The global economic recovery faltered during 2011. The euro zone lurched from one debt crisis to another, geopolitical tensions affected the oil market and volatile commodity prices posed new levels of supply chain challenges – all threatening the vitality of the global economy. These macroeconomic uncertainties, coupled with high levels of household debt across the developed world, reduced the growth rate of world manufacturing output to 4.2 percent in the fourth quarter of 2011 against the same period the previous year. This represented the lowest quarterly growth rate in 2011.
However, as Global Manufacturing Outlook 2012: Fostering Growth through Innovation, an Economist Intelligence Unit report sponsored by KPMG, reveals, global manufacturers worldwide remain optimistic about the near-term outlook for their businesses. They are using the low-growth environment to become leaner and more efficient. Since 2011, manufacturers have become slightly more bullish that an upswing in the global economy is imminent. Thus they are ramping up their innovation activity, finding ways to increase efficiency (for example, by improving the ways they manage costs and optimize their supply chains), and add value to their offerings simultaneously.
Some of the key findings emerging from our research include:
- Profitable growth is the new manufacturing mantra. Since 2011, the proportion of survey respondents worldwide for whom top-line growth is a priority has doubled. Yet an even higher proportion of respondents are prioritizing the bottom line, so as to become – and remain – as lean as possible. Manufacturers are confident of a near-term upswing in their own businesses, but are also still concerned about costs. Input cost volatility is their leading concern, as it was in 2011, and 57 percent believe the cost structure of their business models will need to change over the next 12 to 24 months. They also continue to rationalize their operations. Indeed, 54 percent of respondents say that "exiting unprofitable product lines and/or geographies" will become more important for them over the same period. "The downturn has given our most sophisticated customers a zero-waste mentality," says David Fischer, CEO of US firm Greif, the world’s largest manufacturer of rigid industrial packaging. "As a result, they will have a much greater advantage as the recovery builds."
- A new wave of transformational innovation has begun, based on closer collaboration across the supply chain. Seventy-two percent of respondents worldwide believe transformational innovation has either begun or will do so within 12 to 24 months. In line with the profitable growth agenda, they are adopting a two-pronged approach to innovation: working to extend and enhance their product lines while cutting costs via process innovation. Survey respondents show less enthusiasm for the classic open innovation model of shared development and exploitation of intellectual property. However, when asked about the importance of intellectual property (IP) ownership versus exploitation of IP, notable regional differences emerge. Yet respondents are clear on the need for greater collaboration with external parties, especially suppliers and customers. Indeed, 61 percent believe "supply chain collaboration and transparency" will make a "significant" or "very significant" contribution to their profits over the next 12 to 24 months.
- Manufacturers are moving even closer to the customer via supply chain reorganization and value-added services. By altering their business models, manufacturers are finding synergies at the intersection between cost and growth strategies. For example, they are increasingly moving manufacturing facilities and sources of supply closer to end-markets – not only to manage costs better but also to localize their product offerings appropriately with greater speed, agility, and accuracy. Forty-six percent of respondents expect this trend of nearshoring to increase over the next 12 to 24 months. Meanwhile, value-added services continue to rise, as manufacturers find ways to sell high-margin services in areas such as maintenance, performance optimization, and product lifecycle management. "There is a definite trend toward the introduction of advanced services to optimize process performance and deliver operational excellence," says Mike Crawford, country service manager for the UK at ABB, the US$40 billion Swiss provider of power and automation technologies. While the general economic outlook remains uncertain, devising new value-added services also represents a comparatively low-cost and low-risk way to expand offerings and boost revenues. Sixty-three percent of respondents expect new/enhanced customer services to make a "significant" or "very significant" contribution to profits in the next 12 to 24 months – a rise of nine percentage points over the equivalent figure for the past 12 to 24 months.
For more information, download the full report below.
Global Manufacturing Outlook 2012: Fostering Growth through Innovation (PDF 3.5 MB)