Asia Pacific Business Complexities Survey: Spotlight on Sectors
Resources for Industry insights: Tending to the pain points
Executives in the industrials, manufacturing and transportation (IMT) space maintain a positive outlook for conditions in their markets. Only 20% feel doing business is becoming more complex, and 50% feel it has remained unchanged. This positive sentiment is somewhat surprising given uncertainties around the future of the TPP and threats to free trade from populist governments. These uncertainties aside, various other macro factors and challenges are having an impact on Asia’s industrial base.
ECONOMIC AND COST CONCERNS
Respondents note that uncertainty over economic growth rates in their domestic markets is causing business opportunities to shrink and profits to become more elusive. As such, it is the top complexity facing the industry. With few options at home, many are searching out growth and revenue streams in new markets, both geographical and in new product segments. This in itself is a complex process, as many respondents say such shifts in business require considerable changes to their operational strategies. Costs are another cornerstone concern. As costs rise, companies are coming under pressure to cut back expenditures, sometimes in areas where investment is vital to growth. Environmental threats and regulatory change will contribute to these burdens. Many manufacturing executives mention that rising labor costs have forced them to transfer operations from China to cheaper markets.
With new technology replacing legacy machinery and processes, the need to innovate is among the top issues facing IMT executives. Already, automation has become a game-changer, and while still in its nascent stages, it is being widely used to improve efficiency and profitability among traditional low-tech, labor-intensive segments, such as textiles. However, this can only happen if companies have the resources to make this transition. For this reason, respondents say a faster shift has proven both challenging and unlikely as cost concerns impede wider use or advanced manufacturing processes. On the upside, respondents note that applying new technologies and upgrading manufacturing processes have, in some cases, helped them lower production costs and improve product quality.
INNOVATION: EMBRACING ADVANCED MANUFACTURING
M&A
Struggling to grow organically, many IMT corporations will likely turn to acquisitions as they buy competitors to expand operations, a sentiment shared by 83% of respondents (Figure 6). Respondents say that acquisitions are allowing their companies to focus on expanding output and supply chains while also placing them in possession of technological solutions to fill gaps in their own industrial capabilities. M&A, one respondent says, can allow these companies to focus on developing regional as well as global strategies and position themselves to earn stronger revenues over the long run.
Manufacturers need to factor environmental issues into their business models, strategies and production processes. Should businesses choose to ignore environmental problems, this will only increase and prompt governments to put stricter restrictions in place, thus increasing regulatory risk for businesses.”
Peerapan Tungsuwan, Partner, Bangkok, Baker McKenzie
Businesses that need an innovation push should implement a companywide change process. The change process can include making a bolt-on acquisition of a technology company that comes with new ideas, improved processes and creative talent, instead of just buying technology.”
Nikolaus Reinhuber, Partner, Frankfurt and Global Chair of Industrials, Manufacturing and Transportation, Baker McKenzie
TRENDS AND KEY COMPLEXITIES:
Economic growth uncertainty and cost concerns are the top complexities facing manufacturing and industrial corporations. Deploying new technology to upgrade outdated manufacturing processes and drive innovation is also a concern. M&A is proving a viable strategy for manufacturers to grow beyond their home markets and dominant market segments.
of respondents feel doing business in the industrials, manufacturing and transportation industry is becoming more complex, while 50% feel it has remained unchanged.
20%
Figure 6: Which areas do you think will be a major focus for your industry in the next two years?
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INDUSTRIALS, MANUFACTURING AND TRANSPORTATION
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