Despite continued worldwide uncertainty, manufacturers are putting their collective short-term hope for growth into new products, strategic acquisitions and alliances, and emerging markets, according to a recent report from KPMG.
The firm's annual Global Manufacturing Outlook, which surveys 220 executives from global companies, pegs the top priorities for the coming two years on top-line growth, research and development, customer relationships, and cost containment.
Perhaps not surprisingly, 80 percent of the respondents are cautiously optimistic about prospects for growth in the next couple of years. Also, because of concerns about raw material pricing volatility, increased competition, and uncertain demand, manufacturers are aligning their business models with growth plans that hinge on M&A and joint venture activity, stepped-up production capacity, R&D innovations, improved supply chain visibility, additional cost reductions, and shorter product development lifecycles.
It's good to see companies plan for brighter days, but I would add that, of course, manufacturers want to have to a rosy outlook. The last few years have left them with bleeding balance sheets, and obviously they want to shake off any remaining softness by focusing on whatever delivers quick results.
The optimism, as I see it, seems to be rooted in a strategy that always leaves me scratching my head. When those polled were asked to compare the main focus areas of their growth strategies in the next two years with the two previous years, there appeared to be a “marked shift in focus.” According to KPMG, 56 percent of manufacturers globally are planning to sell new products in new and current markets over the next two years, up from 37 percent.
I can't be the only one who filters reports like this through a historical (and, admittedly, cynical) screen. Why is that the often automatic corporate reaction to worldwide economic weakness involves major cost-cutting initiatives that tend to include thousands of layoffs and then, soon after they believe the darkest hours have passed them by, turning up the noise about selling more products to more people? Does that really solve financial problems over the long term, or is it simply a bandage to keep shareholders happy with the near-term top-line numbers? Maybe all this does is feed another unavoidable bull and bear cycle.
Consumers — large numbers of whom remain unemployed or underemployed — don't need more stuff to buy. They need jobs so they can feed their families and keep a roof over their heads. Yes, I get that if companies want to sell more products, they will have to restart their production lines and expand their footprint, and that this in turn creates additional work. However, I don't believe that it goes far enough.
Wouldn't it be great to read a report one day where manufacturers actually came up with a novel approach to balancing market uncertainty, risk, and volatility with a sustainable growth plan that wouldn't fizzle out when it runs up against market softness? If I'm missing manufacturers that have actually developed innovative strategies, feel free to name them here.