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Status of Manufacturing in Status of Manufacturing in PennsylvaniaPennsylvania

Moving Forward Through InnovationMoving Forward Through Innovation

Purpose of the Presentation

Give a big picture overview of the state of manufacturing in Pennsylvania today.

Briefly discuss innovation and the relevance of concentrated implementation in the manufacturing sector.

Give a big picture overview of some of the programs MANTEC offers to manufacturers to assist them in continuous innovation.

Questions to address

How and why is manufacturing significant in the commonwealth?

How significant is the threat of foreign competition to various Pennsylvania industries?

How likely are current Pennsylvania manufacturing customers to shift their production offshore?

Which industries have a competitive advantage in Pennsylvania and why?

What distinctions are there between larger and smaller manufacturers?

Questions cont.

What Industries are the drivers in our region?

What industries are driving growth within our region?

What dynamics now shape the future of manufacturing in Pennsylvania?

What can the state government do to help secure the best future for Pennsylvania manufacturers?

General Facts

Manufacturing is profoundly important to the economic future of the commonwealth.

Manufacturing remains by far the largest part of the states output, and it accounts for the majority of the states export.

Manufacturing provides the best source of thousands of good wage earning jobs and is the leading source of wealth that drives all of the commonwealths regional economies.

Facts cont.

Manufacturing is the essential anchor for hundreds of cities and towns across the state and is the primary means by which entrepreneurial ideas and products are conceived and brought to market.

All manufacturers today work in a global economy in which competitors can emerge half a world away.

In an environment where technology transforms market dynamics rapidly, commerce is transacted instantly and jobs are outsourced in weeks.

Studies

Several studies will be referenced during this presentation including:

2004 Delloite Study “ Manufacturing Pennsylvania’s Future”

Regional Strategies That Build From Current Strengths and Address Competitive Challenges.

Nexus Study on Business Growth Council on Competitiveness Annual Report Tech Formation Report

Findings

1)“Manufacturing remains an essential element of Pennsylvania’s economy, contributing $64 billion annually to the gross state product. This is by far the largest share of any sector”

Manufacturing output rose steadily in the 1990’s Output declined some from the 2001 recession Currently output stands at $64 billion dollars This output comprises 16.1% of the total state output.

Findings

2) Manufacturing in Pennsylvania and in America faces new challenges. Pennsylvania has lost 133,000 jobs since 1988. This is attributable to the recent recession, to gains in productivity and to foreign competition and offshore sourcing by transnational manufacturing operations. 30% came as foreign competitors in low-cost countries claimed

markets once served by Pennsylvania firms Transnational corporations elected to offshore work to cheaper

suppliers Partially the result of ongoing gains in manufacturing productivity

Off-Shoring Cost Comparison

Growth of China Imports

Findings cont.

3) The manufacturing sector in Pennsylvania is dynamic. Some industries are growing and concentrated in the state, while others (including many of the traditional manufacturing industries), are in decline.

Findings cont.

4) Sixteen driver industries that produce nearly half of Pennsylvania’s manufacturing output have grown and concentrated in the state in the past 10 years. These industries and there associated clusters of in state suppliers provide a substantial portion of the export earnings of Pennsylvania manufacturing, thereby making a major contribution to the prosperity of the commonwealth.

Driver Industries

Findings cont.

5) A shift and share analysis of the change in gross product for the entire economy of Pennsylvania from 1999 to 2001 showed that all of the in gross state product attributable to local competitive factors from1999 to 2003 is attributable to the 16 manufacturing driver industries of the state. Without these industries the state would have experienced a profound recession. 300 industries were examined in detail over the past ten years The 16 drivers contribute almost half of all manufacturing output The 16 drivers were the source of all growth in output in recent

years.

Driver Industries

Findings cont.

6)Average Pennsylvania productivity levels are significantly below those of the overall U.S. gross.

The gap is likely the result of Pennsylvania firms producing a high percentage of commodity products.

The price stagnation is likely due to the combination of offshore competition and price pressure from firms that integrate parts into the products for the final consumers (OEM’s) and price-sensitive

retailers. To many of the states manufacturers produce mature goods with

widely understood production processes that thousands of firms could produce.

