Many industrials companies spent 2023 focused on rightsizing their operations. Political crises, wars, inflation, interest rate increases, and an economic downturn all forced companies to adapt to a challenging environment.
However, 2024 brings a shift in focus toward profitable growth and a customer-centric approach. There are new challenges to navigate and opportunities to embrace.;
Let's explore the trends and prospects that lie ahead.
Industrials challenges in 2024
1. High interest rate environment
While some markets have experienced a cooling of headline inflation, many industrials firms were slow to react to past inflationary pressures. Those who have yet to recover their past margin performance face an even greater challenge in expanding their margins in 2024. Decreased demand in several segments results in full warehouses and reduced traction. Moreover, customers' willingness to accept price increases has decreased, leading to calls for cost reduction.
2. Wage inflation
Industrial firms are struggling with ever-increasing labor costs. Recent headlines have highlighted the substantial pay increases issued by the US and German militaries, the Mexican government's mandate of 30% wage increases, and record levels of wage inflation in the UK. These effects will carry into 2024, significantly impacting labor-intensive manufacturing and professional services.
3. Shortage of skilled labor
The consequences of wage inflation extend beyond financial implications. Companies are also grappling with talent retention. As wages rise, employees may seek better opportunities elsewhere, making it challenging for companies to retain their top talent. Additionally, the shortage of skilled labor further compounds the difficulties, as companies strive to meet production demands and maintain operational efficiency.
4. De-globalization of supply chains
In an effort to secure supply and mitigate risks, many companies are relocating their production sites to higher labor cost regions. While this may provide some level of stability, it puts additional pressure on profitability, as companies must navigate the challenges of increased labor costs in these new locations.
5. Customer value perception and regulation challenges;
We continue to see a shift in customer value perception and an increasing focus on sustainability and green initiatives. Customers now seek environmentally friendly and sustainable products and services. To stay afloat in the market, companies must adapt to these changing preferences and comply with new regulations.
Opportunities for growth in Industrials in 2024
The return to a profit mindset holds great growth potential in 2024. And our latest B2B Commercial Trends Report reveals the majority of companies are optimistic about this year. Companies need to set their sights on the value they deliver and adjust their pricing and sales strategies accordingly. Many are still grappling with the transition from volume metrics to profit metrics, but industrials firms must recognize that inflation affects a product's value as much as its costs. For instance, in Mexico, where wages have been mandated to increase by 30%, the value of a robot that replaces labor has risen by 30%.
Automation technology, hardware/software combinations, and products that impact labor will take center stage in 2024. New offerings and business models that combine hardware and data will add value and drive competition, especially with the introduction of new regulations like the European Data Act.
Adjusting to changed customer demand and re-assessing growth paths
It's crucial to adjust to shifting customer demand. The rise of AI and data centers has created a surge in demand for components and systems across various industries. New semiconductor and battery factories lead to increased demand for factory automation equipment and solutions. Finally, the call for green and renewable energy has also set a course for the expansion and modernization of energy infrastructure and power lines. To tap into these opportunities, companies must prioritize their portfolios and align them with the changing market demands.
While investments in new equipment may be postponed, the demand for after-sales business and services will rise. By charting the right course and prioritizing investments, companies can generate and extract value, even in the face of challenging sustainability regulations.
Companies may also want to re-assess their growth ambitions and update their strategies, considering how their offering currently fits with market demands. Where do you want to grow in 2024, in terms of regions, segments, and applications and how do you want to make this happen?
Embracing technological developments: Creating efficiencies and new revenue streams
With an abundance of data and new tools at their disposal, industrials companies can look forward to efficiency gains. Not only does benchmarking and automation in sales and pricing processes lead to smoother operations. Software and data are becoming integral parts of industrials products, allowing companies to build long-term customer relationships and transition to recurring revenue models.
There's also an opportunity to monetize services, data, and software. By expanding service offerings, companies can uncover new revenue streams and enhance overall customer satisfaction.
How Simon-Kucher can help: Charting a course to success
Simon-Kucher has deep roots in the Industrials sector. From chemicals to construction, industrial goods to oil and gas, and business services, we are here to support you on your journey to sustainable, profitable growth.
For decades we have helped businesses of all sizes grow strongly and profitably. Whether it’s designing growth strategies, optimizing product pricing or rebuilding sales organizations for today’s business realities, we bring a wealth of knowledge, experience, and pragmatism to every business challenge:
- Updating value calculators and building proper tools to reflect the changing value landscape, ensuring you stay ahead of the competition.
- Assisting in the transition to recurring revenue models, creating closer and more meaningful customer engagements for long-term success.
- Re-assessing growth ambitions and updating strategies to align with market demands.
- Creating new and incremental revenue streams through service, data, and software monetization, unlocking hidden potential within your business.
- Conducting commercial value assessments and implementing value creation strategies, including pricing and sales push measures to counteract inflation and foster a value mindset within your sales team.
- Benchmarking and automating sales and pricing processes to increase efficiency and streamline operations.
- Exploring digital (omnichannel) and direct-to-customer marketing and sales models, helping you navigate the digital era with confidence.
- Identifying potential M&A opportunities through target search and due diligence work, accelerating growth in selected areas.
Contact us at Simon-Kucher to start your journey of value creation and growth in 2024. Remember, doing nothing is not an option. Let us be your trusted partner in the industrials sector, guiding you towards success in this ever-changing market.
At Simon-Kucher, our expertise in B2B pricing enables us to support you in your pursuit of sustainable and profitable growth. Reach out to our specialist teams today.
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