Global manufacturing outlook - competitive advantage

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The Global Manufacturing Outlook 2013 - Competitive advantage: enhancing supply chain networks for efficiency and innovation provides a comprehensive overview of the global manufacturing sector, along with observations and insights from a wide range of experts and leaders based on a recent industry-wide survey and executive interviews.

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Global manufacturing outlook - competitive advantage

  1. 1. GlobalManufacturingOutlookCompetitive advantage:enhancing supply chainnetworks for efficiencyand innovationAn Economist Intelligence Unitresearch program sponsoredby KPMG International
  2. 2. We would like to thank the 335 executives who participated inthe survey and the 4 interviewees below for their valuable timeand insight.Carol BurkeManaging Director, UnipartManufacturing GroupSylvain LevesqueVice President of Corporate Strategy,BombardierPaul McGartollVice President of Strategy andBusiness Development,TextronBill ScottingExecutive Vice President,ArcelorMittalInterviewees© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  3. 3. About the surveyThis report is based on a survey of 335 senior executives, conducted in November2012. Executives represented 5 industries: Aerospace and Defense, Automotive,Conglomerates, Engineering and Industrial Products, and Metals. Forty-six percentwere C-level, including board members. Respondents came from companies of manydifferent sizes: nearly 30 percent represent companies with more than US$5 billion inannual revenue. Respondents are distributed globally, with nearly a third each from theAmericas; Asia-Pacific; and Europe, the Middle East & Africa.$25bn and over$10bn to $24.99bn$5bn to $9.99bn$1bn to $4.99bn$500m to $999m37%8%9%12%34%1. What are your organization’s global annualrevenues in US dollars?Head of departmentOther C-level executiveCFO/Treasurer/ControllerSVP/VP/DirectorManagerCOO/CIO/Technology directorHead of business unitOther/Board memberCEO/President/Managingdirector/Executive director28%24%11%10%7%9%5%4%1%2. Which of the following best describes your title?Engineering and industrialproducts (includingindustrial electronics)AutomotiveConglomerateMetalsAerospace and defense29%18%18%17%18%4. What is your primary industry?Asia-PacificNorth AmericaWestern EuropeLatin AmericaMiddle East and AfricaEastern Europe1%30%30%6%4%30%3. In which region are you personally based?Source: Economist Intelligence Survey, Nov. 2012Note: Graphs may not add up to 100% due to rounding.iii© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  4. 4. ForewordThe market headwinds of intense global competition, slow to modest growth,public sector budget constraints, and Euro-zone instability continue to challengeindustrial manufacturing companies to transform their business models and theircost structures in ways unimaginable only a few years ago. In the midst of thecontinuing focus on cost, some might say that manufacturers have hunkered downto weather the storm. To the contrary, we believe this year’s Global ManufacturingOutlook (GMO) reveals that these companies are positioning themselves for a newera of growth driven by innovation, collaboration across the value chain, and rapidlychanging manufacturing and decision support technology.On the innovation front, nearly one-third of the respondents to this year’s surveyindicated that they intended to pursue“breakthrough” or“disruptive” innovationstrategies in the product development area. Further, there was a marked (15 percent)increase in the number of respondents increasing their R&D budgets to 4 percentor more of their revenue, an upward trend we believe will continue over the next2-3 years. Finally, the innovation process is quickly shifting to a“partnership model”bringing together internal resources, customers and suppliers, third party research,and external funding sources. Speed to market, enhanced products, and the rightinnovation business model will ultimately be the differentiator in the battle for globalmarket share.The economic impact of the evolution of the supply chain over the past few years hasbeen dramatic.The concept of nearshoring or sourcing/manufacturing closer to theend market to reduce cost and risk was a hallmark of the post-recession recovery.As the recovery gained momentum, new models of cooperation and collaborationbetween OEM’s and the value chain helped to optimize processes and further reducecost. As you will see from the 2013 GMO, the next wave of supply chain gains will bethe most dramatic yet, with a new spirit of partnership, transparency, and visibilityacross the value chain creating enormous economic value from a technology-enableddemand-driven supply chain.Underpinning the new models in innovation and supply chain is the extraordinaryadvancement in the technology to support everything from the R&D andmanufacturing processes to decision support and data analysis tools, as well assupply chain visibility and other business intelligence needs.The emergence ofniche players coupled with the capabilities of the traditional players will make this atechnology-rich environment for global manufacturers. Exploiting these technologiesand managing the resulting explosion of data will be critical to remain at the top ofthe competitive heap.One thing we know for sure, the volatility that we have seen the past 5 years willcontinue and the strategies, relationships, and tools to compete in this ever-changingenvironment must become much more sophisticated.We hope that you will find thisyear’s GMO thought provoking and stimulating as you consider your company’s plansfor driving growth and prosperity in the continuing“manufacturing renaissance.”Jeff DobbsGlobal Sector Chair, Diversified Industrialsiv© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  5. 5. ContentsExecutive summary 2Positioning for opportunity 4The future is in the supply chain 8The visibility imperative 12Innovation: forging ahead 16Conclusion 241© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  6. 6. ExecutivesummaryKPMG Global Manufacturing Outlook: Competitive advantage2© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.Over the past several years, global manufacturers have had toadapt to remain competitive within a volatile and fast-movingeconomic environment.Today, with the global economy stabilizing,the emphasis on caution is shifting more towards a focus onopportunity. In this Economist Intelligence Unit report, writtenon behalf of KPMG, and our fourth annual global manufacturingoutlook, we find global manufacturers generally optimistic aboutthe future, and taking steps to capitalize on potential opportunities.Companies are adopting a number of strategies to stay aheadof the curve, including a deeper emphasis on collaboration withpartners and suppliers in the search for new ideas.
