Manufacturing In A Rapidly Changing Global Landscape

By Amanda Earing, News Editor, Manufacturing.netAs emerging nations and European manufacturers take advantage of the U.S.’s weak dollar to increase their manufacturing presence here and grow their international businesses, U.S. manufacturers need to identify whether these strategies should be viewed as an opportunity or a serious threat.

The number of U.S. companies losing ownership to foreign competitors has been growing at a steady pace. Anheuser-Busch is the latest U.S. manufacturer to fall under foreign ownership as shareholders approved Belgium-based InBev’s $52 billion takeover bid.

A recent report from consulting service firm Capgemini and the Centre for International Manufacturing, part of the University of Cambridge's Institute for Manufacturing, confirms this trend will continue as developing nations grow.

Nick Gill, global automotive and manufacturing leader for Capgemini doesn’t forsee global growth from emerging markets leveling off in the near future.

“I think we are early in this wave, and the growth in foreign direct investments (FDI) and mergers and acquisition (M&A) activity will continue for the next few years,” he says.

Emerging markets such as Brazil, Russia, India and China, also known as the BRIC nations, have ambitious internationalization strategies, pursued increasingly through mergers and acquisitions -- some of which have targeted well-known western companies.

“In recent years, we have seen strong, sustained growth of the global economy and a large part of this has been due to the performance of the emerging market countries,” says Gill.

Gill says the sudden spark in globalization is largely due to the new found cash positions of companies in emerging markets with global aspirations. Also, many Western companies are looking abroad with some softness in their home market.

As these emerging nations and European manufacturers take advantage of the U.S.’s weak dollar to increase their manufacturing presence here and grow their international businesses, U.S. manufacturers need to identify whether these strategies should be viewed as an opportunity or a serious threat.

Capgemini’s report found that the process of globalization within emerging economies is driving the growth of domestic companies into emerging multinationals (EMs), which is challenging the traditional model of western business.

Expansion approaches for these companies include international investment in green-field operations, joint ventures and mergers and acquisitions, with the latter an increasingly popular strategy.

“Many companies have found that joint ventures or other “weaker” partnerships may be expedient first steps, but will inevitably not be a long-term solution,” says Gill.

Opportunity or threat?
Emerging nations have a massive impact on the manufacturing industry. These nations have a plethora of large, medium and small manufacturing companies based inside their borders. But should these nations be considered a threat or an opportunity to more developed nations?

“Developed nations should see the growth of the BRIC countries as an opportunity and a threat -- often they are different sides of the same coin in the manufacturing industry. However, if developed nations just sit back and watch, the BRIC countries will most certainly be a threat,” says Gill.

According to Gill, emerging multinationals have a multitude of advantages over more developed manufacturing countries. These advantages include: lower cost resources; a larger labor pool consisting of both highly educated engineers and shop-floor workers; better and cheaper access to raw materials; less cost sunk into historical products, plants, and infrastructure; easy access to today’s high-growth markets.

But he also points out that developed countries have the wisdom and strategy that comes from age and experience. They have long-standing relationships, greater market share, and the capability to embrace the new world and the opportunities it represents.

Too often, the benefits to the U.S. from acquisitions made by foreign companies are ignored by economic analysts. But foreign acquisitions can have a positive impact on the U.S. manufacturing industry. Gill says when a foreign firm buys a U.S. company the result is often an entity with greater scale and a cohesive vision or direction.

More importantly, these acquisitions often result in more job opportunities in the U.S.

 “We have already seen that foreign companies acquiring American businesses can have a stabilizing and growth affect; look at the many automotive companies who have entered the U.S. and employ more people than their American counterparts,” Gill points out.

Partnering up
While most companies are beginning to invest in foreign markets through M&As, joint ventures and other partnerships still play a major role. But Gill notes that American manufacturers should carefully consider how a joint venture will benefit both companies.

“I would quote George Bernard Shaw in saying ‘a little learning is a dangerous thing -- drink deep or taste not the Pierian Spring.’ Partnerships require a deep understanding of each other and of each other’s markets,” he cautions.

Gill also notes that partnerships and joint ventures are often a necessary step in order to understand a market, make mistakes, learn and adapt.

“Even if the end goal is an M&A, companies need to cut their teeth on less risky ventures, he adds.”

As the level of foreign interest in U.S. continues to rise, it is important for manufacturers in Europe and the U.S. to stay ahead of the competition. Gill suggests developed nations stay ahead of the competition by understanding the game being played, the relative strengths and weaknesses of each party, and by treating emerging markets as a serious part of any manufacturing company’s strategy today, not priority six.

Capgemini, a global provider of consulting, technology and outsourcing services, enables its clients to transform and perform through technologies. Nick Gill is Global Automotive and Manufacturing leader for Capgemini. More information is available at

IfM is part of the University of Cambridge’s Department of Engineering and brings together expertise in management,economics and technology to address the full spectrum of industrial issues. Its activities integrate research and education with practical application in companies, providing a unique environment for the creation of new ideas and approaches to modern industrial practice. More information is available at