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...

06/01/2007


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.”





Top Plant
The Top Plant program honors outstanding manufacturing facilities in North America. View the 2017 Top Plant.
Product of the Year
The Product of the Year program recognizes products newly released in the manufacturing industries.
System Integrator of the Year
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.
May 2018
Electrical standards, robots and Lean manufacturing, and how an aluminum packaging plant is helping community growth.
April 2018
2017 Product of the Year winners, retrofitting a press, IMTS and Hannover Messe preview, natural refrigerants, testing steam traps
March 2018
SCCR, 2018 Maintenance study, and VFDs in a washdown environment.
April 2018
ROVs, rigs, and the real time; wellsite valve manifolds; AI on a chip; analytics use for pipelines
February 2018
Focus on power systems, process safety, electrical and power systems, edge computing in the oil & gas industry
December 2017
Product of the Year winners, Pattern recognition, Engineering analytics, Revitalize older pump installations
Spring 2018
Burners for heat-treating furnaces, CHP, dryers, gas humidification, and more
April 2018
Implementing a DCS, stepper motors, intelligent motion control, remote monitoring of irrigation systems
February 2018
Setting internal automation standards

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

The Maintenance and Reliability Coach's blog
Maintenance and reliability tips and best practices from the maintenance and reliability coaches at Allied Reliability Group.
One Voice for Manufacturing
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 Maintenance and Reliability Professionals Blog
The Society for Maintenance and Reliability Professionals an organization devoted...
Machine Safety
Join this ongoing discussion of machine guarding topics, including solutions assessments, regulatory compliance, gap analysis...
Research Analyst Blog
IMS Research, recently acquired by IHS Inc., is a leading independent supplier of market research and consultancy to the global electronics industry.
Marshall on Maintenance
Maintenance is not optional in manufacturing. It’s a profit center, driving productivity and uptime while reducing overall repair costs.
Lachance on CMMS
The Lachance on CMMS blog is about current maintenance topics. Blogger Paul Lachance is president and chief technology officer for Smartware Group.
Maintenance & Safety
The maintenance journey has been a long, slow trek for most manufacturers and has gone from preventive maintenance to predictive maintenance.
Industrial Analytics
This digital report explains how plant engineers and subject matter experts (SME) need support for time series data and its many challenges.
IIoT: Operations & IT
This digital report will explore several aspects of how IIoT will transform manufacturing in the coming years.
Randy Steele
Maintenance Manager; California Oils Corp.
Matthew J. Woo, PE, RCDD, LEED AP BD+C
Associate, Electrical Engineering; Wood Harbinger
Randy Oliver
Control Systems Engineer; Robert Bosch Corp.
Data Centers: Impacts of Climate and Cooling Technology
This course focuses on climate analysis, appropriateness of cooling system selection, and combining cooling systems.
Safety First: Arc Flash 101
This course will help identify and reveal electrical hazards and identify the solutions to implementing and maintaining a safe work environment.
Critical Power: Hospital Electrical Systems
This course explains how maintaining power and communication systems through emergency power-generation systems is critical.
click me