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The Innovation Imperative in Manufacturing: How the United States Can Restore Its Edge

Area Development Online Research Desk (3-09-2009)
The United States ranked eighth in innovation leadership among 110 countries, according to a new report produced jointly by The Boston Consulting Group (BCG), the National Association of Manufacturers (NAM), and The Manufacturing Institute (MI), the NAM's nonpartisan research affiliate. Singapore topped the list, followed by South Korea and Switzerland. The United States ranked second among large countries (as measured by GDP), behind South Korea.

The BCG/NAM/MI International Innovation Index is part of a broad research study that looked at both the business outcomes of innovation and government's ability to encourage and support innovation through public policy. The study comprised a survey of more than 1,000 senior executives from NAM member companies across all industries; in-depth interviews with 30 of the executives; and a comparison of the "innovation friendliness" of 110 countries and all 50 U.S. states.

The report discusses not only country performance, but also what companies are doing and should be doing to spur innovation. It looks at a host of new policy indicators for innovation, including tax incentives and policies for immigration, education, and intellectual property.

"America needs a bold innovation strategy," said NAM President and Chief Executive Officer John Engler. "U.S. manufacturing innovation leadership is at risk. We've fallen behind countries in East Asia and Europe. America cannot afford to lose its manufacturing innovation edge and the wealth and jobs that it generates throughout our economy. Government can help move America up the innovation index by enacting more competitive tax, trade, and work force policies that enable U.S. manufacturers to innovate and succeed globally."

"In today's global economy, innovation is critical," said co-author James P. Andrew, a BCG senior partner and global leader of the firm's innovation activities. "The emergence of challengers from rapidly developing economies such as India and China has transformed the playing field. With high-quality, inexpensive products flooding the market from every corner of the globe, competing on cost alone is a losing battle for most U.S.-based manufacturers."

"A skilled, educated work force is the most critical element of innovation success - and the hardest asset to acquire. The study shows that in companies and countries alike, a high number of researchers and advanced degrees - particularly in science and engineering - are the greatest predictor of success. Innovation requires capable and skilled people at every level - from the factory floor to the top floor," added co-author Emily Stover DeRocco, president of The Manufacturing Institute.

Six states scored above average in both their innovation policy environment and performance: California, Connecticut, Delaware, Massachusetts, New York, and Washington. Overall, however, the study found the states are quite similar with respect to innovation. The key reasons are that federal policy is the same across all states, and the United States has an "American culture" that affects the overall business climate, overriding the wide variety of geographies, industries, and demographics.

To rank the countries and states, the study measured both innovation inputs -e.g., government and fiscal policy, education policy, and the innovation environment - and innovation outputs - e.g., patents, technology transfer, and the impact of innovation on business migration and economic growth among other measures.

The report names four critical factors that lead to innovation success:

1. idea generation
2. structured processes
3. leadership
4. skilled workers

It also stresses that government must support these efforts through effective policies and suggests six concrete actions that states and countries can take to help drive forward innovation in manufacturing:

1. Strengthen the work force.
2. Maintain a strong manufacturing base.
3. Lead by example.
4. Make innovation easier.
5. Improve the payback.
6. Be consistent with policies.

     
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