The manufacturing industry is decoupling from everything that once sustained its success - and yet it continues to grow. Employment is declining, investments are moving abroad, and central functions are losing importance. What appears to be a contradiction is, in fact, a systemic shift. Growth is still being generated, but no longer on the basis that was long considered stable.
The transformation runs deeper than individual measures might suggest. Companies are not merely reacting to pressure; they are redesigning their operating models. The Horváth CxO Priorities Study shows that several fundamental dynamics are shifting simultaneously. Growth, value creation, and competition no longer follow the same mechanisms as before.
Growth is decoupling from employment
The most visible disconnect can be seen in the relationship between growth and employment. Companies continue to grow while simultaneously reducing headcount and rigorously cutting costs.
On average, company executives expect growth of around four percent. The fact that this level is already considered ambitious illustrates the pressure the manufacturing industry is facing. At the same time, many companies are planning additional cost reductions equivalent to three to five percent of revenue, while key cost drivers continue to rise. As a result, growth is no longer being generated by additional capacity, but by productivity gains.
In manufacturing, management expects workforce reductions averaging about 4.7 percent. Germany is disproportionately affected, particularly in the automotive and mechanical engineering sectors, where tens of thousands of jobs are being eliminated each year. Automation and artificial intelligence are accelerating this trend.
Production moves abroad - Innovation follows
At the same time, value creation is shifting geographically. Investments are consistently following the markets where demand is growing, especially the United States, China, and India. For many companies, there is effectively no alternative to these markets. Simultaneously, value creation is increasingly being relocated to lower-cost regions such as Eastern Europe.
This shift is particularly evident in Germany. A growing share of resources is being used to maintain existing structures, while future-oriented investments are flowing abroad. Only around 40 percent of investments now remain at headquarters - primarily for maintenance purposes.
Research and development are now following this logic as well. Although 85 percent of executives view innovation as crucial, development activities are progressively being moved closer to the end markets. Companies are looking for solutions that meet regional requirements and can be adapted more quickly. As a result, innovation is organized closer to the market and is becoming decoupled from the company’s location.
China becomes the benchmark: Those who are too slow will lose
As value creation shifts, the pressure to move faster is rising. Around nine out of ten executives see a real risk of losing market share if they fail to significantly accelerate their processes.
China, in particular, demonstrates just how quickly new products can be developed, industrialized, and brought to market. Companies must achieve this level of “China Speed” in both production cycles and technology adoption if they want to maintain their market position. Speed is becoming the decisive competitive factor.
The key to this does not lie in isolated measures but in a different dynamic within the company. Processes must become faster, and decision-making must move closer to the market. This fundamentally changes organizational structures: responsibility shifts to regional units, central functions lose operational relevance, and organizations become more decentralized. Value creation increasingly takes place where it is needed: in “local-for-local” structures.
New business areas remain limited
Given these structural shifts, many companies are seeking additional growth opportunities, particularly in the defense sector. Roughly one in four companies plans to enter or expand its presence in this sector. In some industries, such as metals and mining and mechanical and plant engineering, the momentum is particularly strong.
Expectations are correspondingly ambitious. Many companies are anticipating revenue contributions of seven to nine percent. At the same time, a significant gap between ambition and reality is becoming apparent. Three out of four companies do not yet have a concrete implementation plan.
In addition, the potential is often overestimated. The global defense market is too small to offset the manufacturing industry’s structural challenges. New business areas can provide momentum, but they cannot replace a competitive core business.
The leaders of tomorrow are being decided today
Current developments reinforce one another and are fundamentally reshaping the manufacturing industry. Growth is emerging in new ways, value creation is shifting, innovation is driven by the market, and speed is becoming the defining factor. The traditional success model is proving increasingly less effective in its original form.
For top management, the implication is clear: the central question is no longer how to optimize the existing model, but whether that model is still suited to the changing environment. The answer to that question will determine who remains competitive in the future.
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Dr. Ralf Sauter
Heiko Fink
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