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Manufacturing Trends

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  1. Manufacturing Trends 2009 and beyond

  2. Frost & Sullivan The Growth Partnership Company • Founded in 1961, 47 years of industry experience • Over 1,700 Consultants/Analysts across 32 global locations

  3. A 360 degree view of Business • Economic • Competitive • Customer • Technology • Integrated Industry • Best Practices

  4. CHEMICALS, MATERIALS & FOOD AEROSPACE & DEFENSE AUTOMOTIVE & TRANSPORTATION ENERGY & POWER SYSTEMS ICT ENVIRONMENTAL & BUILDING TECHNOLOGIES HEALTHCARE AUTOMATION & ELECTRONICS Cross Vertical Industry Expertise

  5. The Economy Manufacturing Trends Agenda Future Manufacturing

  6. EconomicOutlook

  7. Overview of the current global economy Enormous repercussions Impact across industries Impact across geographies MSCI Emerging market index: Volvo order book (trucks-Europe): 3Q 2007: 41,970 3Q 2008: 115 Expected write-down of assets by banks: $10 trillion The current global economic environment is indeed bleak: the ramifications are huge and widespread in terms of geographies and industry sectors.

  8. SARS 2? SEVERE AMERICAN RECESSION SYNDROME

  9. The R word • A recession is a significant decline in economic activity spread across the economy • lasting more than a few months • normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales National Bureau of Economic Research

  10. De-coupling – myth or reality? The worldISmuch flatter than we would like to believe

  11. The World Economy Composition of World GDP, 2007 • Global GDP is estimated at $ 40.57 trillion in 2007. • Contribution of emerging countries has been increasing • Emerging markets Increasingly contributing to growth • United states and Euro Area still the major engines of global growth • China, India and other emerging markets becoming equally important despite low global share

  12. Contribution to Global Growth • Developing economies especially Brazil, Russia, India and China still derive a significant amount of their growth from the G3 Economies of USA, Europe and Japan • The G3 economies effectively constitute close to 70% of the global economy and are the biggest destination markets for end products • The G3 economies are also the biggest source of foreign direct investment and portfolio investments and debt market for raising capital. • A slowdown in these economies at the same time will definitely drag growth in emerging and developing markets down. Correlation between Developing Asia Exports and G3 Imports

  13. Projections 2009 2008 2009 World 3.7 2.0 Europe 1.2 -0.5 USA 1.4 -0.7 China 9.7 8.5 India 9.3 7.5 ASEAN5 5.4 4.2

  14. Low Projections 2009 3.7% 4% 6.5% 3.5% -1% 5.1%

  15. Potential scenarios for the global economy There is disagreement about the extent of the impact of the recent events. Possible Scenarios Driving Factors Scenario 1: Quick recovery (1 year) • Falling oil prices • Capital infusion • Lower interest rates • Concerted bail-outs Scenario 2: Short gloom (1-3 years) • Consumer sentiments take longer to recover as a result of recent wealth destruction Scenario 3: Prolonged recession (5-10 years) • Geo-political uncertainty • Faster contagion • Supply constraint

  16. CEO Survey: Strategy for Growth in an Economic Downturn Change Supply Chain/ Distribution Market Focus & Position Mergers & Acquisitions

  17. ManufacturingTrends

  18. Impact on Manufacturing Production Trade • A slowdown in the growth of Retail lending is expected to lead to lower purchases by consumers • This in turn is expected to lead to lower output. • Curtailing of working capital and also trade is expected to lead to lower production as producers do not wish to stock large inventories. • A lack of trust between banks leads to a slowdown in global trade because letters of credit are not being issued. • The collapse of the Baltic Dry Index indicates this. Financial Crisis Investment • Higher Capital Cost is expected to Defer investment plans • Globally, firms are staggering their capital investments already planned. • Rising Capital costs is expected to adversely impact bottom lines. Working Capital • Tightening of Credit Markets leads to higher cost of working capital. • This is due to the tightening up of corporate bond markets

  19. Manufacturing in USA Industrial Output And Employment (2008) • Capital Goods viz Oil & Gas and Power may remain unaffected, other sectors are likely to freeze expansion plans • Manufacturers of final goods and raw materials may notice a sharp drop in sales. Source: St Louis Fred • Steps to Combat Crisis • Bailout Plan of $700 Billion • Fed window totaling $1 Trillion • Capital Infusion in Key Firms • Fed enters corporate Bond Market • Aggressive interest Rate Cuts • Current Scenario • Unemployment at 6.5% • Falling Non Farm Payroll growth • Retail Lending shows rapid decline • Companies are unable to raise working capital The Outlook for 2009 looks grim, with US unlikely to come out of slowdown, and consumers cutting back on spending. Liquidity is expected to continue to be an issue and a ballooning fiscal deficit can exert a downside pressure on the dollar in the latter half of 2009 and 2010.

