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TRANSCRIPT
Global Manufacturing and FDI
March 6, 2017
Area Development Automotive Workshop
Alex Frei
Senior Managing Director
Cushman & Wakefield
Area Development | Cushman & Wakefield
• Global Manufacturing Environment
• Challenges, Trends, Markets
• FDI in North America
• Advantages, Challenges
• Thank you Mr. President?
• Magic 8Ball
Global Manufacturing and FDI
Agenda
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Area Development | Cushman & Wakefield
Global Manufacturing and FDI
Businesses are being impacted by digital disruption as new entrants and
competitors invest in technology to enable mass customization.
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Challenges
• Additive Manufacturing
• Robotic Process Automation
• Internet of Things
Example: Auto industry is
undergoing undisputed disruption.
• Electrification & driverless
vehicles
• Diverse mobility & connectivity
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Global Manufacturing and FDI
Challenges
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Manufacturing sector is at the center of a period of great change with far-
reaching implications for businesses across the global industrial
landscape.
• Integration of technology and service into every day products.
• Adapting lean/vertically integrated production lines to support mass
customization and customer service.
• In the short term, manufacturing remains partly constrained by a lack
of capital investment in plants, reducing near-term radical shifts in
location decisions.
The new norm being a complex, horizontally structured ecosystem of
design, technology, production and service, which will then redefine
how those products and services are created and delivered.
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Global Manufacturing and FDI
Pure cost reduction strategies are being challenged.
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Trends
• Questions will be raised about
locations that fundamentally
serviced a different era.
• Cost remains the most
significant location criteria for
many companies, however,
other fundamentals such as
operating conditions and
country risk profiles are
becoming more important
contributors to future decision
making.
Area Development | Cushman & Wakefield
Global Manufacturing and FDI
Managing change poses a number of challenges:
• Sustained pressures on operating costs and shift in end-market
demand…continues to drive a relentless need for manufacturers to
increase labor and capital productivity.
• Traditional supply chains and business models continue to be
disrupted…new competitors leverage emerging technologies and
embrace digital capabilities in order to identify new ways of increasing
profitability to generate growth.
• A necessity for smarter products, smarter production and smarter
supply chains…continues to challenge manufacturers in their
decisions of where to locate.
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Trends
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Global Manufacturing and FDI
Managing change poses a number of challenges:
• Companies are simplifying their organizational structures and re-
positioning as more agile businesses…the ability to respond quickly in
an every changing environment remains a key to success.
• Looming talent shortages are driving businesses to reposition their
brands…brand reputation is often critical in talent attraction and
retention.
CEOs and senior management required to think more holistically about
innovation, potential operating models, and how their products or
services satisfy the needs of their consumer base.
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Trends
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Global Manufacturing and FDI
Historical Focus on Manufacturing – Select Countries
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Manufacturing GDP
(US$)*
GDP, Nominal
(Trillions US$)*
World - 75.9
South Korea 428.5 B (31.1%) 1.4 (1.8%)
China** 3.2 T (29.9%) 11.0 (14.5%)
Germany 746.7 B (22.2%) 3.4 (4.4%)
Japan 775.2 B (18.8%) 4.1 (5.4%)
Mexico 201.4 B (17.6%) 1.1 (1.5%)
India 270.3 B (12.9%) 2.1 (2.8%)
United States 2.2 T (12.3%) 18.0 (23.7%)
Canada 159.7 B (10.6%) 1.6 (2.0%)
United Kingdom 277.2 B (9.7%) 2.9 (3.8%)
*World Bank (2015)
**Excludes Taiwan and special regions of Macau and Hong Kong
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How do we minimize site selection risk?
Global Manufacturing and FDI
Site Selection Implications
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Global Manufacturing and FDI
2016 Manufacturing Risk Index – Established Locations
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Highly Automated
1. Malaysia
2. China (Taiwan)
3. China
4. United States
5. South Korea
6. Canada
7. Hungary
8. Sweden
9. Czech Republic
10. Netherlands
Cost Sensitive
1. Malaysia
2. China (Taiwan)
3. Canada
4. China
5. United States
6. Poland
7. Czech Republic
8. Philippines
9. Hungary
10. Thailand
Conditions Sensitive
1. Singapore
2. Sweden
3. Netherlands
4. Switzerland
5. China (Taiwan)
6. United States
7. Malaysia
8. Canada
9. Germany
10. Austria
Malaysia, China (Taiwan), United States and Canada only countries to make
top ten index under all three scenarios.