  7. 7. Key findings from the 2013 report are:•  Global manufacturers are increasing transaction activity to takeadvantage of growth opportunities in global markets, while reassessingoperations and product portfolios to control costs. Nearly a third of allcompanies in our survey are planning mergers or acquisitions to capitalize onopportunities in new markets, and close to half of larger companies (thosewith revenue over US$5 billion) are doing so. 4 in 10 say they plan to exitunprofitable, non-core product lines and unprofitable, non-core business unitsover the next 2 years.• Companies are viewing their channel partners as more of a “network”which is critical to achieving a “demand-driven” supply chain, i.e. onethat provides a real-time view to total demand, supply, and capacityinformation. For companies of all sizes, genuinely closer working relationshipsbetween suppliers and other partners will be critical to maximizing theirresponsiveness to changes in the market. More effective and efficientcollaboration enables firms to optimize inventory, logistics, and otheroperational costs.• Visibility is the new watchword in supply chain optimization anda major opportunity for many companies. Many companies have asubstantial opportunity to boost performance, agility, and resilience byimproving visibility across their supply chain network. Nearly half of thecompanies say they lack visibility beyond theirTier 1 partners. And only9 percent say their firm can assess the impact of supply chain disruptionswithin hours, although for the biggest companies (revenues of US$5 billionor more) this rises to 20 percent.• Increasingly, companies are placing the supply chain at the center of theirstrategies to innovate. Many companies are starting to see their suppliersas a source, not just of production and logistics, but also of ideas. Half of oursurvey respondents say that partnerships, rather than in-house efforts, willcharacterize the future of innovation. And investing in R&D and innovationremains a priority: 42 percent expect their company to invest greater than4 percent of their revenue in innovation over the next 2 years.• Companies see value in both breakthrough and incremental innovationto stay competitive. Nearly a third of respondents whose firms arestepping up R&D say their company will invest in breakthrough innovation.The remaining two-thirds of respondents who see a resurgence of R&Dactivity are focused on incremental innovation – enhancing existing productlines and services.This number rises to 78 percent among larger companies(revenues of US$5 billion or more), compared to 64 percent of smallercompanies.The focus on both breakthrough and incremental innovationsuggests companies are revisiting R&D strategies according to what’s mosteffective for their operations.KPMG Global Manufacturing Outlook: Competitive advantage 3© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  8. 8. PositioningforopportunityThe past few years have broughtboth large-scale upheaval andmajor new opportunities for globalmanufacturers.The repercussions onthe world economy of the 2008 globalfinancial crisis prompted companiesto reduce costs and shrink operations.Yet at the same time, the spreadingubiquity of digital technology and theemergence of innovations like 3-Dprinting have opened exciting newhorizons.This Economist Intelligence Unitstudy, written on behalf of KPMG,finds global manufacturers redoublingtheir efforts to become moreefficient and innovative, both to staycompetitive in mature markets, andto capitalize on growth opportunitiesin the emerging world. Firms arelooking to deepen their relationshipswith partners, invest in innovation andstrengthen their operations to preparefor growth.Globalmanufacturersare redoublingtheir efforts tobecome moreefficient andinnovative.Global manufacturers remainfocused above all on the world’s2 biggest economies, the UnitedStates and China, for sales growth.The US represents a new source ofoptimism, with signs that a new eraof manufacturing dynamism maybe dawning. A number of factors,among them rising production costsin Asian countries and lower energycosts brought on by the domesticshale gas revolution, are convincingsome to revisit the US, with itstechnological prowess, attractivetalent pool and scaling opportunities,as a primary base. For similar reasons,China continues to be a magnet forglobal manufacturing companies:although economic growth there hasdecelerated and costs have risen, theeconomy remains one of the mostdynamic in the world; as a productionbase it offers tremendous efficiency,and a strong engineering skills pool.KPMG Global Manufacturing Outlook: Competitive advantage4© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  9. 9. Mergers andacquisitionsfeature onthe agenda ofapproximately1/3 of ourrespondents.UK Open for BusinessThe 2013 survey ranks the UK 4thas a countrywhere global companies expect sales growthin the next 12-24 months.This is an increase inranking from the 2 previous years (5thin 2011,and 6thin 2012), and whilst this may be linked torecent UK government initiatives to encourageboth exports from the UK, and investmentinto the UK by foreign companies, it may alsobe reflective of the recent weakening of othercountries such as Germany and Brazil.The Eurozone has traditionally been theUK’s biggest export market.With the EuroCrisis impacting European demand, the UKis increasing its focus on emerging markets.From 2007 – 2012 British companies morethan doubled their exports to the fast growingBRIC markets, supported by UK Governmenttrade missions, and the weakening of thepound over recent years which has madeBritish exports cheaper.The UK government has launched initiativesto encourage local production and foreigninvestment in UK manufacturing. Examplessuch as the Patent Box regime which gives taxincentives for companies to register patentsin the UK and reductions in the UK corporateincome tax rate (reduced by 2 percent since2010) are part of the UK Government’s statedobjective of the having the lowest corporationtax rate in the G20.The UK has recently seennumerous automotive manufacturers investingin plants in the UK such as Jaguar Land Rover,Nissan, BMW,Toyota, General Motors, Hondaand Nissan.The UK is showing the world that it is ‘open forbusiness’.Stephen CooperPartner,Head of DiversifiedIndustrials andAutomotive,KPMG in the UKKPMG InsightAt the same time, companiesexpect to maintain a global presencein markets beyond the 2 majorpowerhouses. Other markets thatcontinue to be regarded as the topones for sales growth span India, theUK, Brazil, and Germany. In our pastsurveys, these have consistentlyfeatured among the top markets thatcompanies look to for sales growth.As Sylvain Levesque, vice president ofcorporate strategy at Bombardier, putsit: “While most dollar growth in ourbusiness is coming from traditionaleconomies in terms of percentagegrowth, the fastest are South Asia,China, India, Brazil, and certainly otherSouth American countries.”For ArcelorMittal, the principal areasfor expected sales growth are Brazil,South America, Africa, Middle East,along with the US. “Despite someeconomic disruption associated withthe “Arab Spring” we are expectingsome growth in North Africa,especially Algeria, in the oil and gasindustry,” says Bill Scotting, executivevice president of ArcelorMittal.While companies look to globalmarkets to leverage opportunities,mergers and acquisitions featureon the agenda of nearly a thirdof our respondents; this numberjumps to 47 percent for largercompanies (those with revenueKPMG Global Manufacturing Outlook: Competitive advantage 5© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  10. 10. of over US$5 billion). Indeed, thenumber of companies that are notconsidering any transaction activity,16 percent, is at a low level comparedto past years. Forty-five percentof larger companies also say theywill invest in Greenfield projects toincrease capacity in growth markets.Companies are also using transactionactivity to rationalize operations: overa third say they will divest noncoreassets or activities in the next2 years. At the same time, companiesrecognize the need to reassesstheir current operations. 