The majority of Dutch manufacturing companies are not ready for the future. For instance, almost 80 per cent of manufacturing companies are insufficiently prepared for technological developments, 42 per cent are insufficiently prepared for trade barriers and 44 per cent are hardly engaged in sustainability. Focusing more on management practices and investing in R&D is the motto. So write Rabobank economists in their study Towards a future manufacturing industry, published today.
What can manufacturing companies do to keep growing? And how can they arm themselves against the challenges of the future? To answer these questions, the Rabo economists conducted a survey of 464 Dutch manufacturing companies, including 262 manufacturing companies. Sjoerd Hardeman, one of the authors of the study, explains, "Our survey shows that most manufacturing companies have grown in turnover in recent years, but that the majority of them are not prepared for future challenges in terms of new technologies, internationalisation and sustainability."
Investment and management practices key growth drivers
The key question is, of course, what does and does not contribute to the turnover growth of manufacturing companies, now and in the future. What knobs can companies turn? Hardeman: "By comparing investment and turnover growth, we get an impression of the relationship between investment and growth at the moment. This relationship is clearly positive and also significant from a statistical point of view. It is striking that manufacturing companies that invest a lot also grow faster."
Rabobank economists have also investigated the relationship between the quality of management practices and revenue growth in industrial companies. Hardeman: “In previous research, we had already shown that the quality of management practices is linked to labour productivity in medium-sized and large industrial firms. It now appears that good management practices are not only positively and significantly correlated with labour productivity, but also with revenue growth in industrial firms. Moreover, the effect of management practices on turnover growth is substantial: companies with the worst possible management practices that manage to improve them to the best possible level increase their chances of experiencing very rapid growth by as much as 35 per cent.”
Challenges for the future
The environment in which manufacturing companies operate is not standing still, Hardeman stresses. "Right now, industrial companies, like companies in other sectors, are facing labour market tightness. Towards the future, at least three challenges will be added: industrial companies are facing new technologies such as Artificial Intelligence and Big Data, given their dependence on imports and exports, they may have to deal with the consequences of increasing trade barriers, and the call for sustainability will not pass industrial companies by either. Zooming in on the factors associated with future-proofing, we see that, just as for revenue growth, the quality of management practices again matters."
Besides the quality of management practices, the analyses show that factors such as R&D intensity of investments, the education level of employees and the extent to which employees undergo training play a role in the future readiness of manufacturing companies. Hardeman: "So while for turnover growth, the level of investment matters, it turns out that for the future-proofing of manufacturing companies, it is mainly the type of investment that matters: the greater the share of investment that goes into research and development, the greater the future-proofing of manufacturing companies. And while our analyses surprisingly do not show that education level and training of employees directly contribute to firms' turnover growth, these two factors do matter for their future resilience. Add to this the fact that employee education level and training contribute to the quality of human resource management, and it is clear that paying attention to the knowledge and skills level of employees is indispensable for the industrial company of the future."