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Global Manufacturing and FDI
2016 Manufacturing Risk Index – Pioneering Locations
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Highly Automated
1. Costa Rica
2. Vietnam
3. Sri Lanka
4. Lithuania
5. Tunisia
6. Morocco
7. Bulgaria
8. Colombia
9. Peru
10. Slovakia
Cost Sensitive
1. Vietnam
2. Sri Lanka
3. Costa Rica
4. Tunisia
5. Morocco
6. Bulgaria
7. Lithuania
8. Peru
9. Colombia
10. Slovakia
Conditions Sensitive
1. Lithuania
2. Costa Rica
3. Vietnam
4. Bulgaria
5. Morocco
6. Tunisia
7. Sri Lanka
8. Colombia
9. Slovakia
10. Peru
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Global Manufacturing and FDI
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Asia Pacific
• China
• Direct funding in science, technology,
technology transfer, sustainability,
infrastructure…helps Chinese-based
companies to create a significant
competitive advantage.
• India
• Government’s focus on ‘Make in
India’…leading in increasing
investments by global manufacturers.
• Investment will further support
infrastructure improvement projects,
especially as further policies and
regulations actually take shape .
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Global Manufacturing and FDI
13
Europe
• UK remains a leader in research &
development and innovative design.
• The location of the top global education
practices and Universities is critical in a
number of sectors requiring production /
manufacturing.
• Near-term currency fluctuations as a result of
Brexit has seen a devaluation of the pound,
leading to increased demand for exports.
• There is no prospect of modern production
facilities being relocated or closed purely
because of Brexit at this stage, but
negotiations surrounding trade tariffs and
free movement of goods and people will be
monitored carefully….BUT WAIT!
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Global Manufacturing and FDI
14
Mexico
• Since NAFTA manufacturers have
redesigned their production systems to
spread operations throughout the United
States, Canada, and Mexico.
• President Trump has led to significant
uncertainty for Mexican manufacturing,
exposing the market to greater risk.
• The announcement in early 2017 that
Ford is to cancel a $1.6 billion new plant
in Mexico and instead invest $700
million in Michigan to create 700 new
U.S. jobs is indicative of the scale of
uncertainty currently at play.
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Global Manufacturing and FDI
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United States
• Strong and supportive policies and
investment surrounding research &
development and innovation reinforce the
attraction of the US - offsetting the higher
costs.
• Even prior to the 2016 election of President
Elect Trump, a resurgence in manufacturing
in the US.
• While the new president is committed to
bringing manufacturing jobs back to the US,
how this can be managed on any significant
scale without increasing the costs of
production and as such negatively impacting
the competitiveness of the US manufacturers
is yet to be seen.
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Highlights
• Most heavily invested country in
world (US$ Trillions)
• Second largest producer of vehicles
• Some of the largest proven natural
gas reserves
Advantages
• Leader in innovation (largest
spender in research, US$64.4 billion
2013)
• Leader in terms of patents filing
• Focus on start-ups, labs, and
universities to collaborate on R&D
• One of the highest worker
productivities in world
Challenges
• High-cost of labor
• Lack of skilled labor
• Lagging investment in infrastructure
• One of highest corporate tax rates
• Growing investment of R&D in
emerging nations of based foreign
and U.S. companies
• Shifts in trade policy
• Political system
Global Manufacturing and FDI
United States to Remain Leader in FDI
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It’s Huge!
Global Manufacturing and FDI
The Trump Effect
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Global Manufacturing
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The Trump Effect
The impact on the open global economy is in questions and should the
President succeed in implementing his proposed agenda, the effects on
globalization could play out at three levels:
• The U.S. is the world’s largest economy, measured in market dollars, and its third most populated. A partial withdrawal from the global economy by the U.S. is therefore likely to register in measures of globalized stocks and flows, simply by virtue of the country’s size.
THE U.S. TURNING INWARD
• We may see countries retaliate against U.S. protectionist policies. This is the basis for concerns that Trump could precipitate a trade war. The threat has already been made explicit by the state-sponsored Chinese tabloid, Global Times.
BEHAVIOR OF OTHER COUNTRIES
• The breaking of globalization’s first wave a century ago is proof that the forces of global economic integration are neither irresistible nor irreversible.
INJECTION OF A HUGE AMOUNT OF UNCERTAINTY
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Global Manufacturing
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The Trump Effect
Which American producers would suffer most from ending NAFTA?
• Texas faces an average
tariff of only 3%, but its
exports to Mexico are worth
nearly 6% of its GDP
(compared with 1.3%
nationally). In total, as a
percentage of GDP, Texas
would pay more than any
other state.
• Michigan is another state
with reason to worry. Its
exports of cars and parts
would attract tariffs
averaging only about 5%.
But with such shipments
totaling $4.1 B, the bill would
be painfully large.
Alex Frei
Senior Managing Director, Business Incentives Practice
+1 (312) 470 1836
Q&A