U.S. manufacturers failing to maximize returns from investments in emerging markets

The value of emerging economies isn't found simply in cheap labor, but in emerging product markets. But to be successful, U.S. manufacturers have to do more than simply export the prevailing business models used in developed markets. So says a new study by New York-based Deloitte Global Manufacturing Industry Group, whereby only half of companies that are tapping emerging markets view themselve...


The value of emerging economies isn't found simply in cheap labor, but in emerging product markets. But to be successful, U.S. manufacturers have to do more than simply export the prevailing business models used in developed markets.

So says a new study by New York-based Deloitte Global Manufacturing Industry Group , whereby only half of companies that are tapping emerging markets view themselves as very successful in achieving the revenue and operating goals associated with expansion initiatives.

The study focused on the operational issues facing U.S. manufacturers with expanded operations in five emerging markets: China, India, Southeast Asia, Latin America, and Eastern Europe. Among those surveyed, 59 percent of companies have operations in China; more than a third have operations in Eastern Europe, Southeast Asia, or Latin America; and slightly more than a quarter have operations in India.

“In our 2007 report, for the first time in five years, the primary reason to enter emerging markets was not to lower costs, but to grow top-line revenues,” says Gary Coleman, global managing director of the Deloitte Touche Tohmatsu manufacturing practice. “This is driven by the sheer gross domestic product coming out of emerging markets, and the huge wealth creation in these markets. This is compared with developed countries where it is almost stagnate. Wealth is being created at a phenomenal rate in these markets.”

That said, it's not all good news, Coleman adds.

“Notwithstanding how attractive these markets are, less than 50 percent of companies surveyed were successful in meeting their revenue or operating target,” says Coleman. The reason: They're acquiring distribution channels and loading them with products that aren't retailored to the unique requirements of the local markets. “They're too expensive. The functionality doesn't fit. Nobody wants them,” he says.

Those who are making money and hitting their targets are adapting to the local market and investing in the necessary organization infrastructure to be successful.

“We found more than 50 percent of those who were making money had developed R&D facilities in the markets they were entering,” explains Coleman, adding, “They invested in developing local sales and marketing capabilities.”

These companies also did the necessary risk assessment. “Emerging markets today mean less risk than before, because governments are becoming more friendly,” Coleman says—but due diligence is still essential in evaluating strategies.

One of the primary challenges involved with expansion into emerging markets is securing the necessary labor.

“The lack of skilled labor is a huge bottleneck,” Coleman says. “I probably visited 25 countries over the last 12 months, and I didn't meet a single CEO who was happy with the quantity or quality of the labor pool. If you go into India to High Tech City, the billboards there don't advertise products; they're about employment opportunities. The war for talent is real, and it's not going away.”

The Top Plant program honors outstanding manufacturing facilities in North America. View the 2015 Top Plant.
The Product of the Year program recognizes products newly released in the manufacturing industries.
Each year, a panel of Control Engineering and Plant Engineering editors and industry expert judges select the System Integrator of the Year Award winners in three categories.
Doubling down on digital manufacturing; Data driving predictive maintenance; Electric motors and generators; Rewarding operational improvement
2017 Lubrication Guide; Software tools; Microgrids and energy strategies; Use robots effectively
Prescriptive maintenance; Hannover Messe 2017 recap; Reduce welding errors
The cloud, mobility, and remote operations; SCADA and contextual mobility; Custom UPS empowering a secure pipeline
Infrastructure for natural gas expansion; Artificial lift methods; Disruptive technology and fugitive gas emissions
Mobility as the means to offshore innovation; Preventing another Deepwater Horizon; ROVs as subsea robots; SCADA and the radio spectrum
Research team developing Tesla coil designs; Implementing wireless process sensing
Commissioning electrical systems; Designing emergency and standby generator systems; Paralleling switchgear generator systems
Natural gas engines; New applications for fuel cells; Large engines become more efficient; Extending boiler life

Annual Salary Survey

Before the calendar turned, 2016 already had the makings of a pivotal year for manufacturing, and for the world.

There were the big events for the year, including the United States as Partner Country at Hannover Messe in April and the 2016 International Manufacturing Technology Show in Chicago in September. There's also the matter of the U.S. presidential elections in November, which promise to shape policy in manufacturing for years to come.

But the year started with global economic turmoil, as a slowdown in Chinese manufacturing triggered a worldwide stock hiccup that sent values plummeting. The continued plunge in world oil prices has resulted in a slowdown in exploration and, by extension, the manufacture of exploration equipment.

Read more: 2015 Salary Survey

Maintenance and reliability tips and best practices from the maintenance and reliability coaches at Allied Reliability Group.
The One Voice for Manufacturing blog reports on federal public policy issues impacting the manufacturing sector. One Voice is a joint effort by the National Tooling and Machining...
The Society for Maintenance and Reliability Professionals an organization devoted...
Join this ongoing discussion of machine guarding topics, including solutions assessments, regulatory compliance, gap analysis...
IMS Research, recently acquired by IHS Inc., is a leading independent supplier of market research and consultancy to the global electronics industry.
Maintenance is not optional in manufacturing. It’s a profit center, driving productivity and uptime while reducing overall repair costs.
The Lachance on CMMS blog is about current maintenance topics. Blogger Paul Lachance is president and chief technology officer for Smartware Group.
The maintenance journey has been a long, slow trek for most manufacturers and has gone from preventive maintenance to predictive maintenance.
Featured articles highlight technologies that enable the Industrial Internet of Things, IIoT-related products and strategies to get data more easily to the user.
This digital report will explore several aspects of how IIoT will transform manufacturing in the coming years.
Maintenance Manager; California Oils Corp.
Associate, Electrical Engineering; Wood Harbinger
Control Systems Engineer; Robert Bosch Corp.
This course focuses on climate analysis, appropriateness of cooling system selection, and combining cooling systems.
This course will help identify and reveal electrical hazards and identify the solutions to implementing and maintaining a safe work environment.
This course explains how maintaining power and communication systems through emergency power-generation systems is critical.
click me