Global strategy, a sphere traditionally dominated by large multinational corporations, has become a high-priority issue for mid-sized U.S. manufacturers.
Global Economic Shifts
Recent changes in the world economy have dramatically altered the competitive environment of U.S. manufacturers:
• The ebbing of the 1990s economic boom has prompted U.S manufacturers to pursue revenue and profit opportunities in foreign markets. Facing slow growth and rising saturation in the mature markets of North America, Western Europe, and Japan, many mid-sized manufacturers are looking to the emerging markets of China, India, and Eastern Europe as their main growth venues.
• The global diffusion of technology and knowledge has transformed the strategic calculus of U.S. manufacturers previously anchored to their domestic markets. Once relegated to low-technology, labor-intensive production, manufacturers in China and other rising economies are migrating swiftly up the international transaction chain. This development both heightens competitive pressures on U.S. producers and expands their commercial possibilities in high-growth foreign markets.
• World Trade Organization-mandated multilateral trade liberalization and the acceleration of regional integration in Europe, Asia-Pacific, and the Americas simultaneously have sharpened import competition and boosted export prospects for U.S. manufacturers. Further, the expansion of foreign direct investment has enlarged the sphere of non-export strategies available to American manufacturers.
• Dollar depreciation has generated cross-cutting effects on the U.S. manufacturing sector, benefiting exporters while penalizing import-dependent producers. Meanwhile, rising global commodity prices have heightened the imperative of effective cost management by energy- and material-intensive manufacturers.
Changes in the technological landscape have empowered mid-sized manufacturers to launch growth campaigns abroad, including:
• Improvements in Internet-enabled technologies, global telecommunications, and enterprise software have expanded the capacity of mid-sized manufacturers to capture foreign market intelligence; cultivate international partnerships; and manage foreign sourcing, manufacturing, and distribution networks.
• Declining costs of less-than-container-load shipping and increasing availability of third party logistics providers have allowed U.S. manufacturers to undertake global operations and broadened their repertoire of exporting, sourcing, and foreign manufacturing capabilities.
• The progression of materials science—including the advent of lightweight composites and non-metallic substitutes—has enabled U.S. manufacturers to establish a competitive differentiation in carefully targeted foreign markets.
• Advances in process technologies—notably robotics and industrial controls—permit cost-efficient production across a widening range of lot sizes, enabling mid-sized manufacturers to compete effectively in both large-volume market segments and small-volume niches ignored by multinational firms.
The upshot of these developments is a period of unprecedented challenges and opportunities for U.S. manufacturers, including:
• High-growth, high-margin niches. Facing relentless pressure from Wall Street to fulfill quarterly growth expectations, large public companies are vacating interesting niches of both domestic and foreign markets. These niches play to the strengths of nimble, growth-oriented mid-sized manufacturers that have mastered advanced process technologies and developed innovative products with strong growth potential.
• Specialized suppliers to original equipment manufacturers (OEMs). Facing mounting global competitive pressures, OEMs in the United States increasingly rely on highly qualified, geographically proximate suppliers for engineered components and subassemblies. To enter those local supply chains, mid-sized manufacturers must adopt operational best practices and stay on the cutting edge of global technology.
• Multinational supply chains. Large U.S. OEMs also turn to globally capable supplier firms to support their foreign subsidiaries, generating a pull effect on local vendors willing and able to establish operational capabilities in the host countries. Mid-sized manufacturers that plug into these global supply chains stand to reap significant revenues from their OEM customers, as well as new growth prospects in foreign markets.
• International markets. China’s breakneck gross domestic product growth has generated a huge demand for industrial machinery, technology products, and other high value-added goods not available in the local market—a demand structure that dovetails closely with U.S. manufacturers’ capabilities. The eastward expansion of the EU created a massive integrated market of 450 million people, creating substantial revenue and profit opportunities for U.S. players taking a Pan-European perspective. Meanwhile, regional trade movements in Asia-Pacific Economic Cooperation and the Association of Southeast Asian Nations boost long-term growth prospects in the broad Asia-Pacific market.
Finally, the Free Trade of the Americas initiative promises to lower barriers to trade and investment in the Western hemisphere and accelerate the regional growth paths of U.S. firms operating in the North American Free Trade Agreement zone. IBI