global manufacturing outlook - kpmg | de · pdf fileglobal manufacturing outlook: growth while...

Global Manufacturing Outlook: Growth while Managing Volatility
Global research commissioned by KPMG International from the Economist Intelligence Unit

Interviewees
Bob Kickham Senior Vice President, Procurement, Luvata
Barbara Kux Head of Supply Chain Management, Siemens
Ding Liguo Chairman, Delong Holdings
Alex Molinaroli Vice President and President, Power Solutions, Johnson Controls
Dr. Steve New Fellow: Management Studies, Oxford Universitys Sid Business School
Martin Richenhagen Chairman, President and Chief Executive Officer, AGCO
Henry Yu Chief Executive Officer, General Steel Holdings
PrefaceGlobal Manufacturing Outlook: Growth while Managing Volatility is a KPMG International report that investigates how large industrial manufacturers are dealing with market and input volatility in a global marketplace. The report was written by the Economist Intelligence Unit, which also executed the online survey and conducted the interviews on behalf of KPMG International.
We would like to thank all of the executives who participated in the survey and interviews for their valuable time and insight. The survey was conducted in June and the interviews in July of 2011, and both reflect the economic and financial conditions at that time.
2011 KPMG International Cooperative (KPMG International), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.

About the surveyA total of 220 senior manufacturing executives participated in the survey. All respondents are responsible for, or significantly involved in, finance, supply chain, procurement or strategic development. Respondents represent the aerospace and defense, metals, engineering and industrial products sectors, including industrial conglomerates. All participants represent companies with more than US$1 billion in annual revenue; 40 percent hail from organizations with more than US$10 billion in revenue. Nearly half (47 percent) of respondents are C-suite executives or board members. They are geographically split among Western Europe (31 percent), North America (30 percent) and Asia-Pacific (25 percent), with the remainder coming from the rest of the world.
$1bn to $5bn
$6bn to $10bn
$11bn to $25bn
More than $25bn48.18%
12.27%
18.18%
21.36%
1. What are your organizations global annual revenues in US dollars?
Board member
CEO/President/Managing director
CFO/Treasurer/Controller
COO
CIO/Technology director
Other C-level executive
SVP/VP/Director
Head of business unit
Head of department
Manager
Other
0.9%
3.6%
13.2%
6.4%
21.8%
17.7%
5.9%
15.9%
12.7%
0.5%
1.4%
2. Which of the following best describes your title?
Engineering and industrial products (including industrial electronics)
Aerospace and defense
Conglomerate (eg, multi-industry organization)
Metals
30.91%
22.27%
21.36%
25.45%
4. What is your primary industry?
Western Europe
North America
Asia-Pacific
Middle East and Africa
Latin America
Eastern Europe
0.45%
31.36%
24.55%
10.00%
3.64%
30.00%
3. In which region are you personally based?

At the end of 2010 it looked like the long-awaited economic recovery was finally underway, but a series of global shocks throughout 2011 have taken the steam out of the positive momentum, casting doubt on a wider market recovery. Despite these challenges, Diversified industrial (DI) companies accustomed to cyclical swings and continuous volatility are clearly preparing themselves for the long haul.
In this years Global Manufacturing Outlook survey, growth has emerged as a predominant theme along with a continuing focus on cost, risk management and global supply chain resilience. Today, companies are choosing to pursue growth through both product innovation and strategic alliances. They are also fine-tuning product costs with more sophisticated design and process improvements, positioning production capabilities closer to growth markets, and enhancing transparency to manage global risk.
To provide context to this years survey results, the report contains a broad range of insights from KPMG partners, industry experts and innovative DI companies. These experts also weigh in on what it will take for companies to respond to the challenges and opportunities of todays volatile global economy and distance themselves from the competition.
Despite the prolonged uncertainties DI businesses face, many companies emerged from the 20082010 downturn with significantly reduced cost structures, more cash and liquidity, and a laser focus on their customers and markets. In an age and industry where volatility has become a given, companies that possess these attributes and pursue these strategies will likely define the standard of success in the next five years. Our report results show that DI companies are clearly positioned for growth, but they are doing so with a healthy respect for unpredictability and volatility.
Foreword
Jeff Dobbs KPMG Global Head of Diversified Industrials

Content
Executive summary
The business outlook: growth ahead, but risks loom
Growth strategies: managing volatility
Reworking supply chains to support growth
Conclusion
4
6
14
24
33

Executive summary
4 KPMG Global Manufacturing Outlook: Growth while Managing Volatility
Despite a generally profitable year, many leaders of global manufacturing firms face a number of challenges. Just as the global economy looked like it was gaining momentum, the Japanese tsunami struck, unravelling many global supply chains. Since then, volatility has become a key watchword, as a wide array of macroeconomic risks most notably the European and US debt crises raise uncertainty over future demand and the spectre of a double dip recession.
Yet executives at major manufacturers organizations polled in an Economist Intelligence Unit survey representing firms with at least US$1 billion in revenue are cautiously optimistic that they can realign their businesses toward top-line growth while managing the multitude of cost challenges.

Some of the key findings emerging from our research include:
Price volatility is the biggest headache for manufacturers. The number-one challenge identified for the year ahead is that of price volatility of raw materials and other inputs. Bob Kickham, senior vice president, procurement, at Luvata a global metals and manufacturing group recounts how a few years back a US$10 shift in copper prices in one day was an extraordinary occurrence. He is now immune to daily swings of up to US$250. Selected by 44 percent of firms globally, ahead of any other issue, price volatility is especially acute for Asian firms, selected by 54 percent of respondents.
Although the push toward emerging markets continues, this does not imply the demise of manufacturing in the West. One of the more striking research findings is that the US registers second only to China as a destination for new sourcing in the next 12 to 24 months. It ranks third highest even for emerging market manufacturers. Were going in both directions, says Martin Richenhagen, CEO of AGCO, a global farm equipment manufacturer, of his organizations investment plans in both Asia and North America. Of course, it is clear that emerging markets are a major driver of growth: 52 percent of manufacturers say their growth plans hinge on these markets. But many plan to invest in mature markets too: 43 percent of respondents aim to expand capacity in developed markets, more than twice the proportion that plan cutbacks.
In the pursuit of growth, manufacturers are prioritizing new products. One noticeable shift when comparing respondents views from the last two years versus the next two years is the added attention that firms will devote to new products. Over the next two years those planning to rely on existing products in existing markets will more than halve (from 44 percent to 19 percent), whereas those planning to sell new wares in existing and new markets will increase from 37 percent to 56 percent. This will put a premium on innovation, and the survey shows that organizations are placing more emphasis on research and development (R&D). Indeed, innovation/R&D will be the second-highest priority for investment/expansion, after cost management. Many are opening design centers in high-growth markets. In doing so, however, they will be challenged by a shortage

global manufacturing outlook - kpmg | de · pdf fileglobal manufacturing outlook: growth while...

Documents