A climate of low economic growth is motivating global manufacturers to take new approaches in innovation and collaboration across the value chain, and are creating a somewhat surprising shared optimism for expected high-margin growth in the next 12 to 24 months, according to a new survey report from KPMG International.
The KPMG 2012 Global Manufacturing Outlook: Fostering Growth through Innovation, reports that 76% of respondents globally are optimistic about their business outlook over the next 12 to 24 months.
This optimism seems to be buoying expectations that both sales and profitability will be up during the period with nearly half of respondents placing both top-line (43%) and bottom-line growth (41%) as main priorities.
The U.S. is expected to lead the growth according to 40% of respondents, followed by China, India, Brazil, and Germany.
"Manufacturers are not just preparing for growth but for 'high-margin growth'," said Jeff Dobbs, KPMG's global head of Diversified Industrials.
Most respondents said the ongoing challenges for manufacturers are:
* price volatility on cost inputs
* risk in the supply chain
* uncertain demand
But Dobbs characterized manufacturers as acclimated to a world in which volatility has become normal.
"Today, manufacturers are leaner and more agile, many with strong balance sheets and healthy cash reserves - in a nutshell, they're poised for growth," Dobbs said.
* 62% of respondents are performing process improvements and refocusing on core competencies
* 50% are eliminating unprofitable product lines and markets
Along with scaling back, manufacturers are increasing activities in innovation and collaboration with a long-term eye on a return to sustainable growth: 72% of respondents believe transformational innovation is underway now or will be in 12-24 months.
Respondents from the United States are leading in that view, with 84% believing that innovation is or will be well under way.
"After several years of focusing on cutting costs, many manufacturers realize that they have to invest in expanding their product and service offerings in order to remain competitive," commented Dobbs.
Globally, the highest share of manufacturers look to improve processes and existing products in the next 1-2 years via increased "process innovation" and "incremental innovation." However, "radical innovation" and "fundamental innovation" also ranked high for increased activity.
Manufacturers from emerging markets outpaced those from developed markets - by 10 and 14 percentage points, respectively - in their intent to increase radical and fundamental innovation in the next 1-2 years.
Respondents who planned to increase sourcing activities in China and India in the same period were asked what types of activities they planned to do. More than half selected "R&D" for China, and more than three-fourths said "product development/design" for India.
Innovation will increasingly come from collaborative arrangements in the next 12 - 24 months, the report found. Over 60% of respondents globally said they will work more with customers for customized product development and with suppliers for product design.
"There's a decisive shift by manufacturers towards collaboration in the earliest stages of product development," Dobbs noted. "This inclusive approach to innovation not only disperses potential risks, costs, and rewards across the supply chain, but it also lets manufacturers focus on what they do best by leveraging the expertise of external partners and accelerating speed to market."
Dobbs also noted that, "In an attempt to buffer down-cycles, manufacturers are expanding their product offerings to include value-added services. While this may potentially add to their profit margins, it should also help them strengthen customer relationships and identify future sales opportunities."
to Daily News