Global Opportunities for Manufacturers: Three Different Perspectives

• the allocation of production, sales, and marketing resources across customer markets, channels, and geography in a way that maximizes ROI, and
• the establishment of fair performance expectations that provide effective incentives for all resources.

Geographic segmentation can range from specific census districts or postal codes within a country, all the way to countries and global regions. One initial question that a manufacturing company may pose is "What are my top-10 country market opportunities, and what are their growth and risk profiles?"

The answer to this question can vary quite dramatically, even when considering very general differences in the products and the target customer end-markets.

Take the example of a company that makes a range of relatively high-priced consumer discretionary products. For this purpose we picked consumer expenditures on consumer durables as our proxy for discretionary consumer products. Durables are comprised of items such as cars, consumer electronics, recreational equipment, furniture and furnishings, and major appliances and tools.

Figure 1 shows a market growth, risk, and size quadrant diagram for the top durable/discretionary product markets.

Figure 11
Ten Largest Country Markets for Manufacturers of Consumer Durables

Source: Global Insight Consumer Markets Database, Global Risk Service

The horizontal axis is Global Insight's forecast of the compound annual growth rate (CAGR) for inflation-adjusted consumer spending for durable goods over the next three years. The vertical axis is Global Insight's measure of medium-term exporter risk—a composite indicator of risk factors weighted according to how a company exporting into the country sees risk. The size of each country bubble is proportional to the level of consumer durables spending in 2006.

The story of this chart is that the developed countries are still the main sources of demand for bigger ticket discretionary consumer goods. These are the countries with large segments of the population in the middle to upper income ranges that are typically required to support the purchases of discretionary consumer goods. The expansion of the affluent segment in these countries continues to be the dominant driver of demand. Taiwan is the only "newly industrialized" country that makes it into the top 10.

Note that countries like China, Brazil, and India are nowhere near the top 10 for durable goods, as their populations are still too poor. China ranks a distant 32^nd out of the 95 countries covered by Global Insight's Global Consumer Markets Database. This rank puts them immediately behind markets such as Finland and New Zealand. Chinese spending on consumer durables is growing extremely fast; Global Insight projects that this spending will grow at an annual rate of about 19% over the next three years. The number of potential households that can afford these products is very small, but is growing extremely quickly. The growth is certainly attractive, but the relatively small scale of the current market for consumer discretionary/durable goods means that manufacturers still need to be sensitive to how soon their investment in China will pay off in comparison to the size of market opportunities elsewhere.

Figure 22
Ten Largest Country Markets for Manufacturers of Non-Durable/Basic Consumer Goods

Source: Global Insight Consumer Markets Database, Global Risk Service

Figure 2 shows the top-10 markets for a company that makes a range of basic or non-durable consumer products. These are products such as food, beverages, tobacco, drugs, personal care products, newspapers, magazines, stationary, garden supplies, and pet supplies.

The story of this chart is that manufacturers of basic consumer goods need to be actively targeting a wider range of developed and emerging market right now. The large-population emerging markets of China, India, and Brazil are solidly in the top-10 list, ranking 3rd, 4th, and 8th, respectively. These basic consumer goods are purchased by the large groups of households that are ascending the lower "rungs" of the income distribution in these countries.

Also note that there are real differences between China, Brazil, and India in terms of growth and risk, as well as in terms of many other quantitative and qualitative factors one examines when diving deeper into the market analysis. These differences require very different strategies.

Figure 33
Ten Largest Country Markets for Industrial Manufacturers

Source: Global Insight World Industry Service, Global Risk Service

Figure 3 shows the top-10 country markets from the perspective of a manufacturer of a wide range of equipment, components, and parts that are sold to other manufacturing companies. These would be products such as general and specialized industry machinery, automation and control equipment, air compressors, pumps, circuitry, electronic components, wiring, etc.

This chart tells us that the dramatic shifts in the global distribution of manufacturing activity have opened up large, fast-growing markets for industrial manufacturers. China is currently the second-largest global manufacturing center, and manufacturing output, measured in inflation-adjusted terms, will be growing over 11% annually over the next three years. India is behind China in the development of its manufacturing sector, but it still is in the top 10. Furthermore, India's manufacturing sector is still growing well above the world average with the offer of a lower risk profile than China. South Korea stands out as a large market offering growth rates more than double many more mature markets, yet without any significant increase in risk.

The final message from this chart is that the United States, Germany, and Japan are still manufacturing powerhouses, and they will continue to be in the future. They are maintaining their competitiveness and reacting to the pressure of low-cost manufacturing competitors through a focus on higher value added through research, design, innovation, and sophisticated market segmentation.

By Chris Holling