Efficiency in Manufacturing and the Need for Global Competition

Abstract

JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org. This content downloaded from 146.ON AVERAGE, manufacturing productivity (measured by real value added per hour) is higher in U.S. operations than in Japanese or European operations, but productivity by industry varies substantially from country to country.' What is not well established is why such international productivity differences exist. This paper explores international productivity differences in manufacturing industries across Germany, Japan, and the United States and offers an explanation for them.We develop an extension and a refinement of the industry-of-origin method to provide new measures of productivity in nine industries located in the three countries (automobiles, automotive parts, metalworking, steel, computers, consumer electronics, food, beer, and soap and detergent). Then we combine publicly available data with the industry knowledge and assessments by experts within McKinsey & Company to determine the reasons for productivity differences. The nature of the explanation takes place at two levels, the first of which is at the production process level. We look for differences in the use of capital, technology, and skills-how the variables that enter the production As an illustration, consider the following two examples. First, in the 1980s German industry, on average, fell behind best-practice methods despite the competition it faced within Europe. During the 1960s and 1970s, manufacturers in Germany raised productivity rapidly, achieving almost complete convergence with the United States in manufacturing productivity. But in the 1980s, German industries still concentrated on competition in Europe, where they had a significant productivity advantage, and did not compete against the emerging productivity leaders in Japan in the same way as U.S. companies did. For example, direct competition from leading Japanese producers caused the exposed U.S. automobile industry to respond with high productivity, while by 1990 the German industry-much more sheltered from Japanese competition-had done little to increase its productivity. Second, we observed marked productivity disparities within Japan. Those parts of Japanese manufacturing that competed in world markets had achieved best-practice methods or close to it. Those industries that competed domestically had relatively low productivity, even though the domestic industry could be quite competitive.This study parallels the findings of the earlier McKinsey study on productivity in the service sector and adds to the validity of those results by finding a similar effect of competition on productivity in the manufacturing sector.2 Moreover, we were able to be more specific and detailed in describing how productivity differenc...

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