4 in 10respondents say their cost-controlpriorities over the next 2 years consistof exiting unprofitable or non-coreproduct lines and business units.As companies look to maintaining –and widening – their global footprint,it will become even more criticalto ensure that their operations areefficient and minimize waste.Thisresearch finds that companies havemany opportunities to make significantimprovements in these areas.36 percent willdivest noncoreassets oractivities inthe next 2 years.China remains the fastest growing economy in the world andone of the most attractive investment destinations globally inmany industry sectors, if not all.Under the 12th5-Year Plan, the Chinese government’s policiesremain on course in terms of favoring investments in high-endequipment manufacturing, high-tech, energy-efficient productsand new materials sectors. In large part, these measuresare aimed at modernizing the manufacturing sector, movingdomestic manufacturers up the value chain and protecting theenvironment. In turn, this helps divert overseas and domesticinvestments and attracts managerial and R&D talent to thesesectors; a welcome trend for Chinese companies who areincreasingly recruiting overseas talent for key managementpositions.While China provides a large talent pool for R&D, the costof recruitment and retaining such talent continues to rise onthe back of inflation and high costs of living which – in themore developed regions of the country – have been drivingexpectations of pay rises for skilled labor. Uncertainty alsoprevails as to technology platforms and options.Investment spending also remains cautious in China, drivenby uncertainty as to the timing and magnitude of a globaleconomic rebound and the potential impact of measuresrecently announced by the new Chinese central governmentleaders.Alex ShumHead of Diversified Industrials, KPMG in ChinaKPMG Regional PerspectiveKPMG Global Manufacturing Outlook: Competitive advantage6© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  11. 11. Over the past few years, European manufacturers have madegreat progress in embedding efficiency initiatives and cost-cutting programs into their operations, closing unprofitablebusinesses and divesting of non-core assets. Based on recentimprovements in margins reported across the continent, itseems that these measures are taking hold.But while cost reduction remains important and deeplyembedded in the minds of Europe’s manufacturing managers,we expect to see new measures emerge to further improveoperational effectiveness.These may include the optimizationof existing processes along the value chain in order to build“clusters” of competence; greater focus on local developmentand production facilities within existing markets; and thedevelopment and implementation of incremental and (to alesser degree) pioneering innovation as a way to safeguardproduct differentiation and reduce time to market.However, we believe that achieving sustainable cost reductionrequires a transformational change supported by cross-functional and inter-company programs. In other words,Europe’s manufacturers will need to focus on changing themind-set and the daily routines of their people and suppliersrather than chasing one-off initiatives.As such, Europe’s manufacturing executives would be welladvised to review their past sourcing and footprint decisionsin light of today’s environment and be willing to take onradical new approaches such as the re-shoring of outsourcedfunctions, the installation of local R&D departments and thedevelopment of production facilities focused on individualmarket demands.KPMG Regional PerspectiveDr. Gerhard DaunerEurope, Middle East, andAfrica, Head of Diversified Industrials, KPMG in GermanyKPMG Global Manufacturing Outlook: Competitive advantage 7© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  12. 12. Manufacturers are placing the supplychain at the center of their efforts toachieve their strategic priorities. Globalmanufacturers’ ability to optimizeperformance and cost in their entiresupply chain will be key to helpingthem become more competitive andresilient. “The supply chain is goingto be absolutely critical in the future,”says Carol Burke, managing directorof Unipart Manufacturing Group, asupplier to the auto, energy generation,and oil and gas industries.Many companies are seeing anopportunity for improved collaborationwith channel partners to help themstay at the forefront of the marketand be more responsive to changesin customer demand. While the leanmanufacturing revolution was focusedon getting businesses’ own houses inorder, the challenge now is to improvesupply chain performance throughgenuinely closer working relationshipsand collaboration across the network.As Mr. Levesque expresses it,“We are pushing the limits of leanmanufacturing; [we are] “leaning” thesupply chain.”For survey respondents, the biggestchallenges their company faces areintense competition and pressure onprices, keeping the business modelcompetitive, and uncertain demand.Ms. Burke sees suppliers playinga bigger role in helping companiesovercome their challenges and meettheir strategic goals: “Providinga combination of manufacturing,logistics, and consulting is going to bethe way forward.”The #1challengeis “intensecompetitionand pressureon prices.”ThefutureisinthesupplychainKPMG Global Manufacturing Outlook: Competitive advantage8© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  13. 13. Just over1/2 saypartnerships,rather thanin-houseefforts, willcharacterizethe future ofinnovation.Companies that are starting to viewpartners as more of a “network” thana “chain” are finding other significantbenefits. As companies step upinvestment in innovation, whetherin search of “breakthrough” R&Dor incremental improvements toexisting products and services, theyare increasingly looking to their supplynetwork for ideas: 51 percent of oursurvey respondents say partnerships,rather than in-house efforts, willcharacterize the future of innovation.Suppliers that work for a range of firmsare likely to be able to contribute more.In the words of Paul McGartoll, vicepresident of strategy and businessdevelopment at Textron, “Collaborationin the supply chain…is the nature ofthe business. If someone is supplyingjust us, they’re not going to be ascompetent as people working with anumber of customers. We work withsuppliers to adapt their capabilities forour requirements.”Companies are recalibrating theirsupply chains as they seek to capitalizeon opportunities and respond tochallenges. A majority (57 percent) ofsurvey respondents say that optimizingMetals outlookAll things considered, 2013 will likely be rememberedas a year of foundational change for the metals sector.Restructuring and cost cutting will continue in the slowgrowth markets of Europe; investment will pick up inthe high growth markets in Asia; and consolidation willcontinue, particularly in China where significant room stillremains for the industry to modernize.Much like the respondents in the broader survey, metalscompanies are keenly exploring new opportunities for costcutting. In those markets where overcapacity is perceivedto be more structural in nature, we expect to see a furtherrestructuring of assets. At the same time, continuedrestrictions on available capital and a temporary drop inresource prices around the world has catalyzed metalsorganizations to focus more on the optimization of theirexisting assets rather than the acquisition of new ones.The supply chain has also come sharply into focus formetals companies. Over the past year, I have noted amove by many organizations to reduce downstream costsand capture some of the value lost to intermediariesby rethinking their distribution and customer serviceofferings. On the upstream side, we expect to see anuptick in the pace of partnering and joint ventures as metalsorganizations look to secure the cost benefits of verticalintegration without outlaying massive amounts of capital orshouldering too much risk.Likely the greatest competitive advantage, however,will come from renewed efforts to drive product andprocess innovation. Indeed, as customers become moresophisticated in their needs and regulators add increasedpressure for environmentally-friendly products and moreefficient energy use, those organizations that are ableto quickly respond to shifts in demand and location willultimately capture a greater share of the market.Eric DamotteKPMG Global Head of MetalsKPMG Sector PerspectiveKPMG Global Manufacturing Outlook: Competitive advantage 9© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  14. 