Last week, I had the pleasure of speaking before the American Chamber of Commerce’s Manufacturing Committee about the latest Global Manufacturing Competitiveness Index (GMCI) and, related to that, a report on advanced technologies, both of which were prepared by Deloitte in partnership with the United States Council on Competitiveness (Council).
We have long observed that a nation’s overall GDP is closely tied to the health of its manufacturing sector. In the US, for example, one direct job in the manufacturing sector has a knock-off effect of creating 4.6 additional jobs, compared with just 1.5 additional jobs for every one direct job in agriculture. And so every three years since 2010, Deloitte and the Council release the GMCI to highlight the trends in this critical industry and explore issues of policy and capability development that could help nations achieve superior manufacturing competitiveness.
It comes as no surprise that for all three indices released so far, China has topped the list. This year, however, the US is closely trailing China, and is expected to overtake the Asian giant in five years.
What is the US doing right? And what does this mean for the Philippines?
To answer the first question: The US is investing in advanced industries, making it well-positioned to lead as the manufacturing battleground pivots toward high-value, advanced tech products and processes.
In this post-industrial era, manufacturing is no longer simply about producing goods. It is about innovation and technology that allow businesses to differentiate themselves and create premium products that capture higher margins.
The US has an environment that is conducive to the creation of these breakthrough innovations: It is home to many top-tier universities and research institutions that attract highly qualified researchers and scientists from around the world; it is also home to several technologically advanced, innovative companies; and it has industrial clusters—such as Silicon Valley—that allow for strong collaboration among industry leaders, researchers, entrepreneurs and academics.
Now for that second question: Yes, we’re a long way from being the global innovation leader that the US is. But if we want to have a globally competitive manufacturing industry (which is the vision of the current Administration), and competitiveness in that sector is increasingly defined by advanced technology, then what are we doing to make advances on that front?
According to the Department of Science and Technology, the government allocated P11.7 billion (about $252.6 million) to R&D in 2015. Although that represents an increase of 49 percent from four years ago, that is still only 0.4 percent of the national budget—well below the United Nations’ ideal target GDP share of 1 percent. For comparison, two of the highest R&D spending nations in Asia—China and South Korea—had an average annual R&D funding of $38 billion and $10.1 billion, respectively, from 2004 to 2013.
In terms of attracting or developing talent, we’re not doing so well, either. Data from the Commission on Higher Education show that for the academic years running from 2002 to 2014, 44 percent of students enrolled in higher education were in STEM (science, technology, engineering, and math) courses. While that seems like a good proportion, consider this: less than a quarter of those students went on to graduate. In fact, regardless of field of study, we have a very low graduation rate for higher education: just 16 percent for that 12-year period.
This is probably a contributing factor to our equally low researcher-per-million-inhabitants ratio, another indicator that Deloitte considered in evaluating manufacturing competitiveness. According to the latest data from UNESCO, we had 78 full-time researchers per million inhabitants in 2007. Compare that with 114 for Vietnam, and 543 for Thailand.
Even as the current Administration works on improving infrastructure and the regulatory regime in order to revitalize our manufacturing sector, it’s also worth looking into our innovation environment to make sure we are fully prepared to compete in this new battleground. There is no question that we have the potential. We just have to create an environment where that potential is nurtured and allowed to thrive.
The author is the Managing Partner and CEO of Navarro Amper and Co., the local member firm of Deloitte Southeast Asia Ltd., a member firm of Deloitte Touche Tohmatsu Limited—comprising Deloitte practices operating in Brunei, Cambodia, Guam, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam.