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R&D and innovation are key priorities for China's manufacturers, finds KPMG survey

R&D and innovation are key priorities for China's ...

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A majority of manufacturers in China plan to increase R&D expenditure in order to drive growth, while 40 percent will focus on adopting new manufacturing technologies and expanding market reach, according to an annual KPMG global survey. 

The report, titled Preparing for Battle: Manufacturers Get Ready for Transformation, surveyed 386 senior executives, including 40 from China, across six industries – aerospace and defense, automotive, conglomerates, consumer products, engineering and industrial products, and metals. 

A significant majority (93 percent) plan to spend at least 4 percent of revenues on R&D over the next 24 months, compared to 65 percent in the past two years, the survey finds. In contrast, 59 percent of global manufacturers spent over 4 percent of revenue on R&D in the last two years, while 74 percent said they plan to do so in the next 24 months.

David Frey, Partner, Markets Strategy, KPMG China, says: “Many of China’s manufacturers are now looking to innovation and expansion to achieve their growth targets. China’s government is already taking significant steps to encourage entrepreneurship and innovation as a way to spur economic growth. Government incentives will cause more and more innovation to arise within the small-medium enterprise (SME) segment. This will increase the importance of M&A as a driver of differentiation for China's leading manufacturers."

On the flipside, 48 percent of respondents highlighted R&D inefficiencies as a key challenge for their business in the next 24 months, in addition to intense competition and pricing pressures. 

Alex Shum, Partner, Head of Industrial Manufacturing, KPMG China, adds: "Striking the difficult balance between price point and feature and quality innovation remains a primary determinant of success in the China manufacturing industry. Domestic manufacturers have competed in the past on price and scale. As the market matures, we observe increasing demand for quality and safety features in manufactured products, and price point calculations of the past no longer apply.  This trend is further accelerated by tightening environmental regulations in China."

Meanwhile, almost six in ten (58 percent) of respondents in China identified sales growth as one of their top strategic priorities in the next two years, followed by development of new products (53 percent) and reducing cost structures (43 percent).

“China’s manufacturers are also increasingly looking overseas for growth which, in turn, is accelerating change within the domestic manufacturing industry. Recent activity suggests that Chinese manufacturers’ overseas acquisition strategies may be less about conquering new markets abroad in the near term, and more about gaining access to new technologies, know-how and processes that can be integrated back into the business to improve competitiveness in the domestic market over the medium to long-term,” explains Frey. 

In terms of the supply chain, 60 percent of China respondents indicated that lowering costs and working capital levels are strategic priorities. When asked to rate their top supply chain challenges, lack of competitive cost structures was the most frequently cited (45 percent), followed by concerns relating to supplier performance (in terms of risk, reliability and quality) and ensuring sufficient supplier capacity to meet demand and support new product launches.

To address these issues, 43 percent said they will allocate more than one-fifth of their supply chain investment to improving their procurement systems, according to the survey.

Shum concludes: “China’s manufacturers are looking for new opportunities to grow and compete. Given the scale and pace of change in China, we expect to see new innovations emerge that will push manufacturers well beyond the ‘imitator’ space and into the ‘creator’ space.”

 

– Ends –

 

About the Global Manufacturing Outlook

The Global Manufacturing Outlook (GMO) 2015 is based on a survey of 386 senior executives, conducted by Forbes on behalf of KPMG International, and was completed in early 2015. Respondents represented six industries: Aerospace & Defense, Automotive, Conglomerates, Medical Devices, Engineering and Industrial Products, and Metals. 

All respondents included in our survey held Director-level or C-Suite roles within their organization and 63 percent represented organizations with more than USD5 billion in annual revenue. Respondents were distributed fairly evenly between the Americas, Europe and Asia. 

 

About KPMG

KPMG is a global network of professional firms providing Audit, Tax and Advisory services.  We operate in 155 countries and have more than 162,000 people working in member firms around the world.  The independent member firms of the KPMG network are affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.  Each KPMG firm is a legally distinct and separate entity and describes itself as such. 

KPMG China has 16 offices in Beijing, Chengdu, Chongqing, Foshan, Fuzhou, Guangzhou, Hangzhou, Nanjing, Qingdao, Shanghai, Shenyang, Shenzhen, Tianjin, Xiamen, Hong Kong SAR and Macau SAR, with around 9,000 people. 

KPMG China refers to the member firms of KPMG International in Mainland China, Hong Kong SAR and Macau SAR.

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