Findings cont.

Neither will major transnational manufacturing customers such as GE, or giant retailers, such as Wal-Mart, will tolerate pricing structures that can be beat by reliable sources elsewhere.

Pennsylvania firms have worked hard to reduce pricing by undergoing cost reductions that remove costs from their processes and operations but face diminishing returns from their efforts typically at about the 15% mark.

As offshoring has grown in acceptance, commodity oriented manufacturers have experienced eroding margins and profits and therefore are opening the productivity gap.

Productivity Gap

Findings cont.

7) Economic development policy and strategy is best viewed by analyzing a firm’s cash statement. The key to surviving in the past was process innovation. As pricing pressures continue to increase and intensify, the key to success will be determined by a firm’s ability to grow the top line of the cash statement through sales growth. Process innovations increasingly will be introduced through product innovation. Innovation in products and services will be key Differentiation in the marketplace will be key. Core competency development

Findings Cont.

8) The Industries that drive Pennsylvania’s manufacturing performance, considered as a portfolio, have distinct needs, requiring distinct strategies by Pennsylvania’s economic developers. One size no longer fits all. Successful regions will assess their strengths and challenges

industry by industry, understand the distinct needs and take action on those items.

Portfolio of State Drivers

Findings cont.

9) The small-and medium-sized firms that are the broad foundation of manufacturing in Pennsylvania face distinct challenges in the global economy. The commonwealth will prosper if many more firms develop well-informed strategies that give them distinctive positions in the marketplace, based on product innovation and continuous improvement of enterprise performance. The needs of manufacturers in Pennsylvania must be better understood and their voices better heard. SME’s provide more than half of the industrial output nationwide. SME’s are typically the victims of offshore sourcing by large

transnationals who have no specific loyalties to regions.

Key Macro Issues

Findings cont.

10) Delloitte found that Pennsylvania’s Industrial Resource Center (IRC) Network has sustained a strong positive impact on the commonwealth’s economy that has been documented in previous studies.

Client’s assisted by the IRC’s continue to outperform similar unassisted firms in productivity and output and growth.

The IRC’s continue to enhance Pennsylvania’s gross state product at a rate of at least $2billion per decade.

The economic gains driven by the IRC network return at least $1.24 to the state treasury for every $1.00 the state invests in te IRC program.

Spending for S&E Declinedin the 1990’s

Increased Foreign Competition for Technical S&E Educated Workers

Decline in R&D Investment

Who does MANTEC work with?

Mantec works with:

“manufacturing executives who are committed to continuous improvement through innovation. MANTEC leverages brokered resources acting as a strategic partner to help manufacturers establish the critical links in alignment between their strategy, marketplace, systems, and performance”.

Regional Capabilities

MANTEC addresses manufacturing needs in 9 counties constituting South Central Pennsylvania

MANTEC Services

MANTEC helps manufacturers identify opportunities for growth and provides complete project management to ensure that results are achieved. Generally speaking MANTEC’s services include: Strategic Planning New Product Development Market Development and Analysis Strategic Redirection and Turnaround Process Improvements Lean Manufacturing Human Resources and Workforce Development Training Seminars and Workshops and much more

Who provides the Services? The IRC’s have experienced practitioners and

consultants who actively work with individual companies. The IRC’s also maintain a substantial network of third party consultants, universities and colleges, other economic development organizations, technical resources and other organizations to provide additional technical expertise. Our consultants function as: Diagnosticians Visionary / Strategists Transformational Planners Transformational Managers Coaches Change Catalysts

What companies are eligible for IRC services?

All manufacturers can utilize IRC services. The IRC’s focus on manufacturers that have 500 of fewer employees, which means 98% of all Pennsylvania manufacturers can take advantage of the full range of services provided by the IRC’s.

MANTEC helps clients innovate

Product Lifecycle

Innovation Model

Shaping an Innovative Workforce

Shaping of an Innovative Workforce

Skills for Innovation

Technology Intensive Industryin Pennsylvania

Growth Drivers

Our commitment is to help our region grow through innovation and business growth services specific to the voice of our

customer.

Please contact us by visiting our website :

www.mantec.org

Thank you for your support!