  20. Euro Zone Manufacturing Outlook Industrial Output Eurozone(2008) • Exposure to Emerging Markets as % Of GDP • Austria 85% • Switzerland 50% • Sweden 25% • UK 24% • Spain 23% • USA 4% Source: ECB • Steps to Combat Crisis • Finally a common approach is being attempted • UK has nationalized banks • Germany has unveiled a stimulus package worth $700 Billion • Blanket guarantees of bank deposits by almost all nations. • Rapid interest rate cuts following the steps of the US Federal Reserve. • Current Scenario • Germany, Spain, UK, Portugal and Greece are in an slowdown • Consumption is falling and so is production • Eastern Europe is facing a currency crisis, leading to stress on western European Banks • Credit tightening has curtailed consumption and trade The Outlook for 2009 looks grim, with the largest European Economies slipping into a slowdown. Exposure to emerging markets could trigger a second wave of the crisis in Europe as the non performing loans increase. The economy is not expected to turn the corner before middle of 2010

  21. Manufacturing In China Industrial Output China (2008) • China is Structurally Vulnerable to External Environment • Export Driven Economy • Dependent on Foreign Capital inflows • High level of migration – imperative to maintain high growth momentum • US is main destination for China’s exports Source: National Institute of Statistics • Steps to Combat Crisis • Announced a $ 600 billion bailout. • Focus on developing infrastructure to create jobs and revive economy • Government easing lending to stem fall in house prices • Coordinated Interest rate cuts to boost liquidity. • Exports slower due to lack of export credit • Current Scenario • Small and Medium manufactures struggling with lack of credit • Falling real estate prices could adversely impact the banking sector. • Retrenchment could lead to lower domestic consumption • Export growth has been lower than anticipated China is poised for a hard landing at present, and is expected to recover by the middle of 2009, when consumption in China recovers. Export oriented growth leaves China highly vulnerable to external forces. Questions on efficacy of the stimulus package also remain.

  22. Manufacturing in India Industrial Output India (2008) • Rupee, Real Estate Key Issues • Real Estate boom for past few years, with prices cooling off now • Rupee has depreciated considerably against the dollar, leading to loss of corporate profits • Small and medium enterprises hit by weak consumption environment. Source: CSO • Steps to Combat Crisis • Central bank has cut interest rates • Ensuring the stability of the rupee against the dollar to prevent a rapid depreciation of the rupee • Proposals being discussed to ease the norms for foreign investments in local economy. • Small manufactures are requesting sops manage rising costs. • Stimulus package announced but inadequate • Current Scenario • Fall in consumption off take especially consumer durables • High inflation plaguing the economy for the past 6 months. • Rapid movements in the rupee has impacted corporate profits. • Overseas acquisitions have been plagued credit crunch India is set to record lower growth between 6.5 and 7.5 percent for the year 2008 and a even lower growth for 2009. Infrastructure development could be adversely affected by the current scenario.

  23. Overview of the current global economy Expected impact on certain sectors ICT BFSI Healthcare Government Airlines Basic Foods Entertainment Automotive Education Media Advisory Services Most Commodities

  24. FutureManufacturing

  25. Manufacturing is IMPORTANT

  26. Manufacturing is IMPORTANT R&D Investments 2006 Manufacturing R&D outpaces other sectors Manufacturing leads economic recovery – USA 2006 Manufacturers are technology leaders

  27. Key business issues for manufacturing companies Global Capability(source, make and sell globally) Growth (new products, new geographies, innovation) Flexibility/ Scalability(Clients need to respond to changing market dynamics) Agility (Shorter time to market and product life cycles) Visibility (Minimum inventory, accountability) Seamless: Systems and infrastructure (to support complex global manufacturing & supply chains) Security (driven by regulations, initiatives to maintain business continuity) Greener Manufacturing (Energy, Environment, Social Corporate Responsibility) Risk management(to minimize the impact of fluctuating currencies, supply chain disruption)

  28. Key manufacturing trends • Emerging economies - the need for manufacturers to deliver on a global scale, but to execute locally • Digital convergence - need for manufacturing organizations to provide employees with access to business information any time at any place, and on any device. • Growing power of consumers - In the new business model, consumers are becoming active participants • Sustainability and the rising impact of the environment • The influence of complex regulations • Changing demographics Source: Microsoft

  29. Future Manufacturing - Sustainable Sustainable Growth Investing, producing, operating green in a way that makes financial sense Capitalizing on global markets while preparing for increasing environmental challenges Understand your clients also have challenges: meet their needs, and capitalize on those solutions Being aware that the competition may be making inroads, or just “green washing” Separate the hype fromthe opportunities Source: Frost & Sullivan

  30. Future Manufacturing

  31. Future Manufacturing: Innovation • US$2000 price tag • Clean slate approach to making a car – 34 patents! • Outsourcing of assembly to small business • Web 2.0 site to help consumers give feedback and design their own car • Extensive use of advanced computing to design and develop the car Tata Nano

  32. Future Manufacturing - IT enabled Networked productsLifecycle management, ‘wireless’ logistics HMIleveraging shop floor skills, humans commandingmachines, robotics,usability … towards the atomic levelNano-scale design & modelling,heterogeneous technologyintegration CognitionSensors/actuators & mechatronicsfor machine self-calibration, -verification, -correction Adaptability &reconfigurabilityMass customization,wireless shop floorreconfiguration Manufacturing DesignHolistic design environments,co-design of product/process/service Modelingproduct behavior,supply chains, processes KnowledgeIPR handling,semantics, creativity,re-use

  33. New Sectors will drive growth • Exciting future Technology and Growth Sectors will include • Biotech • Green Energy • Industrial Wireless • Bioplastics • Nanomaterials • Water • Security and Tracking • Advanced Transportation • Personalized Medicine • Pervasive Computing Global growth will ease to 3.7% in 2008

  34. KeyTakeaways

  35. Key takeaways Downturn will get worse before it gets better Shifts in market position/share happen in an downturn environment Status Quo is not an option. Positive thinking with positive action Protect your strategic investments Manufacturing is important. Invest in improvement.

  36. “Would you tell me, please, which way I ought to go from here?,” said Alice. “That depends a good deal on where you want to get to,” said the Cat. “I don’t much care where,” said Alice. “Then it doesn’t much matter which way you go,” said the Cat. ~ A discussion between Alice and the Cheshire Cat from Lewis Carroll's Alice in Wonderland. Thank You For any queries: Satish Lele slele@frost.com