Advances in technology and changing trade patterns are affecting opportunities for export-led manufacturing.
By JAMES RATEMO
Technology and globalization are changing how manufacturing contributes to development, and the sector should be braced for massive disruption, a World Bank Group report indicates.
The report, Trouble in the Making? The Future of Manufacturing-Led Development indicates that changing technologies and shifting globalization patterns are destined to reshape manufacturing-led development strategies, and we will need to embrace this change rather than fear it.
“Trade is slowing. Global value chains remain concentrated among a relatively small number of countries. Smart automation, advanced robotics, 3-D printing and other advances being incorporated by global manufacturers of cars, electronics, apparel, consumer and other goods are shifting how countries and firms compete for production,” reads the report in part.
The report released on September 20, 2017, shows that advances in technology and changing trade patterns are affecting opportunities for export-led manufacturing.
However, while these shifts threaten significant disruptions in future employment, particularly for low-skilled workers, they also offer opportunities. Policymakers will therefore need to adjust their approach to spurring job creation in manufacturing and ready workers for the jobs of the future.
“In the past, the manufacturing sector created jobs for unskilled workers and increased productivity. In the future, developing countries will need to update their policies along with their infrastructure, firm capabilities and job creation strategies to meet the demands of a more technologically advanced world,” said Anabel Gonzalez, the World Bank Group’s Senior Director for Trade & Competitiveness.
What it takes to be competitive
It is apparent new technologies and evolving globalization patterns are changing what it takes to be competitive, and therefore the feasibility of manufacturing-led development in the future.
The end of the commodities super-cycle, together with China’s production upgrading, provides new opportunities for export-led manufacturing in countries hitherto less involved in global value chains (GVCs).
At the same time, weak import demand resulting from the trade slowdown following the 2008 global financial crisis, the declining trade, and China’s continued expansion at even the lower end of GVCs present new challenges.
According to the report, the potential for low- and middle-income economies to boost their manufacturing exports in the future, and leverage them for growth, is also affected by how emerging technologies change globalization patterns, and this could vary substantially across countries with different levels of development in the manufacturing sector. Faster diffusion of ICT and related developments in the Internet of Things (IoT) could strengthen the current structure of GVCs.
But greater digitalization in smart factories and advanced robotics might reduce the importance of low labour costs in determining comparative advantage, laying greater emphasis on skills, complementary services, and other aspects of firm ecosystems.
Furthermore, 3-D printing may make it feasible to produce in smaller batches with neither an emphasis on scale nor a larger ecosystem of suppliers—which may be particularly useful for countries that currently have limited manufacturing bases.
“These technologies associated with Industry 4.0 emphasize the increasing servicification of manufacturing driven, in large part, by the growing importance of data in production processes,” says the report.
Ray of hope
Despite emerging technologies and changing globalization patterns, some manufacturing industries will still remain feasible entry points for less industrialized countries, including some industries that are labour-intensive. They include a range of commodity-based processing manufacturers that are less automated, less concentrated in terms of export locations, and less intensive in the use of services than other types of manufacturers.
Despite a rising bar to be globally competitive, the report reveals, countries with low unit labour costs could also remain cost-effective in the production of labour-intensive tradables such as textiles, garments, and footwear, given the limited automation in that subsector thus far.
Further, domestic or regional markets for lower-quality, lower-price manufactures across industries will also likely remain viable.
“…for manufacturing sectors that are more automated and where trade is more concentrated, although technology may be disruptive, the inability to use it may be even more disruptive. If the new technologies deliver significant efficiency gains and goods are traded, it will be difficult to maintain domestic production using processes that do not take advantage of new technologies,” reads the report.
That a country has low ICT use today does not mean its jobs will not be affected; it may mean that even more jobs are not created or even lost. Therefore, firms in less industrialized countries may need to adopt labour-saving technologies that raise efficiency to remain globally competitive.
The report says doomsday scenarios about technological unemployment are overblown because, as in the past, new technologies could also lead to greater job creation.
The Kenyan mobile money revolution- a case in point
New technologies can improve access to financial services in ways that expand opportunities for manufacturing, including in countries with a relatively weak business environment.
Mobile payment systems are an increasingly intricate part of ensuring services can be embedded in goods—and that trade in digital services can be embodied in the making of goods.
Beyond the inclusive and governance benefits of mobile money, it will be an important complement to the manufacturing agenda. The growing number of countries following early examples such as Kenya’s M-Pesa shows the wide applicability of this approach.
New technologies are also being used to develop new business forms, with implications for competition, contracting, and financial services to support new manufacturing arrangements.
In a nut shell, therefore, managerial and organizational practices that strengthen firm capabilities will be needed to facilitate the adoption of new technologies in production processes.
Worries about human labour becoming obsolete, overrated
Concerns about the wide-scale displacement of workers by new technologies—an expression referred to as technological unemployment date back as far as the industrial revolution. Yet, two centuries of automation and technological progress have not made human labour obsolete.
New technologies and changing globalization patterns do not spell the end of manufacturing export-led development, but they do make it a less powerful strategy than before.
That the faster growth and job-creating effect of technological change has proven to be greater than any labour displacement effect. Still, automation of some tasks for some occupations has improved productivity, thereby lowering output prices and boosting product and labour demand.
Therefore, manufacturing will likely continue to deliver on productivity, scale, trade, and innovation, but just not with the same number of jobs. So, its unique desirability in terms of the twin wins of productivity and jobs is eroding.
The report concludes that the overall impact of change depends critically on what countries can do to enable their firms (including new ones) add value and create jobs in the new and evolving environment.