With a distorted global picture, a slowing world economy, constant inflationary pressures, high interest rate and conflict in Europe, 2023 has been a challenging period for many industries including Irish manufacturers. Despite these challenges, global and Irish manufacturing CEOs are still optimistic with almost two-thirds (64%) confident for their own growth prospects over the coming three years.
Cian Kelliher and Keith Watt of our Retail & Manufacturing team discuss how leaders are reacting to the geopolitical challenges and explore key areas to consider as organisation seek to secure sustainable and profitable growth through turbulent times.
Managing challenging times
Weakening demand, both globally and here in Ireland, which has been particular evident in Q1 this year, combined with increased consumer demand and spending in the services sector is driving the contraction in manufacturing and challenging leaders to secure their businesses. Many organisations have already taken significant steps to ensure their resilience in the coming months.
- 86% are planning to focus on productivity
- 39% have paused their digital transformation strategy
- 84% have or will onshore operations or bring them in-house
- 86% plan to or have diversified their supply chain
- 37% have adjusted their risk management procedures in light of the geopolitical risk
Rethinking international strategies
COVID-19 heightened global supply chain challenges; these have been exacerbated further by the Russian invasion of Ukraine. As such, organisations are rethinking and reshaping their supply chains to better suit their needs. 84% of CEOs are nearshoring, onshoring operations or bringing them in-house. Even more are diversifying their supply chain to mitigate vulnerabilities.
Encouragingly we have begun to see some of the bottlenecks easing; there is increased shipping capacity on some trade routes and here in Ireland we are seeing shortened supplier delivery times. In addition, in the last number of months we have also seen a welcome fall in certain input costs which will help ease some inflationary pressures.
ESG – focus & reward
A growing body of evidence highlights a focus on sustainability and wider ESG initiatives creates value for companies. Furthermore, there is also an increase in ESG focused institutional investment, reinforcing its importance for organisations.
It is encouraging to see that both globally and with Irish manufactures the majority of CEOs now recognize that the cost of decarbonising their business is the least important challenge. Interestingly we are also seeing new emphasise placed on the S, with a third (33%) of CEOs stating taking a proactive approach to societal issues will be the biggest driver of their ESG strategy in the next three years.
When it comes to ESG objectives we ask clients to focus on objectives that are important to them, that link to their organisational objectives, and where they can do the most measurable good.
Future proofing – digital transformation & talent
CEOs rightly identify attracting and retaining talent as their top priority over the next three years to achieve their growth plans. Yet, only 43% identify skill development as a key priority in meeting their transformation objectives. This appears to be a disconnect that manufacturing leaders need to consider. Employees are the driving force of a transformation – ensuring you have the right might of skills and talents is paramount to maximise the potential of technology and a transformation.
New ways of working will be required, so it is hugely important that employees support and have a sense of ownership of the transformation strategy. Because employees are at the centre of a transformation, the importance of retaining talent and understanding employee motivations are key. One area we see divergence between leaders and employees is remote working.
Almost three-quarters (73%) of CEOs predict teams will have fully returned to the office in three years, yet employees highly value the flexibility that remote and hybrid working offers. With talent and skills shortages such a perennial problem, organisations need to consider the balance that works and develop strategies around this that can attract and retain talent.
Enhancing growth ambitions
CEOs understand M&A are an important way to rationalise their portfolio and shift towards higher growth opportunities. Just over half (51%) of CEOs have a strong appetite to undertake acquisitions that will have a significant impact on the overall organisation over the next 3 years.
Despite the current challenging transaction environment, it remains an important tool for manufacturers to strengthen their organisations and drive growth. In 2023, we have seen a stabilisation of deal volumes with a focus on strategic acquisition rather than deals driving scale.
An easing of the macroeconomic environment could see a return of larger more transformative deals, however, with the European Central Bank (ECB) signalling a likely further increase to interest rates during 2023, this may well damped demand and volume.
Optimism through turbulence
The global and Irish picture in 2023 is difficult to decipher, but for manufacturing leaders this is nothing new. Based on our 2023 survey CEOs are navigating the challenges – Addressing ESG, Supply Chains, Talent and Transformation questions to drive sustainable profitable growth in their organisations
Get in touch
Are you seeking guidance to propel your manufacturing endeavours to new heights of success? Our team of seasoned industry specialists is here to empower your business with invaluable advice and solutions.
Contact Cian Kelliher or Keith Watts of our Retail and Manufacturing team; we'd be delighted to hear from you.
Cian Kelliher
Partner
KPMG in Ireland
Keith Watt
Partner, Head of Retail & Manufacturing
KPMG in Ireland
