Double-edged sword If McKinsey’s analysis is correct, next-shoring is a sword that could cut both ways. If manufacturers are moving closer to where products are bought and to centres of innovation, the tide of reshoring could turn back just as quickly in the direction of China or other developing countries because that’s where demand and innovation capacities are rising fastest. “By 2025, half the world population will be in the consuming class and 53% of those will live in the developing world, most of them in cities,” says Simpson. And many of the world’s innovation
brains already reside in developing countries, mostly in China and India. Many think that the US has the highest brain count in the world, but that is not the case. “China has the largest R&D population in the world,” says Simpson. There is a crucial lesson here: manu-
facturing, R&D and innovation are inti- mately linked. In fact, the largest and most significant part of innovation arises from the manufacturing part of the economy. “Manufacturing ... accounts for 90% of [US] patents and R&D spending according to the US International Trade Commission and the Department of Commerce,” Clinton said in the Bloomberg Businessweek interview. In Canada, according to Canadian Manufacturers and Exporters, 55% of business R&D expen- ditures issued from manufacturing in 2012. Everyone agrees that innovation is
the key to our future prosperity, but what is now becoming clearer is that the path that leads to innovation essentially passes through manufacturing. A country that loses its manufacturing is at risk of losing its innovation capacity, claim Harvard Business School profes- sors Gary Pisano and Willy Shih, authors of articles and books seminal in the US manufacturing revival. Pisano and Shih give a stark example
of an innovation drain. “In the semi- conductor industry, outside of Intel and a few smaller players, most US semi- conductor manufacturing has moved offshore to Taiwan, Singapore, South
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Korea and increasingly China,” says Shih in a 2011 Harvard Business School newsletter interview. “As more and more capability moved offshore, other industries in the host coun- tries have benefited from the semiconductor manufacturers’ capabilities. It’s no coincidence that the entire flat-panel display industry emerged from semiconductor industry
THE UNIVERSITY OF BRITISH COLUMBIA
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