While regional economies have been impacted by global reduction in oil prices, a recovery is expected from 2017 onwards, driven by a growth in oil prices as well as due to an increasing focus on economic diversification, a report said.
One of the most important sectors which can help propel this recovery and push growth in the long term is the manufacturing industry, added the report titled ‘Winning in maturing markets” published by professional services firm PwC.
Growth markets era not over
Growth markets are not necessarily ‘volatile’ and should be considered as ‘maturing’ in nature, with different markets following distinctive growth paths towards stability and long-term prosperity. Despite recent stagnation in the pace of real GDP growth as a result of domestic and external factors –including local and foreign policy actions, falling global commodity prices, speculation around rising interest rates and unfortunate environmental disasters – growth markets will continue to register a rising share in global GDP growth in the next five years, reaching almost 65 per cent by 2021.
Over the past few years, manufacturing Gross Value Added (GVA) growth has been robust in most Middle Eastern economies, including the large GCC countries like Saudi Arabia, creating opportunities for global players .
Major shifts in the manufacturing sector across growth markets
Manufacturing is a major provider of productive employment and a significant growth driver in the early stages of an economy, and helps in further stimulating innovation in the longer term. Today’s growth markets are moving through their manufacturing evolutionary journey at different speeds, and to capitalize on the wide array of growth opportunities, organizations need to better understand the global shifts governing the market and operational landscape in the manufacturing sector.
• Growing shift towards high-tech manufacturing
Growth markets are now responsible for almost 60 per cent of all low and medium technology manufacturing worldwide. Even more noteworthy is the speed at which these markets have grown their share in high-tech manufacturing – accounting for almost 50 per cent of manufacturing value-add globally. Leading manufacturing centers such as China and India are looking to further move up the value-chain by focusing on high tech segments such as automotive, aerospace, electronics and medical devices in the coming years.
• Changing cost dynamics creating new production centers
The inherent advantage of a cheap labor force is fast eroding in major manufacturing locations like China, paving the way for new players to emerge. This trend provides the opportunity for the next frontier of growth markets, such as the Philippines, Vietnam or Myanmar, to join or even replace today’s fast-maturing manufacturing economies in low- and medium-tech sectors.
• New production technologies to influence the manufacturing landscape
Compounding a growth market’s desire and ability to become more technologically advanced is the fact that advancements in technology itself are changing the face of manufacturing. Four technologies in particular are expected to have a significant impact on manufacturing in growth markets and these are – the Internet of Things (IoT), Robotics, Advanced Materials and 3D Printing.
• Regionalization on the rise amidst growth market integration
Advancement in manufacturing activity in growth markets has also been driven by a rise in inter-connectivity between global markets through trade agreements and regional coalitions, such as the ASEAN Economic Community (AEC) or the Pacific Alliance in Latin America. This has facilitated regional sourcing and resulted in growing trade in intermediate goods, coupled with the tendency of companies to establish regional manufacturing hubs.
Dr Anil Khurana, partner, Strategy & Innovation at PwC Middle East, said: “Manufacturing is seeing a global revival and redesign in many ways. After decades of facing pressures from low cost labour models, China effect, automation, and environmental issues, rapid changes in technology and global models promise an exciting era. Several mega trends and disruptions, including the 4th industrial revolution, promise radical changes in competition, economics, and industry landscapes – indeed a call to action for companies, countries, governments, jobs, and consumers. Investors, executives, entrepreneurs, policy makers.”
Capabilities needed for success
The report also discusses capabilities required to navigate through the complex business environment and institutional voids associated with growth markets. Companies will need to develop flexible business models which are more suitable for the local market, while developing new capabilities based on the foundations of operational efficiency, innovation and go-to-market excellence.
David Wijeratne, PwC’s Growth Markets Centre leader, said: “As we enter 2017, it’s clear that growth markets are on the verge of a new era of leading global growth in which they are projected to enjoy almost two times the absolute growth in GDP as compared to developed markets by 2021, and account for 65 per cent of global growth within the next five years.”
“This will create significant opportunities for private sector players looking to create and deliver value to the billions of people expected to join the middle class in these markets,” he added.