CFOs surveyed by BDO across 13 countries (including the U.S.) believe that 44 percent of their revenues will come from sales abroad in three years’ time, a significant increase over the current average of 37 percent. A whopping 95 percent of mid-cap CFOs are very or fairly confident that their plans to expand internationally will succeed.
Particularly important export destinations for U.S. manufacturers are Brazil, Russia, India and China (collectively, the BRICs). Manufactured exports to the BRICs have risen 268% in a decade — from $37.1 billion in 2001 (6 percent of total U.S. manufactured goods exports) to $136.6 billion in 2011 (11 percent of total U.S. manufactured goods exports). China is the largest export target among the BRICs, importing $71.3 billion in U.S. manufactured goods in 2011 2 (see U.S. Exports to BRICs).
Why the rush toward the BRICs? Even as domestic markets plateau, the BRICs offer expanding middle classes with rising incomes to spend on a range of goods, from furniture and tableware to automobiles. In fact, each of the BRICs ranks in the world’s top 10 in area and in population, 3 and some speculate that BRICs will account for 50 percent of the global GDP by 2025. At the same time, many Tier 2 and Tier 3 manufacturers have been encouraged to develop presences in the BRICs to support OEM customers expanding there.
It’s important to note that each of the BRICs has unique markets and regulations driven by country-specific factors including demographic and language variations, natural resources, infrastructures and educational systems. Savvy U.S. manufacturers will develop strategies targeted to each country and specific regions within those countries, evaluating the risks, rewards and windows of opportunity for their particular goods — but only after making sure that they’re ready internally:
A solid strategy begins with the talent developing it. You’ll need executives with experience, knowledge and drive — and the bench strength to fill in for them while they focus on the BRICs.
Business systems and equipment
At a minimum, information technology systems must be ready to connect with overseas customers (language and currency conversion issues, etc.). But if you manufacture overseas, you’ll need to invest in plants, equipment, tooling — and possibly expose your intellectual property in new markets
Business and improvement processes — sale techniques, logistics networks, operations methodologies — need to be ready to connect with BRIC partners as well. Of particular concern are improvement methodologies (lean, six sigma, etc.) that may not translate well between cultures.
Supply chain management becomes far more complex when you’re managing product regulations and logistics across multiple countries. At the same time, you may need to develop localized supply chains in each of the BRICs.
Expanding Into Emerging Markets
Overseas expansion may offer an enormous opportunity for your company. Do you have the internal capabilities, capacities and business systems and practices to capture the moment?
Manufacturing Minute is provided by GBQ’s Manufacturing Team for our clients and other interested persons upon request. Since technical information is presented in generalized fashion, no final conclusion on these topics should be made without further review.
This article originally appeared in BDO USA, LLP’s “Manufacturing Output” newsletter (Winter 2012-2013). Copyright‚© 2012 BDO USA, LLP.
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