26 posts categorized "Manufacturing"

November 10, 2014

Dynamic times ahead for the North American steel industry

Steel Blog nd_man_glb_ho_2078When I meet with Deloitte member firm clients around the world, I often get asked about the state of the steel industry in North America. From my perspective, I have never witnessed such dynamic times in the history of the global industry, and North America is currently one of the hotspots of change.

There are three important trends leading the way and driving these paramount times in the industry. First, there appears to be a pick-up in mergers and acquisition activity in North America this year as steel producers execute much needed consolidation strategies. In the first nine months of 2014, there were 66 deals reported (up 20 percent in volume from last year) with a total transaction value of US$8.9 billion. A significant recently-completed deal was the sale by ArcelorMittal and Gerdau of their respective 50 percent interests in Gallatin Steel Company ("Gallatin") to Nucor Corporation. For Nucor, the strategic acquisition expands the company’s position serving flat-rolled customers in the growing pipe and tube segment.

Second, there is a continued focus on operational improvements, reducing structural costs, and improving financial performance. For example, U.S. Steel is implementing a strategic focus it calls “The Carnegie Way” to create value, strengthen its balance sheet, and improve core business process capabilities, including supply chain, manufacturing, and procurement. The company is also seeking to be leaner and recently announced the closure of some production facilities in both the U.S. and Canada.

The third trend is focused on capital raising. Russian producer, Evraz has filed a registration statement to raise capital through an initial public offering (IPO) of ordinal shares in its North American operations. The funds will help the company acquire assets in the region, as well as help to pay down debt.

As we approach 2015, steel demand growth in North America is likely to decrease to around 2 percent from stronger levels in 2014. In markets such as the U.S. and Mexico, apparent steel use is forecasted to increase by 6.7 percent and 6.9 percent respectively this year but plateau to a 1.9 percent and 3.5 percent growth in 2015.  Where will the demand come from? Senior leaders attending the 2014 Steel Success Strategies Conference in New York in June indicated that the oil and gas industry and the automotive sector are expected to be the leading drivers of medium-term growth in North America. I was fortunate enough to attend this event and hear top global metals industry executives discuss the demand realities.

Regional production, however, is not keeping up with demand, attracting imports of steel products to fill the gap. Crude steel production in North America increased by 2.3 percent in the first nine months of 2014 with volumes at 91 million tonnes, representing just over 7 percent of global production. Recently released data indicates that imports of steel products in markets like the U.S. have increased by 35 percent through to August 2014 with more imports coming from Russia, Korea, and China. Furthermore, excess global steel capacity (anywhere from 300 million to 500 million tonnes) will likely continue into 2015 and will put significant downward pressure on steel prices into 2015. Iron ore prices fell to a five-year low in September 2014 by 40 percent to around US$80 per tonne and likely contributed to lower prices in scrap and direct-reduced iron (DRI). Moreover, it is unlikely that overcapacity will be significantly reduced in the short-term in places such as China, where most of the excess capacity is located. Countries with overcapacity will likely continue to look for export markets. Contentious unfair trade complaints around the world will likely be ongoing if the practice of dumping of government-subsidized steel persists.

Sustainable profitable growth and competitiveness of the steel industry will be underscored by the industry’s ability to capture the innovation opportunities from disruptive technologies to meet evolving customer needs. Specifically in advanced manufacturing both from improvements in technologies and materials advancements. Innovation efforts by the steel industry are not often in the spotlight, but many initiatives are yielding new solutions that warrant attention. For example, ArcelorMittal’s spreader beam innovation created the world’s only automated variable-width spreader beam which adjusts to accommodate both scrap bucket and hot metal ladle widths in the electric arc furnace. The award-winning solution provides speed and efficiency in switching between scrap and hot metal charging. The automation took a seven-minute changeover down to 50 seconds, adding the potential for an extra heat of steel per day at the facility. 

Another example is in the automotive sector. Steel has advantages over other competing materials including variables associated with cost, strength, and durability. Within the 2015 Honda Fit, weight reductions were achieved in a number of ways including the extensive use of super-high-tensile strength steel that provides increased structural strength with less material. With 27 percent of the body structure made with these high-grade steels – the vehicle body is 44 pounds lighter than the previous model – fuel-efficiency performance was also improved.

