Beyond Cost 2024

Executive summary Ongoing global supply chain disruptions are pushing manufacturers to rethink their operations. Rather than solely focusing on cost, they are now balancing cost considerations with factors including performance, resilience and sustainability. For many, this means a renewed focus on regionalization, with over 90% of manufacturers prioritizing this approach according to a survey by the World Economic Forum and Kearney involving over 300 global operations executives and 60 consultations. Findings from this survey (captured in the previous white paper From Disruption to Opportunity: Strategies from Rewiring Global Value Chains), show that close to two-thirds of manufacturers are adopting a “power-of-two” geographical approach, ensuring the majority of their direct spending is sourced from two separate regions. Analysis of macro-dynamic shifts from the early 2000s financial crisis to the present day, together with national strategies aimed at expanding the manufacturing sector, reveals four distinct country archetypes defined by two key dimensions: the contribution of manufacturing to gross domestic product (GDP) and the level of GDP per capita: –Adapter: limited contribution of the manufacturing sector to GDP , and a GDP per capita level that sits below the global average –Converger: limited contribution of the manufacturing sector to GDP , and a GDP per capita level that sits above the global average –Connector: strong contribution of the manufacturing sector to GDP , together with a GDP per capita level below the global average –Scaler: strong contribution of the manufacturing sector to GDP , together with a GDP per capita level above the global average As countries prepare their systems for the future of manufacturing, foreign investment is increasingly favouring nations that proactively invest in and adopt policies across a holistic array of readiness factors, marking a striking paradigm shift beyond the cost advantage, which used to be the primary factor in the past few decades. These readiness factors are: –Infrastructure – physical and intelligent infrastructure –Energy and resources – natural resources and the energy mix –Technology – the innovation system, technology adoption and intellectual property –Labour and skills – skill levels, labour flexibility and retention, and workforce costs and availability –Fiscal and regulatory policies – tax policies, the regulatory environment and the availability of capital –Geopolitical landscape – trade policies, international relations and political developments –Environmental, social and governance – sustainability, net zero, social responsibility and governance Each of these readiness factors is underpinned by an array of indices (see Appendix 1). While these factors are instrumental in shaping a favourable environment, they alone do not guarantee a country’s status as a preferred manufacturing destination. Additional drivers, including cost, market access and political priorities, play significant roles in determining manufacturing attractiveness. While the weight of these factors will vary by company, industry and position along the value chain, creating a favourable environment for investment and policy innovation is becoming a crucial differentiator for countries aiming to broaden their industrial agendas. This paper provides examples of best-practice policy interventions and public-private partnerships to help guide decision- makers in the design and implementation of next- generation industrial strategies. Creating a favourable environment for the manufacturing and supply chains sector to flourish will require continuous discourse. Going forward, the World Economic Forum will continue to provide a neutral space and network for manufacturers across industries, the public sector, civil society and academia to successfully navigate these evolving market conditions to facilitate positive economic, environmental and societal impact.Beyond cost, seven readiness factors are crucial for countries aiming to become attractive destinations for foreign investment. Beyond Cost: Country Readiness for the Future of Manufacturing and Supply Chains 4