Manufacturing has been one of the mainstays of the Maltese economy for decades and so we tend to take manufacturing activity for granted.
Other countries such as China, India and Brazil have made big inroads in this sector and have become major players. Other countries still, such as the UK, have accepted that their manufacturing companies could no longer compete with companies operating elsewhere and had practically given up on this sector.
These developments prompt the question as to where global manufacturing is going. There have been a number of articles written on this subject in recent months and my intention is to present some of the issues as food for thought.
The first point to consider is the activity itself. When we speak of manufacturing, we tend to think of a man in a blue overall working with a hammer or a lathe, a drill or a stamping press. That is now expected to change dramatically. The machines that make products are likely to be highly automated. Most of their operators, men and women, are likely to be sitting in front of a computer screen, operating the machine with an inbuilt mouse. Manufacturing activity will go digital.
This prompts another point. How important are labour costs in manufacturing?
China attracted a great deal of manufacturing activity because it had very cheap labour but the companies that still rely on cheap labour have started to look elsewhere. For example, Vietnam has become the largest production base for Nike. Eventually, activity will move out of Vietnam towards another country that would have cheaper labour available. On the other hand, the cost component that is represented by labour in the production of a computer has been estimated at around five to 10 per cent. With such a situation, the availability of cheap labour starts to lose relevance.
So what will attract manufacturing to a particular location in future? If a team of 10 experts were to be asked this question, they would probably come up with 15 different answers. Some of these answers are very likely to be the country’s or geographical region’s experience in the manufacture of that product; the availability of a network of firms that guarantee a sophisticated supply chain; and the availability of design and engineering skills in terms of both quality and numbers. Once these elements are available, then a cluster is created and clusters attract further activity.
The materials being used to make things are changing as well. This involves becoming more creative with materials. There needs to be further investment in such inventiveness. For example, carbon fibre composites are replacing steel and aluminium. This has been one way by which US manufacturers have managed to compete with low-cost Chinese suppliers. New products used to be developed through a process of design, materials selection and manufacture. Tomorrow’s manufacturing is likely to merge these three activities into one as product design must immediately take into account the materials to be used and the manufacturing technology to be adopted.
Other trends are emerging, such as the use of 3D printers or the concept of what has been termed as ‘collaborative manufacturing’. All this will change the face of global manufacturing.
Putting it into a historical perspective, one needs to remember that up to the 1700s, products were manufactured by hand, with the producers being more like highly specialised craftsmen than operators. The first industrial revolution ushered in an era whereby machines took on the role of the craftsmen. A hundred years ago, we had the second industrial revolution with the introduction of the assembly line, resulting in mass production.
We are now probably experiencing the third industrial revolution, whereby thanks to digitisation, things will be made economically in smaller numbers. Global manufacturing is moving away from low-cost, low-skilled mass production back towards more individualised, high-skilled production, but at an equally low cost.