“Manufacturers really have no choice but to start expanding into new markets and adjacent sectors for high growth opportunities.” – Mark Barnes, KPMG’s Global Head of Growth Markets
You need to shake up the status quo if you want to create new opportunities. And manufacturers seem to be doing just that. In fact, almost every manufacturer says they will enter into a new geographic market over the next 2 years in the pursuit of growth. But this round of overseas expansion is not just about low-cost labor and manufacturing – this time, it’s about creating and maximizing new markets.
If you live in the emerging markets, get ready for a tidal wave of new products, new brands and new competitors. Pretty much every manufacturer in the world is hoping to achieve global growth by entering into new markets. According to KPMG International’s 2016 Global Manufacturing Outlook, 92 percent of executives now plan to enter into new geographic markets.
Clearly, a significant number of these companies are hoping to tap into low-cost manufacturing destinations in an effort to further reduce costs. But more than a third of respondents to our survey told us they were investing in order to gain access to new markets, signaling an intention to grow their top-line by moving closer to growing consumer bases.
“Particularly for sectors like aerospace and defense and automotive, where the forecasts for the mature markets seems to point to slower growth and high pricing pressures, the only real way to grow the pie is by creating and selling to new markets,” noted Mark Barnes, KPMG’s Global Head of Growth Markets. “It’s no wonder manufacturers are looking to India, China and ASEAN as their next growth opportunity.”
Likely the most striking data to come from this survey may be the growing foreign ambitions of emerging market manufacturers. India’s respondents were the most likely to say that they would be investing into new markets in order to lower costs, suggesting strong intentions to move further up the manufacturing value chain. Similarly, 44 percent of China’s respondents said they would be investing into new geographies to gain access to new markets.
“China’s government has indicated a renewed focus towards encouraging Overseas Direct Investment (ODI) by Chinese companies and China’s manufacturers are therefore looking for opportunities to use their investments to improve access to new overseas markets,” adds David Frey, a Partner with KPMG’s Markets Strategy practice in China.
With manufacturers stating clear intentions to concentrate their focus on to key markets to support growth, we believe that executives should now be taking a broader view of their portfolio of businesses and markets to ensure they are aligned to their long-term growth objectives.
What are leading manufacturers doing to respond?