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World Bank Report: Technology Threatens to Draw New Sourcing Map

As advances in technology and changing trade patterns affect opportunities for export-led manufacturing, innovations like smart automation, advanced robotics and 3-D printing are increasingly influencing which locations are attractive for production, according to a new report from the World Bank.

While these shifts threaten significant disruptions in future employment, particularly for low-skilled workers, they also offer opportunities, as noted in the report, “Trouble in the Making? The Future of Manufacturing-Led Development.”

The report underscores the resulting changes in the manufacturing sector’s ability to create jobs and lift people out of poverty in developing countries, and encourages policymakers to adjust their approach to spurring job creation in manufacturing and readying workers for the jobs of the future.

“Technology and globalization are changing how manufacturing contributes to development,” said Anabel Gonzalez, the World Bank Group’s senior director for trade and competitiveness. “We will need to embrace this change rather than fear it. 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.”

Impact of 3-D printing, robotics and smart automation

Changing technologies and shifting globalization patterns are destined to reshape manufacturing-led development strategies, according to the report. Global value chains remain concentrated among a relatively small number of countries, and smart automation, advanced robotics, 3-D printing and other advances being incorporated by global manufacturers of apparel, cars, electronics, consumer and other goods are shifting how countries and firms compete for production.

The report noted that despite early signs of the use of 3-D printing in the textiles, apparel and leather product subsectors, large-scale relocation from the world’s current largest producers appears unlikely. However, while manufacturers of apparel and leather goods have traditionally sourced production in countries with low labor costs, greater demands for customization opens up the possibility of 3-D printed goods, which are design-intensive, typically produced in small batches on short cycles, and require proximity to consumer markets.

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World Bank cited footwear manufacturing as an example, where 3-D printing can dramatically shorten the design-to-production cycle from 18 months to less than a week. Adidas has established “Speedfactories” in Ansbach, Germany and Atlanta, which will use computerized knitting, robotic cutting, and 3-D printing almost exclusively to produce athletic footwear. The two Speedfactories are expected to initially produce around 500,000 pairs of shoes per year in the near term, accounting for only a small percentage of Adidas’ athletic footwear.

[Read more about advances in digital printing: Kornit Helps Drive Digital Printing Sea Change]

In the area of robotics, the report noted that even in labor-intensive industries, like apparel manufacturing, that are characterized by negligible robot use at present, there is the potential risk of automation in the future given that these industries have the highest shares of blue-collar workers among all manufacturing sectors performing repetitive manual tasks.

While these trends raise concerns that manufacturing will no longer offer an accessible pathway to growth for low- and middle-income countries, the report seeks to identify policy priorities that can help these economies face the challenges and embrace the opportunities they bring.

“Countries can seize promising new opportunities for productivity growth and job creation if policymakers pursue approaches that adapt to changing technologies and changing patterns of globalization,” said Mary Hallward-Driemeier, a senior economic advisor in the World Bank Group’s Trade & Competitiveness Global Practice and the report’s co-author. “Those countries that don’t are likely to face not just economic costs, but also social costs associated with increased inequality and more limited access to opportunities.”

The 3 Cs

The report offers “3 Cs” for countries seeking to bolster their manufacturing sectors: competitiveness, capabilities and connectedness.

Ensuring competitiveness will increase the importance of reforms that reduce unit-labor costs, the report said. But it will also require each economy to be better able to consider new business models, seek new contracting relationships that embrace new technologies and devise new ways for manufactured goods to also deliver services.

Building capabilities will involve giving workers new sets of skills, strengthening firms’ abilities to absorb new technologies, and providing new infrastructure and new rules to support the use of new technologies. Promoting connectedness will continue to emphasize openness to trade in goods, including raw materials and components. But it also increases the importance of grasping the synergies with services that are increasingly embodied and embedded within manufactured goods.

“New processes and new technologies will change how traditional goods are made,” said Gaurav Nayyar, an economist in the World Bank Group’s Trade & Competitiveness Global Practice and also a co-author of the report. “To make the most of each economy’s potential, policymakers and private-sector decision-makers will need to seize new opportunities by re-thinking their manufacturing-led development strategies.”