With 74 percent of manufacturing company CEOs responding to KPMG International’s 2016 Global Manufacturing Outlook (GMO) reporting growth as a high priority over the next two years the competition for market share is fierce. And, many are planning rather aggressive strategies in the pursuit of their growth objectives.
More than half of the manufacturing CEOs responding to the KPMG GMO survey categorize their growth strategies as ‘aggressive’ and more than one-in-six say their growth strategy is ‘very aggressive’.
According to Doug Gates, KPMG’s Global Chair of Industrial Manufacturing:
“There are fierce competitions being fought over every scrap of market share available and we will certainly see winners and losers. Maintaining the status quo will not drive growth. Manufacturers need to do something different in order to win market share in today’s environment.”
Indeed, KPMG’s GMO survey shows that the responding CEOs do have plans to achieve their growth objectives through multiple channels. With a preference for organic growth over M&A activity (61 percent versus 40 percent respectively), most manufacturing CEOs say they will leverage the opportunities in entering new markets and making changes to current service and product mixes.
Entering new markets
Ninety-two percent of KPMG’s GMO survey respondents are stepping up their focus on entering new markets over the next two years. Forty-three percent say their primary motivation for foreign investment is to capitalize on lower cost manufacturing opportunities and 34 percent say it is to gain access to new markets.
Ironically, while many Western manufacturers are talking about a ‘sell to China’ strategy, it is actually respondents from the emerging markets (India and China in particular) that are most likely to be investing in order to gain access to new markets. Forty-four percent of respondents from China and 47 percent of those from India said that gaining access to new markets was the primary reason behind their foreign investments
Changing and investing in new services and products
Of the respondents indicating plans to change their product range, more than half (56 percent) say they will make significant investments to launch one or more new products into the market; Thirty-nine percent say they will invest to launch one or more new services.
“Whether investing in incremental improvements for existing products or inventing entirely new products and services, what is clear is that manufacturers recognize an urgent need to increase their investment into innovation and R&D. Over the past three years KPMG has been tracking manufacturers’ investment intentions. The KPMG data shows that, following a drop in R&D in 2014, investment expectations skyrocketed in 2015 and seem set to continue to grow in 2016,” says Gates.
More than one-in-five (21 percent) of all KPMG’s GMO survey respondents say they expect to spend more than 10 percent of revenues on R&D over the next two years. Almost half (49 percent) say they will spend 6 percent of revenues or more (in the next two years).
Taking the manufacturing floor high-tech
Respondents to the GMO survey are showing progression to an integrated manufacturing strategy and having a digital factory. Twenty-five percent of the CEOs responding to KPMG’s GMO survey say they have already invested in 3D printing and additive manufacturing technologies. An equal number say they have already invested in artificial intelligence and cognitive computing technologies.
KPMG’s GMO survey shows that the use of robotics on the manufacturing floor is also likely to attract significant investment. In fact, almost two-fifths of survey respondents say they will definitely channel significant amounts of their R&D investments towards robotics over the next two years.
“Manufacturers are evolving into industry 4.0 and becoming more digital. Investments into new manufacturing technologies are a way to enhance agility, flexibility and speed to market when designing and launching new products and services – critical elements for manufacturing companies to win in the marketplace,” concludes Gates.
KPMG’s 2016 Global Manufacturing Outlook is based on a survey of 360 senior executives conducted in early 2016 by Forbes Insights. Respondents, who represented six industry sectors (Aerospace & Defense, Automotive, Conglomerates, Medical Devices, Engineering and Industrial Products, and Metals), were fairly evenly distributed between the Americas, Europe and Asia.
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The views and opinions expressed herein are the personal opinions of the interviewees and authors based on their personal experience working as Auditors in the industry and do not necessarily represent the views or opinions of KPMG International or any KPMG member firm.