Contact: Amanda Kennedy
Deloitte
Media and Communications
+61 (0) 418 806 477

Contact: Damon Cantwell
Deloitte
Deloitte Manufacturing Partner
0412 500 473

Australian manufacturers need to respond to the emerging markets of India, China, East Europe and South America by thinking of them as the high growth markets of the future not just as places that produce goods economically, a global manufacturing leader told a high profile audience of Australian manufacturers, attending the AIG’s national forum in Canberra today.

In particular, he stressed the importance of being aware of the sourcing, developing, manufacturing and sales processes in these high growth areas and the benefits in terms of higher margins, if manufacturers or exporters of services were to be innovative in meeting the very different needs and conditions found in these emerging markets.

Releasing a global survey of manufacturers called Innovation in Emerging Markets, Gary Coleman, the Global Managing Director of Manufacturing for professional services firm Deloitte, highlighted Australian companies were leading the way with 60 per cent of those surveyed, expecting sales to increase substantially over the next 3 years, to the emerging markets of China, Indonesia, India and South Korea.

Emerging markets deliver higher margins
Mr Coleman also highlighted that while less than one quarter (23per cent) of the 400 manufacturers surveyed globally are optimistic about prospects in developed markets, only 29 per cent had achieved higher margins in emerging markets than in developed ones

"Of those who do enjoy higher margins in emerging markets, 63 per cent provide different product models to what they offer in their own market," Mr Coleman said.

"For years we have seen manufacturers set up shop in emerging markets to produce goods at lower costs so they can be sold in their own domestic market or other developed markets.

"Now the game is changing as more and more companies currently manufacturing goods in emerging markets see their future profitable growth in targeting customers not only in other developed markets but in the emerging markets as well.

"Increasingly that is where the consumers and industrial buyers are, as China and India, after all, are today home to the burgeoning new middle class."

Research and development
In a keynote address to the Australian Industry Group’s national forum in Canberra today, Mr Coleman said that one of the keys to achieving success in emerging markets appears to be research and development.

"Forty-nine per cent of companies that achieved higher margins in emerging markets conduct some R&D locally in those markets with the top three reasons for doing it being a better understanding of the local market, faster time to market and lower R&D costs.

"With more than half of the global manufacturers (56 per cent) surveyed expecting to substantially grow revenues in emerging markets over the next three years, and nearly three-quarters anticipating significant increases in China, adding value to products in these rapidly growing markets is important to ensure future profitability.

Customer preferences in emerging markets
Damon Cantwell, Deloitte Australia Manufacturing Partner, said Australian manufacturers need to take particular note of the survey results.

"Customers in emerging markets simply don’t want what customers in developed markets want.

"Australian manufacturers need to continue to increase their innovation spend," Mr Cantwell said.

"When focussed on product-related R&D, they need to be conscious of the customer preferences and demands in emerging markets, in addition to local requirements."

FTAs present new opportunities
The report also has some key messages for Australian manufacturers in light of agreed and potential free trade agreements (FTAs).

"Local companies need to fully exploit opportunities with countries such as Thailand, where bi-lateral FTAs are in place," Cantwell notes.

"This report points to the possible upside for manufacturers who plan their innovation spend based on a comprehensive understanding of the way demand in emerging economies is developing."

NOTE:  Please see full media release, speech and report attached below