For North American steel companies, energy developments around shale gas also offers longer-term prospects to enhance global competitiveness. However, to the advantage of North American countries like the U.S. over the next one to three years, shale gas will continue to be a largely regional resource with only a limited impact on global markets. Although other countries would likely want to replicate the North American shale gas revolution, they must overcome more challenging geology, and gaps in technology, infrastructure, and domestic service capability before commercial production can begin, as well as political and environmental obstacles in some jurisdictions.

In my several decades of involvement with the global steel industry, I can say that this is truly a monumental time for the steel industry filled with disruptive challenges yet also high-potential opportunities. After the sector weathered years of battered performance from the effects of the global economic downturn, steelmakers have struggled to recover and are more than ever resilient. North America is a region to watch as changing customer demands and energy developments will accelerate innovation within the industry as it strives to remain competitive.

Sources: Thomson Reuters. Nucor, Press release. United States Steel 2013 Annual report. Pittsburgh Post-Gazette. CBC. Evraz. Press release. World Steel Association. American Metals Market, Steel Success Strategies infographic. The United States Census Bureau. Bloomberg. Deloitte Global Energy Resources.


Nicksowar_56x56Nicholas (Nick) Sowar is the Deloitte Global Metals Sector Leader. He has over 37 years of experience with Deloitte, including over 30 years serving leading steel companies worldwide. Nick currently serves as the global lead client service partner or industry advisory partner for several Deloitte member firm global steel clients.

October 17, 2014

Mexico: A place for investment

Ind_man_glb_ho_2071_300 X 200I had a very interesting week in Mexico recently and met with some of Deloitte Mexico’s manufacturing clients in Mexico City and Monterrey. One of my significant impressions from the visit was the visible amount of investment that is occurring by multinationals in this increasingly promising economy, which is often outshined by talks of the BRIC markets. As you read this article, I hope to share some of the interesting facts I learned about Mexico that explains why it is currently such an attractive place for investment.

Mexico reportedly drew a record $35.2 billion in foreign direct investment (FDI) last year. Not surprisingly, the automotive sector is a magnet for investment with automakers (and their suppliers) including Kia, Nissan, Honda, Volkswagen, and Mazda signaling plans to invest in Mexico over the next few years. Many of the major automakers already have a significant presence there. In fact, Mexico is currently ranked 8th among 40 countries by the International Organization of Motor Vehicle Manufacturers (OICA), producing over 3 million vehicles in 2013. What is perhaps a little known fact is that Mexico is the fourth leading car exporter, behind Germany, South Korea, and Japan. An export-orientated economy, the country has more free-trade agreements than any other country, building agreements with 44 countries over the years. The North American Free Trade Agreement (NAFTA), for example, introduced two decades ago in 1994 has helped to pave easier access for Mexican goods into the U.S. and Canada.

Mexico continues to be challenged to stay globally competitive to rival manufacturing nations such as China and Brazil. The automotive sector again, as an example, has been a growing area of capability for Mexico employing some 40 percent of all of the automotive workforce in North America.1 A major factor is the lower labor costs with Mexican autoworkers earning around $8 an hour, according to the Center for Automotive Research, compared with the U.S. average of $37.2

Besides the automotive industry which has flourished, Mexico is also trying to expand its high-tech industrial manufacturing and aerospace manufacturing with multinationals also looking at the country as a manufacturing base. To sustain and indeed evolve its future manufacturing competitiveness, however, Mexico will likely need to look at its talent needs. As cited in Deloitte’s 2013 Global Manufacturing Competitiveness Index report, talent-driven innovation will be the leading driver of global competitiveness. Global CEOs we surveyed ranked Mexico 12th in terms of industry competitiveness and expect that its position may drop slightly to the 13th spot by 2018. To bolster competitiveness, Mexico could seek to improve its capacity for innovation and quality of higher education and training. The country ranks in the middle of the pack in these areas based on the 2014-2015 World Economic Forum Global Competitiveness Report.

Finally, as I was concluding my visit, the Mexican government announced a landmark energy reform. With energy being a significant cost to manufacturers, the announcement caught the attention of multinational companies and other stakeholders worldwide. It will be interesting to watch as things unfold to see if this energy development will help to bolster future interest in Mexico as a place to invest.

Have questions or comments? Share your thoughts with me @TimPHanley.

1New York Times. 18 November 2013.
2Los Angeles Times. 24 February 2014.


