Manufacturing CEOs plan aggressive growth strategies: KPMG

With competition becoming fierce, manufacturing CEOs globally are looking to adopt aggressive strategies to achieve growth and gain market share, according to KPMG International’s 2016 Global Manufacturing Outlook (GMO) survey report. For 74 percent of manufacturing company CEOs, growth was a high priority over the next two years as the competition for market share is fierce and many are planning rather aggressive strategies in the pursuit of their growth objectives, stated the survey.

More than half of the manufacturing CEOs responding to the KPMG GMO survey categorise their growth strategies as ‘aggressive’ and more than one-in-six say their growth strategy is ‘very aggressive’.  

KPMG’s 2016 GMO surveyed about 360 senior executives representing six industry sectors (aerospace & defense, automotive, conglomerates, medical devices, engineering and industrial products, and metals) and were evenly distributed between the Americas, Europe and Asia. 

Doug Gates, KPMG’s global chair of industrial manufacturing, commented, “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.”

According to S V Sukumar, partner and head of industrial manufacturing, KPMG in India, global manufacturers cannot afford to ignore India any longer because domestic consumption is on the rise. “Supported by growing consumer affluence and strong economic growth, India’s domestic market has become one of the largest in the world. And as the Indian government invests further into infrastructure such as roads, rails and ports, the domestic market is only expected to grow,” he added.

Indeed, KPMG’s GMO survey showed 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 said they would leverage the opportunities in entering new markets and make changes to current service and product mixes. 

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 said their primary motivation for foreign investment is to capitalise 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.

Of the respondents indicating plans to change their product range, more than half (56 percent) said they will make significant investments to launch one or more new products into the market; Thirty-nine percent stated that 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 recognise 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,” said Gates. 

Sukumar commented, “India is proving itself to be a valuable hub from which to sell to smaller - yet growing - markets in the region, as well as larger - yet less cost effective or less stable - emerging markets. Simply put, manufacturers see India as both a low-cost regional manufacturing center and as a vital customer market. Nearly 62 percent of Indian respondents have confirmed their plans to make significant investments to launch new products.”

More than one-in-five (21 percent) of all KPMG’s GMO survey respondents said 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). 

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 stated that they have already invested in 3D printing and additive manufacturing technologies. An equal number said they have already invested in artificial intelligence and cognitive computing technologies. 

KPMG’s GMO survey showed that the use of robotics on the manufacturing floor is also likely to attract significant investment. In fact, almost two-fifths of survey respondents said 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,” concluded Gates.

Sukumar added, “As an increasingly important and integrated part of the global supply chain, India’s manufacturers are now starting to recognise that they are not immune to the economic shocks and disruption of other markets. For growth to be sustainable, therefore, India’s manufacturers - and those foreign players that rely on India’s shop floors - will need to rethink their risk exposure and manage their risks appropriately. At a time when manufacturers around the world are dealing with deep uncertainty, India is emerging as a strong and reliable bet.”