programs a while ago. To boot, many countries’ private sectors are deleveraging amid accelerated fiscal austerity. A contraction in output thus compounds the squeeze in disposable income when tax receipts are already on the decline. The recession, which we expect to stretch for most of this year, is bound to complicate political choices for decision makers struggling with the Greek crisis.

If you operate in Europe, be prepared for a bumpy ride in 2013, and possibly beyond.

Kris Bledowski

Economist

Posted at 3:34 PM by 44054 | Category: Global Manufacturing/Economy | Permalink | Email this Post | Comments (0)

2/15/2012

Strong Manufacturing Production Growth in January 2012

The Federal Reserve Board reports that industrial production was flat in January 2012. Surprisingly, the report is good news for the economy and the manufacturing sector. Manufacturing production increased a strong 0.7 percent in January and the growth rate for December was substantially revised up to a very strong 1.5 percent gain. The flat overall performance in January was due to exceptionally warm weather, which led to a 2.5 percent decline in utility production (mining activity also fell).

The strong manufacturing production performance in January was led by the motor vehicle industry; motor vehicle and parts production increased an exceptionally large 6.8 percent. However, even excluding motor vehicles, manufacturing production increased 0.3 percent last month, and 14 of the 20 major manufacturing industries posted growth. Growing industries were primarily in consumer durables and business equipment.

An important growth driver is pent-up demand. After years of postponing big ticket purchases, consumers have to replace motor vehicles. Businesses also have pent-up need for business equipment. So much capacity was eliminated during the 2008-2009 recession that even the moderate manufacturing recovery so far has rapidly pushed up the capacity utilization rate from 65 percent at the depths of the recession to 77 percent in January 2012, only a couple of percentage points from the pre-recession factory usage rate. MAPI continues to forecast faster growth in manufacturing production than in the economy as a whole this year and next.

Dan Meckstroth, Chief Economist, MAPI

Posted at 10:28 AM by 40339 | Permalink | Email this Post | Comments (0)

2/14/2012

GE's Effort to Revive American Manufacturing

Jeffrey Immelt has not only seen the light, but he is reengineering it as well. As GE's CEO, it arguably comes with the territory. But as he describes in this March 2012 Harvard Business Review article, revitalizing American manufacturing is only partly rocket science -- the rest is pure determination.

Immelt's perspective comes with some gravitas. As one of the oldest, largest manufacturers on the planet, when GE sees the light, other manufacturers will, too. The question remains whether other manufacturers -- even those with equal ambition, but fewer resources -- will be able to implement their own revitalizations.

In his article, Immelt focuses on three main areas to spark a new manufacturing revolution:

(1) bringing manufacturing back to the U.S.;

(2) pushing innovation by empowering employees to initiate improved product design, adopting more LEAN principles, and bettering labor relations; and

(3) encouraging technical innovation by funding research centers and partnering with universities.

Again, these ideas are not all rocket science. But they do require not only a commitment, but resources. Many smaller manufacturers are not in a position to fund independent innovation research centers. However, perhaps the greater point is that there are practical steps that all manufacturers can consider to push their own "Coming (Back) to America" efforts.

-- Rae Ann S. Johnson, Attorney and Council Director

Posted at 3:38 PM by 39549 | Category: Business Management | Permalink | Email this Post | Comments (0)

A CEO’s Guide to Innovation in China

China's prominence as an innovator is growing in leaps and bounds, with its annual patent filings trailing closely behind those of Japan and the U.S. Since 2006, Japan’s filings have dropped 12%, whereas China’s are up a whopping 83%. Not surprisingly, the Chinese government has stated its desire to morph from being the world’s factory into a hub of global innovation.

For multinational manufacturers, this shift will create new customers and competitors alike. A new article from McKinsey offers a great overview of the current landscape of innovation in China and what companies need to know to be successful. McKinsey offers a few recommendations for both Chinese domestics and multinationals to improve their innovation efforts in China:

Understand Chinese customers at a deep, analytical level
Retain local talent (91% of multinationals operating in China rate this their #1 challenge)
Instill a culture that encourages risk taking
Promote collaboration (internal and external)

Interested in learning more about the Chinese economy? Members can check out MAPI's latest China Manufacturing Outlook, and all are welcome to view this short video on what the next two years will hold for the Chinese economy.

-- Cam Mackey, Vice President, Sales & Marketing

Posted at 2:27 PM by 42071 | Category: Business Management | Permalink | Email this Post | Comments (0)

In search of a successful acquisition? Find an older CEO.

CEOs who are approaching retirement age are 50% more likely to agree to a takeover.

Dirk Jenter and Katharina Lewellen, faculty members at the Stanford and Tuck Business Schools, respectively, have published an interesting, and not too academic, paper that explores how CEOs in target companies regard takeover bids in relation to their own retirement plans.

A salient, and far from surprising, finding is that there is "…strong evidence that target CEOs’ retirement preferences affect merger patterns. In data on U.S. public firms from 1992 to 2008, the likelihood of a takeover bid increases sharply when the target CEO reaches age 65. Controlling for CEO and firm characteristics, the implied probability that a firm receives a takeover bid is close to 4% per year for CEOs below the retirement age (e.g., in age groups 56-60 and 61-65), but it increases to 6% for the retirement-age group (above age 65). This corresponds to a 50% increase in the odds of receiving a bid, and the effect is statistically significant at the 1% level. The increase in takeover activity appears abruptly at the age-65 threshold, with no gradual increase as CEOs approach retirement age."

