Globalization in Manufacturing Industries

Globalization has opened up huge opportunities for the plant and mechanical engineering sector. But few companies have managed to transition fully from a home country-focused export business model to that of a global player. As the importance of emerging markets continues to increase, this transformation remains a key strategic challenge.

Oliver Wyman's Manufacturing Team has worked with a wide range of manufacturers to help them develop their global presence. To highlight key strategies, trends, and implications, Oliver Wyman is publishing a series of articles over the course of the year focused on major functional areas and their role in globalizing manufacturing companies, including purchasing, engineering/R&D, manufacturing, sales & service, and the organization as a whole.  

Issue 1 - New Paradigms for "Glo-Calizing" Sourcing and Supply

While demand for manufactured goods continues to increase globally, manufacturing companies’ value-add is still biased toward traditional home markets. From a supply chain perspective, this mismatch creates inefficiencies in two ways: First, many companies still do not leverage the full potential of “best-cost country” sourcing to reduce supply costs when serving their traditional production sites. Second, manufacturing firms that already have existing production sites in emerging markets are facing the challenge of “localizing the supply chain” to enhance competitiveness and reduce time-to-market.

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Issue 2 - Globalizing the manufacturing footprint

Globalization of the manufacturing footprint has been an imperative for manufacturing firms for a long time. However, as the parameters driving footprint decisions are undergoing dynamic change, manufacturers need a fresh approach and new aspects need to be included in the consideration. This compels companies that already draw on a global manufacturing network to challenge past decisions, and drives companies with hitherto limited global scope in manufacturing to think more intensely about expansion. These challenging tasks are made even more difficult by rising economic uncertainty. Still, access to global markets and cost competitiveness depend on it.

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Over the past few decades, many companies in the industry have built up and continuously expanded international subsidiary sales networks. But presence alone does not equate to efficiency or effectiveness, and there may yet be significant room for improvement in global sales operations. For one thing, foreign sales require not only better qualifications, but also more decision competencies. In addition, it must be well integrated into strategic sales management, as strong sales is a key asset in global competition. Today, European manufacturers still have a substantial head start over upcoming companies from emerging countries. If they want it to stay this way, they must continuously invest in their global sales systems, and they must be open to pursuing new paths.

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Without a doubt, “organization” is one of the most critical levers in the successful implementation of a new corporate strategy. This is particularly true for globalization strategies being developed by manufacturing companies in response to the growing importance of international, and especially emerging, markets. These strategies often go beyond creating an international footprint in production, engineering, etc., to developing distinct products and business models to meet the needs of customers in the fast-growing BRICS and Next11 economies. But as international activities once viewed as “peripheral” gain in significance, legacy organizations may strain – and fail – to adapt, signaling a need to reassess and reinvent the organization to meet global manufacturing growth objectives.

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