Tim HanleyTim Hanley is the Global Leader of the Manufacturing Industry group of Deloitte Touche Tohmatsu Limited (DTTL). In his global industry leadership role, he directs strategic initiatives and investments to grow Deloitte member firm market share within the manufacturing industry. During his distinguished 35-year career, Hanley has led teams serving all business aspects, including consulting with top management regarding organizational financial strategy development and execution, acquisitions, and market development.

October 09, 2014

Manufacturing, innovation, and the youth of India

INDIA VISIT BLOGIn his recent Independence Day speech, India’s Prime Minister Shri Narendra Modi proclaimed that “the youth of India has completely transformed the identity of India in the world.” He appealed to the youth of India to continue this trend—by enhancing their skills, seeking out new business ventures, and striving to achieve his vision of a “Digital India.”

Having visited India only a few days after Modi’s speech, I was intrigued by this idea of the younger generation’s impact on the economy. I was particularly interested in its relation to manufacturing and innovation, two topics that came up repeatedly in my discussions with colleagues at Deloitte India, their clients, and the media. With India seeking to take its place in the world as an innovation and manufacturing hub, this demographic—particularly millennials—will play an increasingly important role. 

According to Modi’s speech, 65 percent of India’s population is under the age of 35 years—the largest number of youths of any country in the world. How this demographic participates in the workforce could be the single most influential factor for India’s economy over the next decade. How these individuals are educated, where they choose to work, and what kind of career path is open to them will impact the trajectory for both manufacturing and innovation in India.

First, building manufacturing is a goal to which India is committed. Modi emphasized in his speech that the world should come and “Make in India.” A formal campaign to support this effort launched across the country last month.1  It is the youth of India who will be expected to occupy these new manufacturing jobs. But, according to estimates from the Confederation of India Industry and the National Skill Development Corporation in India, over 70 million manufacturing jobs in India over the next 15 years could go unfilled due to a skills gap. To cultivate the pipeline of workers needed to support today’s high-end manufacturing, the government must actively invest in education and training now.  

Second, India must invest in building a culture of innovation. With its strong base in IT, India’s strength in this area would seem like a given. But India recently fell 10 notches in the 2014 Global Innovation Index to 76th--the worst performer among the BRICS nations.2 Again, India must look to its youth to help remedy this deficit in innovation. Millennials in India clearly are looking for innovation—a reputation for innovation is important for roughly 90 percent of millennials in India when they choose an employer, according to Deloitte’s Millennial survey. And with entrepreneurship a vital factor in building innovation within an economy, it should be heartening that 87 percent of India’s millennials said they see themselves working independently someday rather than being employed within a traditional organizational structure.

It’s not unusual for a country’s leader to deem its youth the key to the future. But in India, which enjoys a demographic advantage over much of the world’s developed economies, this mantra is more than rhetoric and holds incredible potential if properly cultivated.

1FirstBiz, 18 September, 2014.
2Cornell University, INSEAD, and the World Intellectual Property Organization.


Dttl_garycoleman_56x56Gary Coleman is Managing Director, Global Industries, of Deloitte Touche Tohmatsu Limited. He is a member of Deloitte’s Global Markets Committee and is the lead partner in Deloitte’s strategic relationship with the World Economic Forum. Follow him on Twitter @gcoleman_gary.

August 01, 2014

Farnborough Airshow showcases 100 years of aviation

Ind_man_glb_ho_2033_300X200One of the best ways to see innovation in the manufacturing industry is to attend the Farnborough Airshow. This year, the public airshow, which rotates between Paris and Farnborough each year, showcased aircraft innovation and technology from every decade in the last century. I had the privilege to once again attend this premier event and met with many senior executives from leading Aerospace & Defense (A&D) sector companies. For the A&D industry, this airshow is where deals are made. The show organizers estimated $201 billion in contracts were committed during the week and media reported the top aircraft makers signed around $115 billion in jet deals.

During the airshow, Deloitte released a new thought leadership report, 2014 Global aerospace and defense sector financial performance study. The report indicates that the overall global A&D sector growth is slowing – the revenue growth rate declined from 5.9 percent in 2012 to 3.1 percent in 2013. While growth continues in the commercial aerospace segment, contraction in defense spending continues to be impacting the pace of revenue growth. I encourage you all to have a look at this report which is recognized by many as a scorecard for the industry.

