Viewpoint: North American Manufacturers Missing Out on International Opportunities

North American manufacturers, faced with a sluggish domestic market, are reluctant to make adjustments in their production capabilities to take advantage of real growth opportunities globally, according to a new study recently presented at a World Business Forum conference. The survey of North American and European manufacturers was carried out by the Forum organizers, HSM Americas Inc.

The survey also suggests that European manufacturers have learned how to serve the diverse needs of customers spread across the globe and have developed the know-how to cooperate with other companies in the vertically-integrated value chains of "Made in Europe."

In Italy, for example, our manufacturing and machine/equipment businesses have had to improve their capabilities in mass customization and move beyond our borders because of a limited domestic market.

Now it's time for North American manufacturing companies, especially small and medium sized enterprises, to refine production capabilities for mass customization in order to explore the potential overseas. This includes taking advantage of green technologies -- before regulations require it -- which can help establish a competitive advange in the global marketplace.

The emerging nations of Brazil, India and China, among others in these regions, will experience the most dramatic growth in the next few years, as hundreds of millions of consumers continue to develop a taste for western-style goods and services. But with a shortage of manufacting capacity, they are ramping up quickly.

Closer cooperation between North American manufacturers and European machinery suppliers can help both remain competitive and create new jobs and wealth. With the support of experienced equipment suppliers, manufacturers can produce a broader range of products that appeal to international markets.

According to the survey, which included 415 North American and 161 European manufacturing companies: (to view survey click here)

• Companies on both continents are more focused on niche specialization than capacity expansion.
• North American companies still appear to be more focused on domestic business than their European counterparts.
• North American companies recognize the value of becoming more flexible to serve a global economy. More than 62% of North American respondents understood the need to make standard equipment more flexible to expand their product range.
• But small-to-medium-sized enterprises, especially, tend to shy away from international markets. The expense to upgrade production facilities to meet these needs is perceived as too risky, among other concerns.

European manufacturers expressed a greater interest in increasing their production flexibility to attract business than their North American counterparts, who were more focused on reducing labor costs in the last two years, to offset economic challenges.

In addition, fewer North American manufacturers were investing in innovation or R&D than the Europeans. And green manufacturing initiatives, which can help drive down material costs and spur needed innovation, were embraced in greater numbers in Europe (56.7%) than in North America (36.6%).

Because mass customization and green manufacturing require specific production knowledge and cooperation to achieve desired results, we believe manufacturers should follow a few simple guidelines to get started:

• Strengthen mass customization capabilities -- This can be done within the same plant and with standardized machines, which can be adapted to handle a broader range of requirements. The ability to switch from one product to another provides economies of scope, yet with lower-than-expected set-up costs.
• Leverage the power of partnerships -- Look for collaborations with machine and equipment suppliers that have global experience and understand how to make these production adjustments on standard equipment.
• Take a chance and learn about export opportunities -- It takes some know-how to understand the kinds of changes and improvements that will make your operations more agile but due diligence need to be done on unfamiliar markets.

North American companies as diverse as General Motors Component Holdings LLC, with plants in New York, Michigan and Indiana; Mott Manufacturing, a Canadian manufacturer of customized steel cabinets and furniture for laboratories; and Century Tool & Gage, a compression mold builder in Fenton, Michigan have teamed up with European machine suppliers to improve their production flexibility, cost efficiency and niche specialization without necessarily expanding capacity.

Even the American pasta business, which we Italians know pretty well, can benefit from such partnerships. A case in point is Philadelphia Macaroni Co., which recently acquired new dry pasta production equipment from long-time supplier Fava S.p.A., one of the largest pasta equipment manufacturers in the world.

The computer-driven, automatic equipment not only makes 200,000 pounds of pasta a day but it also consolidates the two-step drying process into one, which reduces the footprint and uses heat more efficiently. If any tweaks are needed, Fava can make many adjustments electronically. "If anything goes wrong," says PMC principal Luke Marano, "we call Italy via satellite and it's fixed." The result: improved production capabilities with less impact on the environment.

As this case shows, small-to-medium sized enterprises in North America and Europe can develop new ways of working together to serve their domestic markets, grow exports, and achieve "green" goals.

This isn't necessarily easy. It requires a cultural change, new practices and lots of thought. But waiting is not an option, given the fact that competitors in China, India, Brazil and other emerging economies are moving fast to fill the void.

Dr. Luca Majocchi is Managing Director of Meccano SpA, based in Milan, and former Head of retail banking at Unicredit, one of Europe's major banks. Dr. Alberto Sacchi is President of Federmacchine, the National Federation of Associations of Manufacturers of Capital Goods Intended for Industrial and Handicrafts Manufacturing Processes, based in Milan. Professor Luigi Serio is Director, Fondazione Istud, one of the most prestigious business schools in Italy.