High-Tech Can’t Shake off Nagging Concerns

{complink 21|Accenture} recently completed a survey of North American executives from four manufacturing industries: automotive, consumer products, industrial products, and electronics and high-tech. The survey polled North American manufacturing executives about their corporate manufacturing strategies as they rebuilt operations to generate growth in the wake of the recent economic downturn.

The survey found that electronics and high-tech manufacturers have several reasons for optimism but have potential concerns to consider compared with the other three industries. On the optimistic side, a higher-than-average percentage of these electronics and high-tech firms said they already surpassed pre-recession profitability levels. They also eclipsed the average in providing services related to product lines and valuing the importance of building and strengthening their service businesses.

By contrast, the survey found that electronics manufacturers rank below the cross-industry average in certainty about future customer demand. Let's examine the state of the electronics and high-tech companies surveyed in greater detail.

On the all-important profitability front, electronics manufacturers have been performing relatively well. More than half (55 percent) of those surveyed have surpassed pre-recession profitability levels, the same as in the consumer products industry and higher than the 46 percent average of the automotive and industrial products firms surveyed. And another 15 percent of electronics respondents said their firms would achieve pre-recession profitability levels this year; the same percentage expect to reach pre-recession profitability levels within the next two years.

In a similar vein, 70 percent of electronics respondents said their companies provide services related to their product lines such as installation, repair, or consulting. This was the highest ratio among the four industries and well above the 42 percent average. When asked how important their companies consider building or strengthening their services business to the company's overall growth plan in the next five years, 45 percent said “very important” and 30 percent “important.” Both percentages ranked first among the four industries. The combined total of 75 percent saying “very important” and “important” far eclipsed the average of 38 percent.

Uncertainty emerged as a particularly prevalent theme among electronics executives. From a list of 11 business issues, respondents were asked to rank the ones affecting their companies' abilities to achieve last year's and this year's growth goals. More than three quarters (80 percent) said “uncertainty about customer demand” might affect their ability to achieve such goals — the highest percentage among the 11 issues and much higher than the 67 percent cross-industry mean.

Over half (55 percent) of electronics executives said “stronger competitors” might affect their achievement of these goals, and half (50 percent) cited “weaker pricing power.” These percentages ranked second and third, respectively, among electronics executives.

For electronics and high-tech manufacturers to address their high levels of uncertainty about future customer demand, they need to better leverage their supply chains by making them more dynamic and flexible. This will give these companies the ability to respond to fluctuations in customer demand and commodity prices, as well as changes in government policy, supply shortages, or shifts in currency valuation.

To increase profits, these manufacturers should consider developing more service businesses to complement their traditional product businesses. Providing services gives these companies more opportunities to add value to their customers beyond the traditional product operation.

These companies also need to focus more on strengthening their operating models from a plant and network perspective. There are signs from the research that this will happen. Nearly all (85 percent) of the electronics executives plan to invest in improving their operating models, and nearly two-thirds (65 percent) plan to combine plant and network initiatives.

4 comments on “High-Tech Can’t Shake off Nagging Concerns

  1. _hm
    July 23, 2012

    Is it possible to quantify it in reducing unemployment in these fields and increasing revenue?


  2. elctrnx_lyf
    July 24, 2012

    Uncertainity is one of the major concerns for many electronic and high tech companies since the amount of money they can lose is very high if the products are not received well. The companies require good market study and the right marketing strategy along with a bit of luck to sell products successfully.

  3. bolaji ojo
    July 24, 2012

    The survey might have been anonymous and hence the level of “honesty” about the competitive environment and market conditions displayed by the respondents.

  4. Himanshugupta
    July 25, 2012

    The uncertainity is in every domain of business but when this starts to effect the growth then its a matter of concern. I wonder whether those companies who had reduced their operations a lot in recession are the first ones to reach pre-recession profitibality levels. This can give us some information whether cutting cost by reducing operations can be beneficial or not.

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