Manufacturing in a high cost environment: Basis for future success on the national level

Abstract

This chapter explores the current state of flux in manufacturing. It examines the forces that drive fragmentation and dispersion of value chains on the one hand and those that drive concentration and integration of value chains on the other. These forces are underpinned by changes in technology, wage costs, business environment, importance of economies of scale for production, need for interaction with customers and input providers, needs for skills in the manufacturing workforce, and the workings of industrial commons and economic complexity. Analysing these changes at the level of the firm, this chapter puts the competitive focus on the creation of value more than on cutting costs (although both are important). The policy environment must provide both carrot and stick to ensure that firms align with these developments. In this dynamic world, an effective policy response requires a shift from any single dominating economic lens (e.g. neo-classical, neo-Keynesian, neo-Schumpeterian, evolutionary) to a situation-specific approach.