The Global Competitiveness Forum in Riyadh is a symbol of the how seriously economic development is taken within Saudi Arabia. This event has become a focal point for international debate and discussion of global development issues, and I am honored to be asked to participate.

The issue I have chosen to address, and which I believe is of high relevance to Saudi Arabia, is the importance of the development of a balanced economy which embraces the benefits of high value manufacturing. High value activity is, I believe, a key to economic success, and those countries which invest in high value activity reap benefits which will drive long-term economic success.

High value manufacturing includes activities that involve what I call “deep knowledge”. There is not one straightforward way the value is created, but there are a number of key components, which help organizations drive value through manufacturing. These include utilizing research and technology and exploiting scientific and experiential intellectual property. High value activity requires a profound understanding of the customer and solutions which are developed to meet customers complex requirements. All in all, it is difficult to do well.

By way of illustration, let me take just one small component that is key to the success of Rolls-Royce aero engines. This component is a “single crystal turbine blade” manufactured by Rolls-Royce.

There are 66 single crystal turbine blades in the Rolls-Royce Trent 1000 engine, which powered the Boeing 787’s first flight last month. Each blade is grown in a vacuum furnace from a single crystal of a proprietary Rolls-Royce alloy. It must survive in a gas stream hotter by 350º Celsius than its melting point. It develops the same power as a Formula One racing car and endures a force equivalent to hanging a double decker London bus from its tip.

It requires the skills of material scientists, metallurgists, mathematicians, aerodynamicists, combustion engineers, aero thermal engineers, stress engineers, manufacturing engineers, process engineers, procurement specialists and logisticians, to name but a few. And it is just one of over 2,500 different parts in a typical aero engine.

High value manufacturing is important for any economy because, first and foremost, it creates wealth. It is a slightly congratulatory statistic but pound for pound an aircraft engine is six times more valuable than silver. Whereas using on the same comparison, pound for pound, a motorcar has the same value as a hamburger. It is no coincidence that the top three national economies in this year’s Global Competitiveness Index — Switzerland, the US and Singapore — share many of the same characteristics: High levels of R&D investment, strong collaboration between industry and academia, the successful translation of research into marketable products and services, and flexible labor markets.

Another benefit of investing in high value activities is that they open up new choices for individuals, companies and a country as a whole.

When any company seeks to develop its capability in advanced sectors, whether aerospace, pharmaceuticals, medical diagnostics, nuclear power or information technology, the implications of failure are immense. So you hone your technologies, skills and processes to the highest levels, often operating at the very limits of what is possible.

The capabilities which you acquire are all transferable to other areas and therefore open up new opportunities for all those involved.

These opportunities are not restricted to manufacturing: the ability of the manufacturing sector to create new service activities is well documented.

At Rolls-Royce, around 50 percent of our revenues come from high value services based on our customer and product knowledge. At a country level, the Singapore Economic Development Board has calculated that every $1 worth of manufacturing activity creates 90 cents of related services.

As well as creating choices, high value activities are defensive, in the sense that they create significant barriers to entry and can therefore enable any country to respond more effectively to increasingly intense global competition.

For example, look at China and India: Both countries have, of course, already developed strong manufacturing sectors, with China’s exports of manufactured goods now amounting to around $1.2 trillion a year and India’s, $93 billion. Most people make the mistake of characterizing this manufacturing as low value assembly but in fact China and India are already moving rapidly up the value chain. So it is vital that any country seeking to develop its industrial capability should focus on the high end of the value chain if it is to succeed in increasingly competitive, global markets.

For the reasons I have described, I believe that any country seeking to diversify and develop its economy to deliver long term growth, should target high value industries. Concentrating on low value, high volume production would be a recipe for failure given the speed with which most other countries are already moving up the value chain.

This is a particularly relevant consideration for Saudi Arabia as ambitious plans for a series of “economic cities” across the Kingdom are being realized. The only way that this very considerable investment will be sustainable is if a conscious decision is taken to focus on the high end of the value chain.

High value industries can only be successful if the right education and skills are available to sustain them. Another key priority therefore should be to ensure that there is a strong correlation between the types of skills being produced and the high value activities that they will support.

That is why developments like the King Abdullah University of Science and Technology are so important for the future development of the Kingdom. Apart from equipping the country with the skills it will need for the twenty first century, the university will increase the Kingdom’s attractiveness as a location for high value, mobile investment. For example, if you examine where Rolls-Royce locates its new investments, we are increasingly attracted to countries with high educational standards such as the US, Germany, Scandinavia and Singapore, and we actively seek to work closely with highly respected science and technology research centers.

Another important mechanism for delivering high value added activity is the creation of an environment that allows globally competitive hubs to form and flourish. The Saudi government’s determination to build a series of economic cities across the Kingdom as a way of creating new opportunities for the large numbers of young people leaving the education system is an encouraging step in creating this environment. The flagship King Abdullah Economic City, north of Jeddah, is a striking example of what can be achieved with strong vision, a clear sense of direction and the determination to make things happen.

One final point to be considered is that it will be very hard for the Kingdom to deliver this degree of change without involving companies and investors from outside Saudi Arabia. The global marketplace is intensely competitive and it is right that the government here should be focusing its activities on making the Kingdom a highly attractive location for global companies who can invest and further develop the local skills base. Rolls-Royce has been active here for over 50 years and looks forward to continuing to support the important initiatives currently underway.

(Sir John Rose is chief executive of Rolls-Royce plc. This article is adapted from his recent address to The Global Competitiveness Forum, Riyadh.)