14. Embedding tax into the optimization strategyAs this year’s Global Manufacturing Outlookindicates, most multinational manufacturersare currently struggling to ‘triangulate’their supply chain to achieve end-to-endvisibility among customers, suppliers,partners and intragroup entities.This is notjust about improving ERP systems or otherICT elements; it also requires organizationsto carefully plan and monitor the divisionof roles, risks and tangible and intangibleassets amongst the group.Value chain management has alwaysprioritized the ability to achieve operationalcost savings and improved control whilealso optimizing tax (and, in some cases,creating a tax saving), particularly in areassuch as asset, risk and function location-selection. Many executives are keenly awareof the impact of more common factorssuch as the availability and cost of a skilledworkforce, general location costs and localincome tax rates, but few seem to pay closeenough attention to the longer-term transferpricing picture.In order to stay competitive, multinationalenterprises must therefore continue toconsider the impact of tax in optimizing acompany’s overall value chain (includingsituations where post-merger integrationmay be impacted). Simply put, companieswill need to ensure that the location ofthe group’s functions, risks and assets areproperly aligned and embedded in a transferpricing policy that is consistent with thebusiness economics.Loek HeldermanKPMG Head ofGlobalTax EfficientSupply ChainManagement,KPMG in theNetherlandsKPMG InsightKPMG Global Manufacturing Outlook: Competitive advantage10© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  15. 15. 58 percentsay they willregionalize/localize supplychains to improvethe managementof their supplychain risk.Supply chain strategies that characterize companies’ top operational prioritiesSource: Economist Intelligence Unit survey, Nov. 2012.OperationalimprovementIntegrated businessplanning56%41%36%Large companies (revenue over US$5 billion)Small companies (revenue under US$5 billion)58%46%39%1Demand-drivenplanning23Centralizedprocurement2Suppliermanagement3Operationalimprovement 1inventory, transportation, logistics,and other operational costs is centralto achieving operational priorities.For large companies in particular,demand-driven planning (cited by41 percent) and integrated businessplanning (36 percent) figure amongtheir top strategies for supply-chainoptimization.Recalibration is geographical as wellas operational. Fifty-eight percent ofrespondents say they will regionalize/localize supply chains to improve themanagement of their supply chain risk.Fifty-five percent say they will diversifytheir manufacturing locations, and halfof respondents say they will diversifytheir supply bases.A critical challenge facing manycompanies as they seek to promotegreater collaboration among theirnetwork of partners is achieving agreater level of transparency andcommunication than many practicenow. Doing so will require them toattain greater visibility into how theirentire supply and partner network fitstogether.KPMG Global Manufacturing Outlook: Competitive advantage 11© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  16. 16. Visibility is becoming a newwatchword in supply-chainoptimization. Improving speed,communication, and resilienceis a major opportunity for mostcompanies, and increasing end-to-end visibility in the supply chain willbe a key factor of success. Without acomplete picture of their whole supplychain, companies cannot achieve thetrue demand-driven planning theyaspire to because they cannot respondefficiently to changes in supply,capacity, and demand.Improved end-to-end visibility ofthe supply chain can enable firmsto get partners working togethermore efficiently – and thus be moreresponsive to changes in today’sfast-moving global marketplace. Inour survey, nearly half (47 percent) ofrespondents say a top challenge totheir supply chain efficiency is aligningoperations to real-time fluctuationsin customer demand, followed bysupplier performance in terms of risk,reliability, and quality (45 percent).When asked about their suppliervisibility, the largest proportion ofsurvey respondents, 49 percent, saytheir companies are familiar only withtheir immediate tier 1 partners in thesupply chain; they know very littleabout partners beyond, let alone theirentire network.Increased transparency across asupply chain helps foster betterand faster communication andcollaboration between partnersand even customers. According toMs. Burke from Unipart, her companyis spending time and money to dojust this. “We are getting closer withsuppliers and further into the supplychain,” she says. Moreover, as globalcompanies expand into new marketsor products/service lines, strongvisibility can help ensure that theaddition of more partners doesn’tmerely add to complexity.47 percentstruggling toalign operationsto real-timefluctuationsin customerdemand.ThevisibilityimperativeKPMG Global Manufacturing Outlook: Competitive advantage12© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  17. 17. Complete visibilityTier 1, 2, and beyondsuppliers visibilityEnhanced visibilityTier 1 supplier visibilityand some Tier 2supplier visibilitySome visibilityLimited Tier 1 suppliervisibility, but notTier 2 and beyondNo visibilityLittle to no Tier 1supplier visibility4%49%32%9%Companies have little visibility beyond tier 1 suppliersHow much visibility of supply and capacity information do youhave across your suppliers and logistics partners?Source: Economist Intelligence Unit survey, Nov. 2012.Demand-driven supply chainAs manufacturers look to becomeleaner, more cost efficient and morecustomer focused, we have seen agrowing trend towards “demand-driven”supply chains where all planning,purchasing, and replenishmentdecisions are aligned with actualdemand at the furthest point ofconsumption.To get there, companiesare establishing multi-tier visibility andreducing information latency acrossthe supply chain, resulting in inventory-related, operational and capital costsavings while simultaneously improvingdelivery performance and customerservice.Adopting a demand-driven supplychain model is a journey and thereforethe demand-driven processes willevolve over time. However, thisnew model does require a shift inthinking away from traditional “supplychains” towards the concept ofhighly integrated “supply networks”where multiple tiers of companies areworking off the same shared view oftotal demand and total available supplywith common processes and metrics.The greatest challenges for mostorganizations may not be technical,but rather philosophical. Do currentprocesses and policies reflecta demand-driven culture whereinformation is willingly shared andall material movements are drivenby consumption? Have trustedrelationships and agreements withpartners and suppliers been properlyestablished? How will the addedvalue be measured for customers,suppliers and partners, and howwill this value be shared among theparticipants?Experience has proven that the best-designed demand-driven networksare those developed in collaborationwith key suppliers/customersand rolled out through an iterativeapproach with continuous processimprovement measured against ashared benefits model.Business leaders should note, however,that this is often an emotional journeyreplete with its own highs and“valleysof despair.” But those that are able tomanage the transition effectively will findthat demand-driven approaches allowcompanies to leapfrog their competitorsand sustain a competitive differentiationfor an extended period of time.KPMG InsightRob BarrettManagingDirector,Advisory,KPMG inthe USAmit GuptaPartner,Advisory/ManagementConsulting,KPMG inthe USKPMG Global Manufacturing Outlook: Competitive advantage 13© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  18. 18. Only 9 percent saytheir organizationcan assess theimpact of unplannedsupply chaindisruptions in amatter of hours.Good visibility also strengthensoperational resilience. Currently, only9 percent of respondents say theirorganization can assess the impact ofunplanned supply chain disruptionsin a matter of hours, while 17 percentsay it takes 3 weeks or longer. Largercompanies may be better equipped todeal with unforeseen shocks.Twentypercent of companies with revenueof US$5 billion and over say they canassess the impact of a disruption ina matter of hours.That said, this stillleaves 80 percent of them with roomfor improvement.But while catastrophic disruptions –or “black swan” events such as theFukushima earthquake and tsunami,have focused much media attention onthe role of the supply chain in disasterresponse, for most companies, a hugeopportunity lies in strengthening day-to-day operations. As Mr. Levesque ofBombardier notes, “It is not so muchcatastrophic disruption; rather, it is aboutensuring that we have different supplierswho can do more at the right quality.”Those firms that successfully harnessemerging technological applicationswill be best placed to optimize visibilityand communication. According toMr. Levesque, the aircraft industry usesa mix of old modes of communication,like faxes, as well as open networktechnology, such as enterpriseresource planning systems (ERP).