As I listened to executives across the industry, I heard a sense of optimism at a higher level than in 2013. Many of the companies appear to be looking to grow through acquisition. For suppliers, this may be necessary; in part to gain scale to help them better manage the demand for pricing targets set by the original equipment manufacturers (OEMs). Interestingly this year, the defense companies seemed to have a much more positive view of the landscape, as they continue to navigate the realities of tight defense spending.

One of the high points of our week was a reception that Deloitte co-hosted with Skadden Arps, a leading law firm serving the A&D industry. General Wald, Federal Practice Senior Advisor with the Deloitte U.S. firm (Deloitte Services LP), shared a few of his insights on the growing importance of technology to the U.S. military today, and also offered a few examples from his distinguished years of service.

Finally, please read some of the perspectives shared with the media about developments in the industry by Tom Captain, Deloitte Touche Tohmatsu Limited Global A&D Sector Leader: Airbus Deliveries Rise but Trail Boeing; Company Delivered 303 Planes in First Half (Wall Street Journal) and Weapons-makers The case for defence (The Economist).

Have questions or comments? Share your thoughts with me @TimPHanley.


Tim HanleyTim Hanley is the Global Leader of the Manufacturing Industry group of Deloitte Touche Tohmatsu Limited (DTTL). In his global industry leadership role, he directs strategic initiatives and investments to grow Deloitte member firm market share within the manufacturing industry. During his distinguished 35-year career, Hanley has led teams serving all business aspects, including consulting with top management regarding organizational financial strategy development and execution, acquisitions, and market development.

July 07, 2014

Talent, urbanization, and energy underpin Asia Pacific dynamics

Shanghai_300X200A few weeks ago, I had the privilege to host an Asia Pacific Regional Manufacturing Summit and could not have asked for a better venue than Shanghai, China – a vibrant and important marketplace for Deloitte member firm global manufacturing clients. The event focused on the evolving industry themes impacting the region.

Talent was one of the first themes discussed. A guest speaker from the US-China Business Council, highlighted the rising cost of talent in China, citing an average of eight to 10 percent increases in annual salaries compared to the average rate of three percent in markets like the United States. As Chinese manufacturers aim to move up the global value chain (read Deloitte China’s report “Transforming from world factory to smart manufacturing”), wage inflation will continue to be a challenge for both local and international manufacturers. However, it does not appear to have significantly dampened investment interest in China.

Urbanization was another theme highlighted and an important trend to watch. It is just one of the factors attracting investment into China. A speaker from The Economist Group provided the audience with fresh insights on the urbanization patterns occurring in China. Did you know that China’s urbanization rate is expected to increase to 61 percent of the country’s total population by 2020 (up from around 50 percent today), and to 67 percent by 2030? That translates to an urban population of around 940 million people by 2030 (up from 670 million in 2010) with most of the growth in mid-size cities like Guangdong, Henan, Hebei and Shandong. While significant due to the size of the population, China’s urbanization rate actually falls behind the average urbanization rate across OECD economies of just below 80 percent in 2010. Understanding this megatrend will likely be important for multinational and local manufacturers alike as they consider how and where to grow their business in China.

Harnessing alternative sources of energy was another theme highlighted at the event. The energy agenda, as an example, is a topic of interest to Japanese manufacturers as the country strives to find sustainable alternatives to nuclear power with a view to renewables including solar and hydrogen fuel. During the event, I also learned that Japanese manufacturers are driving increased investment in research and development in an effort to build technology leadership and grow its domestic market. Long recognized as leaders in globalization, Japanese companies are continuing to seek growth in emerging markets such as China and Southeast Asia.

As always, I am interested in exchanging perspectives on industry and market trends and developments, so please do not hesitate to leave your comments below or tweet me @TimPHanley


Tim HanleyTim Hanley is the Global Leader of the Manufacturing Industry group of Deloitte Touche Tohmatsu Limited (DTTL). In his global industry leadership role, he directs strategic initiatives and investments to grow Deloitte member firm market share within the manufacturing industry. During his distinguished 35-year career, Hanley has led teams serving all business aspects, including consulting with top management regarding organizational financial strategy development and execution, acquisitions, and market development.

June 09, 2014

Growth in a disruptive environment

Ind_lsh_glb_ho_1958I heard some fascinating stories recently of how three European manufacturing companies are innovating and growing in the face of a disruptive environment. Senior executives from a growing commercial aircraft supplier, global process manufacturer, and leading consumer and industrial products company were featured speakers at a Deloitte manufacturing industry event. Despite the different sectors in which they compete, common threads emerged, including how the companies are embracing new technologies to innovate, how they are harnessing the power of collaboration in that effort, the new approaches they are taking to compete in growth markets, and a shared focus on developing talent.

