Ideas for policymakers: industry.

• Position: News & Numbers

Manufacturing remains a vital source of innovation and competitiveness, but the sector has changed in ways that bring both opportunities and challenges, and neither policymakers nor business leaders can rely on the way things have always been done.

Manufacturing the Future: The Next Era of Global Growth and Innovation, a report by the McKinsey Global Institute, describes the way manufacturing contributes to the global economy today and how it will likely evolve. Its findings include the following:

* Manufacturing's role is changing. The way it contributes to the economy shifts as nations mature: in today's advanced economies, manufacturing promotes innovation, productivity, and trade more than growth and employment. In these countries, manufacturing also has begun to consume more services and to rely more heavily on them to operate.

* Manufacturing is not monolithic. It is a diverse sector with five distinct groups of industries, each with specific drivers of success.

* Manufacturing is entering a dynamic new phase. As a new global consuming class emerges in developing nations, and innovations spark additional demand, global manufacturers will have substantial new opportunities--but in a much more uncertain environment.

The role of manufacturing is evolving in ways that make the traditional view, that manufacturing and services are separate and fundamentally different sectors, outdated. Services make up an increasing amount of manufacturing activity--in the United States, every dollar of manufacturing output requires 19 cents of services. And in some manufacturing industries, more than half of all employees work in service roles, such as R&D engineers and office-support staff.

In established markets, demand is fragmenting as customers ask for greater variation and more types of after-sales service, according to the report. A rich pipeline of innovations in materials and processes--from nanomaterials to 3-D printing to advanced robotics--also promises to create fresh demand and drive further productivity gains across...