“IT is both an enabler and a ticket ofadmission,” he says.Connectivity is clearly an area in whichcompanies see room for improvement.A significant portion of respondents saythey use email, fax, or mail as one of thetop 2 ways to share data and transmitinformation about demand throughthe supply chain.This is followed bytraditional B2B networks and web-basedpartner portals. Smaller companies(companies with revenues of less thanUS$5 billion), are more likely to useemail, fax, or mail (cited by 46 percent ofA taxing environment for manufacturersIt may be time for manufacturers to put their taxdepartment on speed-dial. Indeed, as I look acrossthe findings in this report, one thing becomesclear: the issue of tax is even more important formanufacturers than ever before.And rightfully so.Those organizations that areable to enhance their competitive position andreduce their risk using smart and transparent taxplanning will almost certainly gain an advantageover their peers.Some, such as those seeking to expand into newmarkets and segments, will want to hone their taxcapabilities in foreign markets and develop a clearunderstanding of local tax requirements. Others,like those investing in R&D, will find opportunity tomaximize their investment by comparing availabletax incentives offered by certain jurisdictions.And, as my colleague Loek Helderman notes onpage 10, the tax implications surrounding supplychain operations or optimization efforts are myriad.And while tax planning – in and of itself – is certainlykey to success, manufacturing organizations willalso need to be highly cognizant of how their taxstrategies and structures may be perceived – notonly by tax authorities but also by the public ingeneral. Right around the world, we have seenmajor organizations come under heavy fire forcreating overly aggressive or artificial structures.Reputations have been damaged, relationshipswith tax authorities have been bruised and loyaltywith customers has been diluted.Over the coming years, we expect to see taxauthorities develop and promulgate new setsof rules designed to eliminate aggressive taxstrategies, increase transparency in reportingand protect the tax ‘take.’ Those manufacturersthat are able to get out ahead of this evolvingtax environment will almost certainly enjoy aneasier transition to tax compliance and a betterrelationship with their key stakeholders goingforward.Joerg StraterKPMG GlobalHead ofTaxfor DiversifiedIndustrialsKPMG InsightKPMG Global Manufacturing Outlook: Competitive advantage14© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  19. 19. respondents, compared to 39 percentof larger companies). Larger companies(those with revenues of US$5 billionor over), meanwhile, are more likelyto prefer web-based partner portals,followed by email, fax, or mail andtraditional B2B/EDI network. Althoughthe increased use of portals has led toimproved transparency and connectivity,the limitations of such portals do notyet allow for more comprehensivetransparency across the network.The high number of respondentsthat still use email, fax, or mail issurprising – though this can beattributed to the more common useof email. However, as technologybecomes cheaper and communicationsoftware becomes a more effectiveway to communicate, companiesmay find more ways to collaborateefficiently across networks ratherthan hierarchically. Along the way,companies may find that greaterinformation-sharing at different levelsand stages of the production processcan spark new ideas to help firmsenhance their products.Data-sharing methods to transmit information across the supply chainSource: Economist Intelligence Unit survey, Nov. 2012.Respondents selected top two.Web-basedpartner portalTraditional B2B/EDI networkLarge companies (revenue over US$5 billion)Smaller companies (revenue under US$5 billion)40%39%37%Contractcall-offs25%46%40%113Traditional B2B/EDI network3Email, fax, or mail2Email, fax, or mail2KPMG Global Manufacturing Outlook: Competitive advantage 15© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  20. 20. Companies remain well aware of theimportance of R&D and innovationin strengthening their competitiveadvantage. A majority of respondents,57 percent, say they expect atleast 10 percent of their company’srevenue over the next 2 years to comefrom innovations. Even when firmswere contending with an economicdownturn, last year’s report found thatwell over a third of all respondentssaid they expected to expandinnovation and R&D efforts over thenext 2 years.This year’s study finds that the trendtowards investment in R&D continues,with 63 percent of respondentssaying that their company invested upto 3 percent of revenue in R&D andinnovation in the previous 24 months,and 28 percent invested greater than4 percent.The outlook for the nearfuture is even more positive.Thenumber of respondents who expectto invest at least 4 percent of theirrevenue in R&D over the next 2 yearsis 15 percentage points greater thanthe number who invested this overthe last 2 years.Innovation:forgingaheadR&D investmentSource: Economist Intelligence Unit survey, Nov. 2012.Last 2 years Next 2 years010203040506070Don‘t knowGreater than 4%PercentageofparticipantsR&D investment as a percentage of revenue63%0-3%48%28%42%9% 10%KPMG Global Manufacturing Outlook: Competitive advantage16© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  21. 21. Increasingly, companies are findingthat their supply chain partners canplay as critical a role in their innovationstrategies as can investments inR&D, provided they can overcomea series of challenges in deepeningcollaboration with outside partners.Currently, 43 percent of respondentssay that the links between their R&Dfunction and supply chain are not verystrong. And 32 percent of respondentssay that one of the top challengescompanies face to innovation iscomplexities in collaborating withsuppliers and partners. Mitigating suchchallenges requires a shift in thinking.Top 5 innovation challenges companies faceSource: Economist Intelligence Unit survey, Nov. 2012.Respondents selected top three.What are the major challenges your company faces inits ability to innovate?12345to company strategyComplexities inIncomplete view of/difficulty understanding theAligning innovationcollaborating with suppliers and partnersExecutingon innovation – on time and on budgetShortage of ideasto drive innovationneeds of our customers43 percent say thatthe links betweentheir R&D functionand supply chainare not very strong.KPMG Global Manufacturing Outlook: Competitive advantage 17© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  22. 22. As communication across the supplynetwork improves, companies areturning more to their network ofpartners in the supply chain for newideas. As previously mentioned, halfof the companies surveyed say thatpartnerships will characterize thefuture of innovation. “In terms ofinnovation, we work closely with OEMsthemselves,” says Mr. Scotting ofArcelorMittal. “We are involved in theearly stages of platform development –something like 7 years out.”Most companies that expect aresurgence in R&D efforts seem tothink that incremental innovation –enhancing existing product lines andservices – is the preferred path tostaying competitive, but 31 percent dothink breakthrough opportunities exist.This is fewer than might have beenexpected from last year’s survey.Nearly 3 in 5 of all respondents in lastyear’s survey said their company wouldincrease radical innovation over thenext 2 years. Still, a significant portionof respondents in this year’s studysee value in focusing on breakthroughinnovation. In particular, amongrespondents from the automotiveindustry who are seeing resurgence inR&D, this figure is as high as 41 percent.Meanwhile, of the respondents whosay there has been a resurgence ofR&D in their business, 68 percent arefocused on incremental innovation.This is largely unchanged from lastyear’s survey, when 72 percentof respondents expected theirincremental innovation activity to2/3 of respondentsare focused onincrementalinnovation while1/3 are focusedon breakthroughinnovation.Doug GatesKPMG Global Head of Aerospace and DefenseKPMG Sector PerspectiveAerospace & Defense OutlookThese have not been easy times for the aerospace anddefense (A&D) sector. On the commercial aerospace side,backlogs have hit record levels and projections show thatgrowth is not likely to let off anytime soon. For the defensesector, the picture is somewhat more challenging asgovernments slash defense budgets to balance the publicbooks. But with continued economic uncertainty ahead, itseems clear that organizations in both the aerospace and thedefense sectors will need to undergo a paradigm shift if theyhope to enhance their margins, retain their balance sheetstrength and grow their competitive advantage.This report – and our