Continue reading "Growth in a disruptive environment" »

May 27, 2014

Is the next manufacturing revolution here?

Thumb_ind_man_glb_ho_1929_resize_1024_0It is estimated that there were over 12,000 articles and media stories published over the last year on additive manufacturing, more popularly known as “3D printing”. This topic has been discussed at many of the industry events, client meetings, and strategy sessions that I attend across the globe. While additive manufacturing has recently been a topic of growing interest, the technology has evolved over the last three decades. I wanted to highlight additive manufacturing as it is likely that we are only just seeing the beginning of the potential that this and other advance manufacturing technologies can bring to manufacturers’ innovation and growth strategies.

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May 21, 2014

The Philippines: the next GVC success story?

Manila, Philippines blog jpegAccording to the United Nations, economies with the fastest growing global value chain (GVC) participation “have GDP per capita growth rates some 2 percentage points above the average.”1 Much of the remarkable growth in Asia is attributable to this ability to participate in GVCs. The Philippines, where the World Economic Forum on East Asia is opening today, may very well be the next example of this success.

With a 7.2 percent growth rate in GDP in 20132, the Philippines possesses many of the traits needed to move up the global value chain. Not only does it have a stable macro-economic environment, but the country also has a emerging services sector, particularly in business process outsourcing (BPO)—services like call centers and IT that are often outsourced from developed economies. The BPO market in the Philippines now accounts for 9.5 percent of the worldwide market, with metro Manila the second-largest global outsourcing destination.3 And more than 50 percent of the Philippines’ overall GDP value-add is contributed by services.4

Continue reading "The Philippines: the next GVC success story?" »

April 07, 2014

Japanese manufacturers focused on high performance

Bzi_gro_glb_ho_1918A few weeks ago, I had the opportunity to return once again to Japan to visit with a number of Deloitte Japan manufacturing clients. One of the many highlights of my trip this month was the opportunity to meet with several manufacturers in Nagoya. Japanese manufacturers have been long admired by many for a relentless focus on continuous improvements to their business. So it is not surprising that during my visit we had rich discussions around best practices of leading manufacturers to sustain top performance.

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February 24, 2014

Connectivity and innovation underline 2014 for automotive industry

Auto showA few weeks ago I had the opportunity to join thousands of global automotive industry executives in Detroit for the North American International Auto Show 2014. The show continues to be a striking demonstration of the dynamic innovation happening in the sector. Original equipment manufacturers (OEMs) use this event to kick the year off with an outstanding showcase of new vehicle designs, many of which feature innovative technologies to help consumers stay connected. (Read Deloitte views on connected vehicles), What was also striking to see this year was the further integration of advanced materials in some of the new models. (Read more on Advanced Materials Systems trends).

During the auto show, the Deloitte U.S. member firm released the 2014 Global Automotive Consumer Study: Exploring consumers’ mobility choices and transportation decisions, sharing perspective on Generation Y consumer trends. Based on a survey of almost 700 U.S. Gen Y consumers, around 60 percent expect to buy or lease a car within the next three years. Not surprisingly affordability and high operational and maintenance costs had been top reasons preventing ownership. But as explained by graduate school students during the annual Deloitte U.S. Gen Y event, as their purchasing power grows, vehicle ownership is more in reach. (Read the Deloitte U.S. press release).  Please stay tuned over the next several months, as Deloitte member firms worldwide launch the local findings of a broader mobility survey of more than 23,000 consumers across 19 countries.

Like in many other countries, the automotive industry is a vital engine for economic growth in the U.S. Given industry sentiment that 2014 is expected to bring growth in production of new passenger and light commercial vehicles, this certainly is a positive sign for the U.S. economy and local industry.


Tim HanleyTim Hanley is the Global Leader of the Manufacturing Industry group of Deloitte Touche Tohmatsu Limited (DTTL). In his global industry leadership role, he directs strategic initiatives and investments to grow Deloitte member firm market share within the manufacturing industry. During his distinguished 35-year career, Hanley has led teams serving all business aspects, including consulting with top management regarding organizational financial strategy development and execution, acquisitions, and market development.