A Dual Personality

Numerous factors determine whether a manufacturer is profitable or not. 

Lately, one of those factors for a U.S. manufacturer is whether it is is focused on the domestic market or pursuing a global approach.

The impact of a manufacturer’s market focus was the subject of an article published May 23 in The Wall Street Journal by Lisa Beilfuss, titled “For U.S. Manufacturers, a Split Picture.” In the article, she wrote, “Global industrial giants are struggling under the weight of a strong dollar, reeling commodity markets and weak demand in emerging and advanced economies alike, from Brazil to Europe to China. But domestically oriented U.S. manufacturers are faring better, with steadier business buoyed by the relatively brighter auto, housing and job markets.”

Economic indicators shed light on this split condition. The U.S. unemployment rate recently dipped to 4.7 percent, and its gross domestic product rose 0.8 percent in the first quarter after increasing 2.9 percent last year. While those numbers aren’t spectacular, they show the U.S. economy is performing better than many other nations, such as a couple of the BRIC countries.

When exporting, Brazil, Russia, India and China are frequently mentioned as target markets. For example, after attending the 2012 Global Forecasting & Marketing Conference, I wrote about a panel presentation that highlighted exporting to BRIC markets as a growth driver and a way to avoid boom-to-bust cyclicality because it is rare that all markets are down at the same time.

Nonetheless, the BRICs face heavy tidings. Brazil is in the midst of its worst recession since the 1930s, with GDP down 3.8 percent last year and projected to decline 3.7 percent in 2016. In addition, industrial production is off 8.3 percent, and unemployment is at 8.5 percent. Hopefully, the 2016 Rio Olympics Games will provide some temporary economic uplift—or at least a distraction from all the misery, economic and otherwise.

Russia’s situation is as bad if not worse. Its economy sank 3.7 percent in 2015 and isn’t looking much rosier this year with reports that high inflation (the ruble’s value fell about 127 percent last year), low investment and tight fiscal policy will lead to a further decline in GDP.

Although the growth rate for China was 6.9 percent in 2015, it represents the country’s lowest level of growth in 25 years, and it’s likely the percentage was inflated to be close to the ruling Communist Party’s official target of 7 percent. Growth is projected to drop further this year and next, creating either a soft landing or a soft market in which it’s difficult to gain traction.

On the hand, perhaps India is one of the better export markets. In his online article about the 2016 World Cutting Tool Conference (see the print version on page 84), CTE Publisher Don Nelson wrote that Rakesh Aghi, CEO of Cobra Carbide and founding member of the Indian Cutting Tool Manufacturers’ Association, said India is fertile ground for manufacturers seeking growth markets. The country’s GDP grew 7.5 percent in 2015 and is projected to increase 7.5 percent in ’16 and 7.6 percent in ’17.

For now, U.S. manufacturers looking for profits might want to think globally but act locally.