Expansion is high on the agenda for the world’s largest manufacturers according to a new report. Many will seek to expand into new markets and geographies as well as develop their product and service lines to meet changing and diversified customers’ expectations. To achieve their strategies, companies are investing heavily in R&D as well as focusing on organic investment.
The latest Global Manufacturing Outlook report from KPMG, titled ‘Competing for growth: How to be a growth leader in industrial manufacturing’, involves a survey conducted by Forbes of 360 senior executives from the manufacturing industry, and considers their outlook in the mid-term. The survey covers respondents distributed across the globe, from all major manufacturing industries – 26% of respondents are from companies with revenues of between $5 and $10 billion, while 9% of respondents work at companies with revenues in excess of $25 billion.
The report finds that the vast majority of respondents are focused on achieving growth in the mid-term, up from the previous period. Over the past 12 to 24 months, growth was a medium priority for 31% of respondents, a high priority for 44% and an extremely high priority for 18%. In the mid-term, the coming 12-24 months, there is a considerable increase in the search for growth. 31% say that the coming months will see an extremely high focus on growth, 43% say there will be a high focus on growth and 23% a medium focus.
The research also suggests that many companies are taking a much more aggressive approach to achieve growth. More than half of the respondents categorise their growth strategies as ‘aggressive’ and more than one-in-six say their growth strategy would be ‘very aggressive’. In the US, 11% of respondents are taking a very aggressive stance, while just 8% of German respondents will do the same. More than a quarter of China’s respondents also say they would follow a very aggressive growth strategy.
To achieve their strategic growth ends, companies are making a series of big moves across a range of business areas. One of the major steps for growth is to enter new geographic markets, at 56% saying that they will take significant steps in that direction while 36% say they will make some such steps. Companies are also seeking to develop the range of services they offer, with 49% planning significant changes while 40% plan to make some changes. Changing the range of products too is high on the agenda, 49% say they will do this to a significant extent and 39% say they will do so to some extent.
Companies are also seeking to enter new sectors, sometimes cross channel, to add features or react to new areas of threats. Tom Mayor, Principal, Strategy Practice, KPMG in the US, remarks “From automakers investing into mobility platforms to defence contractors investing into commercial cyber security services, manufacturers are looking for ways to remain relevant to their customers while defending against potential disruptors and disruptive business models in their core sectors.”
The research finds that, in terms of growth strategies involving expansion, organic, rather than inorganic, is much preferred. 18% of manufacturers plan no M&A activity over the coming two years, while 39% plan some such activity. Only 40% say that they will predominantly be expanding through M&A. Investments will be, according to 61% of respondents, focused primarily on organic growth, while 34% say that they will be focused there to some extent. Only 4% say they will not be investing in organic growth related strategies.
One of the major new focus areas for investment towards achieving growth is R&D. Manufacturing companies are projecting to invest ever larger quantities into R&D; last year a total of $680 billion was invested. Over the coming years the proportion of companies investing between 6-10% of their revenues into R&D is set to increase from 17% over the past two to 28%, while those investing more than 10% of their revenues is set to increase from 17% to 21%.
Nearly 40% says investments will flow towards robotics, while 31% highlights 3D printing – a market set to reach $12.5 billion in 2018 – as a growth area. The results are in line with a recent Strategy& study, which found that Industry 4.0 spending in manufacturing is set to accelerate in the coming years.
“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,” says Doug Gates, KPMG’s Global Chair of Industrial Manufacturing.
The research also finds that investing in overseas operations is predominantly aimed at reducing costs and gaining access to new markets. In terms of reducing costs, 43% said that a move overseas is aimed at lowering manufacturing costs, while 32% say it is one of a few drivers. 34% of respondents say that gaining access to new markets is the primary driver for overseas expansions, while 29% say it is one of a few drivers.
According to the authors, manufacturers in already low-base price regions, are particularly keen to enter new markets, the report states, “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% of those from India said that gaining access to new markets was the primary reason behind their foreign investments”.