Choosing locations for operations is primarily driven by market conditions and opportunities, the search for talent, and business disruption risks, but by 2020, the drivers are expected to shift to access to technological advances and investment in the talent pipeline, according to a new report. As a result, manufacturers should optimize their footprints to put assets in the right places at the right times to drive performance, the report notes.


Deloitte and the Manufacturers Alliance for Productivity and Innovation (MAPI) recently released “Footprint 2020: Expansion and optimization approaches for U.S. manufacturers,” which examines trends driving global manufacturing footprint shifts, and explores which locations manufacturers are considering as markets and strategic imperatives evolve.


The report is the result of a survey, jointly conducted by Deloitte and MAPI, which asked respondents to project where their companies will be making investments in their manufacturing footprint in the coming five years, and how drivers for these investments are shifting. Respondents noted that countries with a strong talent pipeline that can provide access to the latest technological advances and educational infrastructure are projected to see the most increased investment. This observation represents a shift from a traditional focus on regulatory climate and physical infrastructure.


According to the report, dominant manufacturing sites in Asia and South America are expected to continue to experience a steady inflow of project investments. The report also notes that South Africa, Turkey and Vietnam are emerging as targets for investment. These markets increasingly draw attention due to their growing middle class and rising spending power. Meanwhile, although some respondents appear to lag in terms of their entry into Brazil, China and India, many companies plan to expand their footprint into these markets.


As would be expected, 98 percent of the respondents say their company plans to either expand existing sites, or open new facilities, in countries with existing operations. China and the U.S. are expected to receive the highest number of investments by manufacturers planning to optimize operations in countries with existing activities.


“Many emerging markets are currently investing heavily to improve their technology infrastructure and boost their educational programs to support evolving manufacturing needs,” says Matt Highfield, director, Deloitte Consulting LLP and co-author of the report. “Ultimately, these efforts will allow them to become increasingly competitive on the global stage, especially at a time when developed economies continue to battle the challenges of an aging workforce.”


As manufacturers contemplate entering new markets, expanding existing manufacturing locations, or reshoring portions of their production, the optimization of their footprint strategy will require considerable research. For example, the report’s authors caution that before making an investment decision, executives should:


  • Evaluate potential benefits such as lower cost structure and greater choice of real estate, as well as potential risks that may include lack of talent availability (especially at experienced levels) and underdeveloped infrastructure,
  • Ensure active mitigation and monitoring strategies are in place around cybersecurity, protection of intellectual property and managing corruption risk,
  • Understand trade agreements and how the company may benefit,
  • Consider cultural alignment and the need for local expertise in navigating business culture, local regulations and workforce related nuances, and
  • Evaluate market entry strategies for each investment. For instance, if a company has limited experience with the local standard operating procedures, a joint venture can provide integration support. Additionally, use of contract manufacturers may reduce the burden of labor attraction and management, upfront capital investment and market exit flexibility.


What I would like to know, is which countries your company is considering for market expansion? Also, which factors are key drivers in making those decisions?