companion A&D Sector Report –provides ample evidence that some of this necessarychange is already underway. Large A&D players are30 percent more likely than the industry average to say theywould be cutting back or delaying planned investmentsand almost 10 percent more likely to say they would exitunprofitable product lines in the next 2 years. Some maysay this is simply a `hunker down’ mentality; others wouldsuggest these organizations are focused on trimming fat andgrowing their core business to prepare for the future.Other A&D leaders are finding new opportunities to grow.Some are finding success in `repurposing’ their existingproducts, services and business models laterally intoadjacent markets. A new solution in cyber security – a keyrequirement for the A&D sector – may also play well in thefinancial services sector, for example, while unmannedaircraft designed for the defense sector are showing theirvalue as a vital tool in areas such as border security andprotection for major events.The next few years should also see a rise in the numberof A&D organizations expanding into new global regions.However, executives should be warned: success in foreignA&D markets takes much more than a sales presence. It willrequire long-term local relationships, a keen understandingof customer demands on the ground and a market-savvyapproach to regulatory and legal compliance.KPMG Global Manufacturing Outlook: Competitive advantage18© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  23. 23. Competition heats upClearly, the world of manufacturing has become much morecompetitive. With minimum positive growth on the horizon,companies continue to compete on cost and – as a result –are searching for new approaches and models that will trimany remaining excess out of the product cycle. No wonderthen that manufacturing executives have turned their eyestowards reworking their engineering, design and supplychain processes with a view towards greater collaborationboth upstream and downstream.Everything I see in both this report and the actual marketindicates that competition is only going to heat up fromhere. According to this report, manufacturers are seriouslyrethinking their plans to expand into new and unfamiliarmarkets and product lines. And while this will effectivelyreduce risk and capital costs, it also narrows the scope fornew growth. Indeed, in this hyper-competitive environment,any gains in market-share must, by necessity, be taken offthe shoulders of competitors.This can only be achieved bydeveloping lower-cost products or creating greater value forthe end customer.Both are a challenge. Driving further costs out of analready tight structure requires companies to look beyondthe back office towards the actual costs of engineering,manufacturing and procurement. At the same time, addingmore value to their products requires manufacturers to gainever-clearer insight into the needs and preferences of theircustomers, requiring them to not only understand how theircompetitors deliver value, but also how to predict whatcustomers will want in the future.Ultimately, this year’s report shows that – to win inthis complex and constantly evolving environment –manufacturers will need to focus on 2 key priorities goingforward: process innovation and customer insight andservice.Those that get it right should eat well; those thatdon’t will simply be eaten.Marty PhillipsKPMG Global Head of Management Consulting for Diversified IndustrialsKPMG Sector Perspectiveincrease or significantly increase.Seventy-eight percent of largecompanies that say there has been aresurgence of R&D say incrementalinnovation is their primary strategy,compared with 64 percent of smallercompanies that say the same.“When we’re looking at a “clean sheet,”a new aircraft, we will seek a stepchange in innovation. But even then, itincorporates many technologies fromthe past as well,” says Mr. Levesqueof Bombardier. “For example, regionaljets started with 50 seats, then theywent 70, then 90 were specified. Butessentially it was the same avionics anddesign at the core.” Mr. Levesque pointsout that the benefits of an incrementalapproach to innovation are not just inthe end product, but also the way inwhich incremental innovation can helpimprove processes. For example, R&Dmight be focused on delivering a betterway of assembling a plane, and alsoend up improving guidance systems bypositioning parts in a way that improvesquality and efficiency.As firms rethink their innovationstrategies in the context of leveragingopportunities in global markets,they may start rethinking their R&Ddestinations as well (see Spotlight onsourcing decisions). For now, manycompanies do not see much benefitmoving their R&D beyond the marketsin which they are established. Amajority (75 percent) of companies,both large and small, say they are notconsidering moving their R&D to anew country. Among the 18 percentthat say they are considering such amove – and these are overwhelminglysmaller companies (revenue less thanUS$5 billion) – China and India arethe preferred destinations.Regardless of R&D locations,companies overall see the benefitsof investing more in innovation.This reinforced push for innovationamong companies suggests themanufacturing sector’s optimisticoutlook may be warranted.75 percent ofcompanies saythey are notconsideringmoving their R&Dto a new country.KPMG Global Manufacturing Outlook: Competitive advantage 19© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  24. 24. Spotlight on sourcing decisionsWhere companies will be sourcing their products, services and R&DKPMG Global Manufacturing Outlook: Competitive advantage20© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.In November 2012, The Economistargued that, for manufacturers,“product innovation will go hand-in-hand with production breakthroughs,so more companies will want theirresearch and development teamsclose to their factories.”This year’s EIU research certainlyfinds many global manufacturerslooking to source closer to home, aswell as keep their R&D units closerto their production base. A majorityof respondents from the 5 biggesteconomies where our surveyrespondents are based, say theyexpect to increase sourcing from theirhome country over the next 2 years.And almost all of these respondentsexpect R&D and product developmentto be carried out at home.Owens-Illinois, a US glass bottlemanufacturer, announced inSeptember 2012 that it would builda new R&D center in Ohio. Morerecently, a smaller company, EclipseInc, announced in March 2013 that itwould create formal R&D departmentsin the US.The trend goes beyondUS companies. Last fall, HeroMotorcycles, an Indian manufacturer,announced plans to establish newR&D centers in its home country.Perhaps unsurprisingly, China is, onaverage, the second most popularsourcing destination after the homecountry among respondents from the5 major manufacturing markets in oursurvey (China, US, Japan, Germany,and UK). But for respondents fromone major manufacturing power(the UK), sourcing from the US isexpected to be just as important assourcing from China–and the US alsofigures relatively high on the list ofpreferred sourcing destinations forrespondents from Japan, anotherglobal manufacturing powerhouse.For global companies that do look tolocate manufacturing plants outsidetheir home countries, they select theirR&D locations based on a number ofconsiderations. Established marketstypically offer more financing optionsand better IP enforcement than mostemerging economies, but otherconsiderations include a favorablebusiness operating environment,availability of skilled talent, and lowestoverall total cost.Taking all of these factors into accountand combining them with longer-term,growth-market demographics, Chinaand India are prime destinations forincreased investment.This is true ofTextron, which recently announceda joint venture with AVIC, China’smajor aircraft manufacturer, and willsee an assembly plant located inthe country to serve the burgeoningChinese aviation market. Meanwhile,its engineering and R&D facility islocated in Bangalore, India’s tech hub.In February 2013, they announcedplans to further expand its engineeringcenter by adding more personnel.The center focuses on creating newproducts for all ofTextron’s offerings,including helicopters, aircraft,automotive, and industrial segments.Bangalore is an area in whichTextronis moving aggressively to exploit theaviation industry capability in India,according to Paul McGartoll, vicepresident of strategy and businessdevelopment at the company. “Thebenefits include language, qualityof education and the tradition ofengineering. If China is becomingthe workshop of the world, India isbecoming its design office.”
