Two More Industries under the Gun: Packaged Goods & Engineered Products

A short time ago, we reviewed the prospects of two North American industries, IT and Retail Banking.  These sectors have had their share of challenges but can look to the future with some optimism.  Today, we look at the fortunes of two more global businesses with input from Booz & Co.

Packaged Goods – Retool Supply Chains

This industry faces a challenging future due to a confluence of factors.  On the delivery side, many firms will face increased cost and product pressures due to their supply chain’s inflexibility and uncertainty.  Simply put, current supply chains were built on yesterday’s blueprints.  They did not have to cope with high energy & transportation costs, expensive labor and raw materials, volatile exchange rates (which impact production economies) and uncertainty around environmental regulations. Environmental pressures may increase even further as governments around the world put a price on carbon emissions and establish new regulations on waste by-products.   Additionally, cross-market shifts in consumer behavior are making it harder to satisfy an increasingly fragmented customer base without reengineering the supply chain.  On the demand side, continued slow growth is forecasted due to shifting consumer needs brought about by demography and the appeal of lower cost value and private label brands. 

Going forward, firms will need to reengineer their supply chains to make them leaner, greener, and more adaptable to managing increasing fragmentation and complexity.  Production flexibility will need to improve in order to respond to sudden changes in demand and more efficiently deliver low volume brands. Moreover, firms will need to be ahead of the demographics and environment curve in order to quickly capitalize on rapid changes in consumer tastes and to deliver on the needs of an ageing population.  Finally, companies will seek to drive growth by:  increasing penetration of emerging markets; improving their product’s value proposition versus ‘good enough’ private label brands and;  continuing investments in brand-building activities.

Engineered Products – Globalization bites back

The recent recession has battered every company in engineering-focused industries such as aerospace, defense, automobiles and transportation.  A rapid, cyclical rebound may not be in the cards this time.  To deal with demand contractions, North Americans firms followed a survival strategy i.e. maintaining liquidity, structural cost reduction and portfolio pruning at the expense of sustained product and technology investment.  At the same time, recessionary effects were more modest in emerging markets.  For the first time, a significant amount of investment and household spending was directed towards lower cost, homegrown providers. As a result, these firms were able to build market share while continuing to invest in R&D, product development and supply chain capabilities.

Until now, many domestically focused NA engineered products companies did not have to compete hard for global business.  Now, NA firms will begin facing serious competition from EM companies.  For example, three of the world’s top five automobile-producing countries are in Asia (Japan, China, and South Korea). The Commercial Aircraft Corporation of China is developing an airliner to rival planes from Boeing and Airbus.

As slimmer and more focused NA firms emerge from their slumber, they will quickly need to figure out how to protect their home market against hungry, lower cost and increasingly more capable EM competitors.  No longer can NA companies claim superiority in areas like management expertise, manufacturing excellence or engineering skills.  In any event, these areas will not be sufficient by themelves to differentiate any firm in today’s global marketplace. As well, NA companies will need to improve their ability to penetrate growing yet unique foreign markets that now feature significant local competitors.  In these markets, decisions to outsource, partner or share technology will becomes much more more complicated.

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