Based on all that I am hearing in 2012, there are strong reasons for manufacturers to expand their reach to the global market if they have not done so already. Of course, many if not most of the mid-to-large-sized fluid power component manufacturers have had a global strategy for years if not decades.
That is not unusual because most large manufacturers have had a global presence in sales and manufacturing for some time now. India and China are probably the two biggest focal points for fluid power manufacturing offshore. The intention of building plants in China has generally been to service the Chinese market and all its needs for fluid power components. However, to be a multi-national company, there needs to be both manufacturing and sales across borders. The biggest companies have done this.
But what about the small-to mid-sized manufacturers, which actually make up the majority of the number of companies involved in the fluid power industry? Some of them have gotten involved in selling products in overseas markets and even perhaps resourcing products from outside the U.S. for sale in the U.S. From what I gather, this trend is growing.
At a recent 2012 Annual Conference for the National Fluid Power Association (NFPA), John Caslione of the GCS Business Capital stated that 57% of the companies at the conference are currently doing business overseas. He mentioned that many companies have had the goal in recent years of having 50% of sales from outside the U.S. He made it clear that now the goal should be to get 50% of business from emerging economies.
However, in the new normal, as highlighted turbulence, risk, and uncertainty are dominant in the world market, all nations' economies are now linked, interconnected, and interdependent. While global interdependence works in everyone's favor in good times, globalization's interlocking fragility rapidly spreads much pain and damage virally in bad times according to Caslione.
In his presentation to the NFPA Annual Conference, Caslione listed ten Drivers of Turbulence:
1. Political leadership changes in emerging markets.
2. Rise of public and private debt.
3. Nationalism - regionalism - protectionism.
4. Financial movements and sovereign wealth funds.
5. Technology advances & innovations.
7. Resource and energy shortage.
8. Food and water shortage.
9. Healthcare shortage.
10. And a few others.
According to Caslione, all of this leads to the new normality of spurts of prosperity and spurts of downturn. Thus, we need to create the responsive, robust, and resilient organization for function in today's environment.
In the new world economy, there is an increasing unbalance at many levels and the global market is split between the low-growth developed world and the high-growth developing world. I have heard this theme more than once that reflects the higher rate of growth in the developing countries. Caslione even made the point that Iraq is the world's fastest growing economy. Most of the world's population growth will come from emerging economies.
In another interesting presentation at this year's NFPA Annual Conference, Haiyan Wang of the China India Institute furthered the discussion of our current and future global economy. She made the claim that the next decade will have the biggest restructuring because of emerging markets. By 2020, China should match the US in total GDP but even then it will only have 25% of the per capita income of the U.S.
At the current rates of growth, China will be twice the size of the U.S. economy by 2050. In 1950, the U.S. was twenty times the size of the Chinese economy. Today, India has the ninth largest economy but by 2025, it will be number three.
Doing business with China could be complicated for U.S. fluid power companies trying to grow their business globally. According to Wang, China is five stories in one:
1. It is a mega market with mega growth,
2. Jobs are moving inside China from global areas,
3. It is not a global patent hub,
4. Chinese companies are rapidly rising as global competitors, and
5. Because of low-cost capital China is driving demand for components and equipment.
In order for companies to grow in China, it is important for U.S. companies to demonstrate that they are friends with China. Wang gave an example of how Microsoft opened a research center in China and gained a great deal of respect from Chinese consumers.
China and India are very different in economy, culture, and behavior. For fluid power companies looking to grow in the Indian economy, the pattern will be different from China. China is vast and diverse and needs finer segmentation, a multi-segment approach, and a beachhead. Innovations are driven by local necessities and Wang advised companies to be market centric and not product centric and to make local media your friends.
Ken Gray of Caterpillar, the world's largest producer of construction and mining equipment, and a truly global company, also gave a presentation at the Conference. CAT's global reach and presence is unmatched in the industry. Gray explained how CAT has grown its global position over the years and how it continues to thrive in world markets.
Gray posed the question, what will 7.6 billion people in the world need in the year 2020? Any good global growth plan should attempt to answer that question. For CAT, many of the world's needs are dependent upon their machinery for construction, mining, and more.
You can't start your designs with your highest-end customers, you need to start your design with the most cost-sensitive customer and add on. You also can't track and focus on the global strategies of all your competitors. You must focus on the customers' needs and the competitors will follow.
A good global strategy tells your company what to do but a great global strategy tells your company what not to do also. Always remember that quality is the foundation of any and every successful business. Deliver quality and all else will follow. The changing world holds implications for quality.
These are all great ideas and success stories as presented at the 2012 NFPA Annual Conference. I believe that a global strategy depends on many factors. There is certainly a huge consideration based upon your specific products. An even more significant consideration is the actual needs of the global market. Global strategy is certainly worthy of careful consideration for any-sized fluid power company.