  25. 25. ChinaUSJapanGermanyUKChinaUKCanadaUS89%18%13%13%IndiaChinaGermany70%32%22%IndiaUSChinaJapan87%29%16%16%ChinaUSUK59%29%29%IndiaHong KongChina85%32%9%Sourcing DestinationsWhere respondents based in China, US, Japan, Germany, and UKexpect to increase sourcing over the next 2 years.Source: Economist Intelligence Unit survey, Nov. 2012.KPMG Global Manufacturing Outlook: Competitive advantage 21© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  26. 26. KPMG InsightRichard RekhyChief Executive Officer,KPMG in IndiaSavvy manufacturers seeking to enter new markets are rethinking and re-engineering their productsto meet the unique needs and price points of the emerging markets. In a trend known as ‘reverseinnovation,’ manufacturers are locating their R&D efforts in countries like India and China andcreating simpler, lower cost designs better suited to a number of emerging markets. Forexample, GE Healthcare’s initiatives to develop designs and products for the Indian market isexpected to create new demand segments at lower price points for the company, while Honeywellis reportedly building innovation hubs in India and China to develop systems and solutions that maydrive its growth in several regions.Collaborating with partners and suppliers on innovation helps to bring the best ideas to the tablequickly and gives manufacturers an edge. Choosing the right partners and opportunities is critical.Who works best with our company? Do we have the right processes to ensure speed to market?Moving past business as usual is essential to succeed in the new economy.Ken SeelGlobal Head of Conglomerates,KPMG in the USMina SekiguchiAssociate Partner,KPMG in JapanWhile many continue to hope that the much-discussed ‘6 difficulties’ of the Japanese businessenvironment will be overcome by the second Abe Administration (which was elected towards theend of 2012), Japanese manufacturing companies continue to struggle.For the most part, Japan’s manufacturing sector is fighting to secure it’s competitiveness in a globalbusiness world where emerging countries such as China, India, and ASEAN countries offer a clearcost advantage. Moreover, recent advancements in digitalization and the modularization of partsmanufacturing now underway in the emerging markets is effectively nullifying the quality advantageof “made in Japan” products.And while this may be good news for global companies (and Japanese manufacturers) attempting todevelop global supply chains, it also raises a distinct risk of commoditization of products. Historicalevidence suggests that Japan will only achieve price competition once manufacturers have identifiedthe unique value that they offer to the markets that they serve.The challenge for Japan’s global companies, therefore, is to balance the need to be globally costcompetitive while still being seen as unique and value adding.Given the expectations of decreasing domestic consumption, it seems increasingly likely thatJapanese companies will need to be the front runners of the movement to establish a new globalbusiness model that satisfies both of these critical demands.CollaborationReverse innovationJapan staying competitiveKPMG Global Manufacturing Outlook: Competitive advantage22© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  27. 27. Carlo CiaramitaroKPMG’s Canadian and Americas R&DTax Incentives Leader,KPMG CanadaGovernments across the globe are looking to partner with industry by offering R&D tax incentives thatspecifically promote and target innovation and growth. Over 40 countries are now offering R&Dincentives that provide tax-effective options for locating and structuring R&D operations. This is a win-win situation for both the countries, who can reap substantial spin-off economic benefits, and thebusinesses, who can benefit from increased innovation to bolster their growth and profitability.While most companies have been keenly focused on optimizing manufacturing costs over the pastfew years, some of the more savvy organizations have now started to refocus their effortsonto the growing impact of general and administrative spend. In many cases, general &administrative functions such as corporate governance, sales effectiveness or procurement arebeing re-cast as not only a cost driver, but also a potential value creator. As such, we are seeingcompanies develop and implement effectiveness and efficiency target operating models for theirgeneral & administrative functions that – in many cases – are comparable to the approach takenwithin the manufacturing network.Dr.Alexander RiedelPartner, Advisory,KPMG in GermanyThings are (finally) looking up for Brazil’s industrial sector. Indeed, while other sectors of the localeconomy have been seeing positive growth – largely as a result of low unemployment, growingincome levels and rising credit – results from Brazil’s industrials sector have been somewhatcontradictory over the past few years.In part, this mismatch between local market economics and the performance of the industrialssector has been the result of difficulties related to competitiveness and the appreciation of the localcurrency which dampened export growth. But competition for skilled and qualified professionals isalso hampering growth by pushing up the cost of labor.Recently, the government has taken steps to respond to slow growth in the sector includinginitiatives to increase production, tax rate reductions, tax incentives and greater control overforeign exchange, all of which should set the tone for 2013 and bring some relief to the sector.The first budding signs of recovery can already be seen. In January, industrial output grew by2.5 percent over last December, the greatest monthly advance in almost 3 years (and 5.7 percentgrowth year-over-year), according to the Brazilian Institute of Geography and Statistics IBGE’s data.And while February 2013 may have resulted in a slight decline, the overall picture seems to indicatethat good news is on the horizon for both Brazil’s manufacturers and foreign investors.Charles KrieckPartner in Charge, Audit,KPMG in BrazilR&D tax incentivesGeneral & administrative spendBrazilian government incentivesKPMG Global Manufacturing Outlook: Competitive advantage 23© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  28. 