To access the article, click here.

-Don Westfall

Research and Council Director

Posted at 11:21 AM by 37584 | Category: Business Management | Permalink | Email this Post | Comments (0)

2/12/2012

Where Have All the Workers Gone?

For much of post-World War II history, the U.S. was blessed with an increasing supply of labor, a key element of an essentially successful economy. The labor force participation rate, which is the share of the working-age population that is either employed or actively seeking employment, rose dramatically from 58.4 percent in December 1962, to a peak of 67.3 percent in January of 2000. It has since been falling, with the decline predictably accelerating during the deep recession of 2008 and 2009. Even with the much-celebrated improvement in the jobs picture of recent months, the participation rate has continued to slide, from 64.2 percent in January of 2011 to 63.7 percent by January of 2012.

Numerous factors are repeatedly cited as catalysts for the dramatic rise in labor force participation from the 1960s through the 1990s. The baby boomers (the population cohort born after 1946) reached their prime working years during the 1970s and 1980s and female participation in the work force increased. Immigration, the returns to education, and the lengthening life span were also contributors.

We are just beginning to understand the post-2000 decline. Recent research conducted by a number of economists at the Federal Reserve has been revealing. A new paper from the Federal Reserve Bank of Chicago illustrates the results of studying the participation trend with a statistical model of labor force behavior. The authors found that nearly half of the decline in the participation rate since 2000 has been due to shifting demographics, notably in the age structure of the population. While an improving economy will, at some point, provide a short-term bounce for labor supply, the authors project that demographic dynamics will continue to exert downward pressure on participation for the “foreseeable future.”

An earlier paper from the Federal Reserve Bank of Atlanta supports the conclusions of the Fed Chicago paper, at least in a qualitative sense. The authors illustrate the results of a simple decomposition exercise which showed that a decline in the population shares of working-age men and women have accounted for a greater portion of the post-2000 fall in labor supply than the oft-cited change in the behavior of youth and working-age women.

As glimmers of light radiate from recent job market reports, our challenges are clear. An historically high level of long-term unemployment appears to be coexisting with a structural dwindling of labor supply. As I have said and written, demographic forces are no longer elements of the future. We have reached an inflection point. Demographics are actively mixing with economics to drive our short-term destiny.

- Cliff Waldman, Economist and Council Director

Posted at 5:59 PM by 37582 | Category: U.S. Manufacturing/Economy | Permalink | Email this Post | Comments (0)

2/9/2012

The Changing Face of Global Innovation

According to GE’s recently released Global Innovation Barometer report, nearly 90% of surveyed executives feel that companies will innovate in completely new ways in the 21st century. Techniques like crowdsourcing and open innovation will play an increasingly important role, as will government policy. Think that crowdsourcing is just for Google? Not at all. Check out this article for some simple tips on how manufacturers can make crowdsourcing work for them.

Looking at the bigger picture, as innovation continues to evolve, we need to reimagine how we measure innovation, both at the company and the sector level. MAPI’s Cliff Waldman and Jeremy Leonard teamed up to do some groundbreaking work on tracking product and process innovation in manufacturing, available here.

- Cam Mackey, Vice President, Sales & Marketing

Posted at 7:39 AM by 42071 | Category: Business Management | Permalink | Email this Post | Comments (0)

2/7/2012

Endgame for Greece

The risk that Greece fails to come to terms with the IMF, the EU, and the European Central Bank (the Troika) on the next rescue package is rising.

At stake is €130 billion in the second bailout package that Greece needs to avoid default in March when large amounts of government bonds fall due. The negotiations that are currently under way center on public spending cuts and liberalization of the economy. As many as a fifth of public sector jobs are to be shelved by 2015 and most salaries rolled back.

The negotiations have been dragging on for months, to little effect so far. As the clock ticks away, many ask why the Greeks remain so sanguine in the face of an existential crisis. The short answer is that many basic planks of the reforms package reveal truly revolutionary changes to an average Greek. Take employment. Hellenic workers find the very premise of job elimination hard to fathom; after all, employment guarantees have been the norm for decades. A nominal cut in salaries shocks employees accustomed to legally sanctioned bonuses, often equaled to at least 17 percent of annual pay. And if that weren’t enough, there are efforts to open up closed professions, liberalize transportation, or simplify business licensing, to name just a few of the proposed structural reforms. It all adds up to a lot of hardship in compressed time.

The reason for heightened risk and pessimism resides in the structure of incentives. I don’t see how the Greeks can hold politicians to account when the politicians’ political survival depends on the status quo. At the same time, that status quo emerges as the top priority of the strongest of the corporatist interests. In other words, it is hard to see what incentives would move both sides to adopt the painful reforms.

One thing is certain: Greece will become a poorer society regardless of whether it defaults in an orderly or disorderly way, whether it retains the euro or ditches it, and whether it ends up adopting the reforms or not. Unfortunately, this fact is trickling in only slowly into the debates.

Kris Bledowski

Economist and Council Director

Posted at 11:08 AM by 44054 | Permalink | Email this Post | Comments (0)

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