April 11, 2013

Required reading: the future of manufacturing by McKinsey

In November 2012, McKinsey and Co. published a report about the future of manufacturing. If you have not read it yet, do it as soon as possible!

McKinsey has 3 key findings about the future of manufacturing, and we try to add some conclusions and tips about its impact to Hungarian manufacturing sector:

1. Manufacturing’s role is changing: 
'The way it contributes to the economy shifts as nations mature: in today’s advanced economies, manufacturing promotes innovation, productivity, and trade more than growth and employment. In these countries, manufacturing also has begun to consume more services and to rely more heavily on them to operate.'
Tip #1: The Hungarian manufacturing will step forward on value chain.
There are always cheaper locations. In the future, manufacturing companies will choose Hungary because its developed infrastructure, flexible labour market and advanced business service industry. Hungary belongs to the low-cost Eastern part of the European Union, however the future of Hungarian manufacturing is about the complex, innovative and service-rich business environment.

2. Manufacturing is not monolithic:
'It is a diverse sector with five distinct groups of industries, each with specific drivers of success'
Segments of manufacturing. Source: mckinsey.com

Tip #2: The Hungarian light industry is over. Long live the Hungarian automotive/electronics/pharma industry!
The Visegrad Countries (Poland, Slovakia, Czech Republic and Hungary) are not low-cost locations any more - they are between somewhere East and West. The Hungarian business environment, including labour market, regulations, infrastructure, governmental programs, supplier's background industries etc are, lets say, not supporting the old school Eastern European, labour intensive industries. The future is about automotive and vehicle industries, elecrtronics, pharma and medical devices.

3. Manufacturing is entering a dynamic new phase: 
'As a new global consuming class emerges in developing nations, and innovations spark additional demand, global manufacturers will have substantial new opportunities—but in a much more uncertain environment'
Tip #3: Start to think about emerging countries as emerging markets.
Classically, international companies manufacture in Eastern Europe and sell in the West. We guess it will dramatically change in the near future: they will manufacture and sell in Eastern Europe. The Eastern part of EU became the nr.1 manufacturing location of the Union, and it's generate robust demand for suppliers, but also on B2C markets.

What do you think about these conclusions? Share your opinion!

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