28. ConclusionSlow growth in the global economy and advancing technologies inthe manufacturing sector present global manufacturers with a mixof challenges and opportunities. Companies are looking to deepencollaboration with partners in their supply chains to strengthenoperational efficiencies and move towards more flexible demand-driven operations.End-to-end visibility will be at the core of improved performanceand collaboration. Currently, companies have limited visibilitybeyond their immediate tier 1 suppliers.Yet they need acomprehensive picture of supply and capacity across all levels oftheir network if they are to maximize responsiveness to changesin market demand.Innovation and R&D strategies remain critical to staying ahead ofthe game and manufacturing companies are increasingly placingtheir partner network at the center of their strategies to generatefresh ideas. Half of our respondents say that their firms will relyon partners for innovation. Communication with key supply chaininnovation partners will be vital in order to drive the necessaryproduct enhancements with the speed, quality and cost themarket is demanding.At the center of all this is fine tuning supply chain links to workmore effectively with partners. Companies that make the most oftheir supply chains have the potential to become more profitablein the years ahead. As Carol Burke from Unipart puts it, “Supplychain effectiveness is the invisible advantage.”KPMG Global Manufacturing Outlook: Competitive advantage24© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  29. 29. KPMG Global Manufacturing Outlook: Competitive advantage 25© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  30. 30. Diversified Industrials Major Country LeadershipGlobal/USAJeff DobbsGlobal Sector Chair,Diversified Industrials+1 313 230 3460jdobbs@kpmg.comUKStephen CooperPartner, Head of DiversifiedIndustrials andAutomotiveKPMG in the UK+44 20 73118838stephen.cooper@kpmg.co.ukCanadaDon MatthewPartner, Canadian LeadDiversified IndustrialsKPMG in Canada+1 604 527-3770dmatthew@kpmg.caBrazilCharles KrieckPartner in Charge,AuditKPMG in Brazil+551121833102ckrieck@kpmg.com.brSwedenBjörn HallinKPMG Partner/Head ofIndustrial MarketsKPMG in Sweden+46 8 723 96 26bjorn.hallin@kpmg.seNetherlandsTomVan der HeijdenPartnerKPMG in the Netherlands+31206 567520VanderHeijden.Tom@kpmg.nlFrancePhilippe GrandclercPartnerKPMG in France+33155686952pgrandclerc@kpmg.frSpainManuel ParraPartner/Head of DiversifiedIndustrialsKPMG in Spain+34914563400mparra@kpmg.esKPMG Global Manufacturing Outlook: Competitive advantage26© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  31. 31. ChinaAlex ShumHead of DiversifiedIndustrialsKPMG in China+862122122508alex.shum@kpmg.comAustraliaCameron SlappSector Leader, DiversifiedIndustrials and BuildingMaterialsKPMG inAustralia+61 (2) 9335 7258cslapp@kpmg.com.auEMA/GermanyDr. Gerhard DaunerEurope, Middle East,and Africa, Head ofDiversified IndustrialsKPMG in Germany+49 89 9282 1136gdauner@kpmg.comIndiaRichard RekhyChief Executive OfficerKPMG in India+91 124 307 4303rrekhy@kpmg.comJapanOsamu MatsushitaHead of DiversifiedIndustrialsKPMG in Japan+81352188768omatsushita@kpmg.comSwitzerlandBryan DeBlancPartnerKPMG in Switzerland+41 58 249 2944bryandeblanc@kpmg.comRussiaMarcVan der PlasHead of MarketsKPMG CIS+74959372525 x13142MarcVanDerPlas@kpmg.ruItalyRoberto GiovanniniHead of Consumer andIndustrial Markets,AdvisoryKPMG in Italy+390514392611rgiovannini@kpmg.itKPMG Global Manufacturing Outlook: Competitive advantage 27© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  32. 32. KPMG’s Global Diversified Industrials Steering Group:Jeff DobbsGlobal Sector Chair,Diversified Industrials+1 313 2303 460jdobbs@kpmg.comEric DamotteGlobal Head of Metals+349 1456 3406edamotte@kpmg.esDr. Gerhard DaunerEurope, Middle East, andAfrica,Head of Diversified IndustrialsKPMG in Germany+49 89 9282 1136gdauner@kpmg.comDavid FreyHead of Strategy andOperations ConsultingKPMG in China+86 108 508 7039david.frey@kpmg.comDoug GatesGlobal Head ofAerospace & Defense+1 404 222 3609dkgates@kpmg.comOsamu MatsushitaHead of Diversified IndustrialsKPMG in Japan+81 352 188 768omatsushita@kpmg.comMathieu MeyerGlobal Head ofAutomotive+49 711 9060 41730mathieumeyer@kpmg.comMarty PhillipsGlobal Head of ManagementConsulting for Diversified Industrials+1 678 525 8422mwphillips@kpmg.comKen SeelGlobal Head of Conglomerates+1 203 406 8526kseel@kpmg.comJoerg StraterGlobal Head of Tax forDiversified Industrials+49 211 475 8381jstrater@kpmg.comAdditional contributors:Robert H BarrettManaging Director, AdvisoryKPMG in the US+1 480 459 3535rhbarrett@kpmg.comCarlo CiaramitaroCanadian andAmericasR&DTax Incentives LeaderKPMG in Canada+1 519 251 3522cciaramitaro@kpmg.caStephen CooperPartner, Head of DiversifiedIndustrials andAutomotiveKPMG in the UK+44 20 73118838stephen.cooper@kpmg.co.ukAmit GuptaPartner,Advisory,Management ConsultingKPMG in the US+1 847 274 4533agupta10@kpmg.comLoek HeldermanKPMG Head of GlobalTax EfficientSupply Chain ManagementKPMG in the Netherlands+312 06 56 1415helderman.loek@kpmg.nlCharles KrieckPartner in Charge, AuditKPMG in Brazil+55 112 183 3102ckrieck@kpmg.com.brRichard RekhyChief Executive OfficerKPMG in India+91 124 307 4303rrekhy@kpmg.comDr.Alexander RiedelPartner,AdvisoryPerformance &TechnologyKPMG in Germany+49 89 9282 1210ariedel@kpmg.comMina SekiguchiAssociate Partner, BusinessStrategy and DevelopmentKPMG in Japan+813 32 667 007mina.sekiguchi@jp.kpmg.comMichele HendricksGlobal Executive forDiversified IndustrialsKPMG in the US+1 203 406 8071mhhendricks@kpmg.comMartha CollyerSenior Marketing ManagerKPMG in Canada+1 416 777 3505mcollyer@kpmg.cakpmg.com/socialmediaThe information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accu-rate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one shouldact on such information without appropriate professional advice after a thorough examination of the particular situation.© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International.KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor doesKPMG International have any such authority to obligate or bind any member firm. All rights reserved.The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.Designed by Evalueserve. Publication name: Global Manufacturing Outlook: Competitive advantagePublication number: 130103. Publication date: May 2013

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