Emerging markets are focus of Reuters Manufacturing Summit

Industrial Distribution staff -- Industrial Distribution, 2/26/2008 7:15:00 AM

With the United States economy slowing down this year—and flirting with a recession—manufacturers are increasingly looking overseas for sales and profits.

That was among the themes at the Reuters Manufacturing Summit this week in Chicago.
 
Since the last recession in 2001, U.S. companies have boosted their manufacturing capacity abroad, and many now generate most of their sales outside their home market.
 
U.S. economic growth is clearly slowing. A recent Conference Board index of leading indicators fell for the fourth consecutive month in January; Goldman Sachs said last week industrial and consumer demand in the first half of 2008 "is likely to be sharply weaker" than in the fourth quarter.
 
In the long-term, many large U.S. companies may benefit from the ongoing infrastructure buildup among emerging economies like India and China, as well as Eastern Europe and the Middle East.
 
"Emerging markets are the steroids in the mix,” Sterne Agee analyst Nicholas Heymann said. “They're growing at two-and-and-a-half to three times what the mature economies are growing."
 
One example of this behavior is Ingersoll-Rand Co. Its CEO, Herb Henkel, gave the Reuters Summit an update on Ingersoll’s $9.5 billion acquisition of Trane Inc.
 
Henkel explained the acquisition will enable Ingersoll to expand into emerging markets such as India, where the build-up of "cold-chain" infrastructure is key to future growth.
 
"Trane really enhances our opportunity to participate in the developing world," he said.
 
Ingersoll announced in December it would buy Trane, a heating and air conditioning equipment maker, to expand its climate technologies division.
 
Ingersoll is positioning itself to take advantage of long-term demand in developing countries for air conditioning in homes and places of work.
 
In countries like India, where as much as half of some farm products spoil before getting to market, developing the "cold chain" that moves perishables is a near-term focus for the company, Henkel said.
 
Technology to cool farm goods after harvest and control their temperature during transport could reduce spoilage to less than 5 percent, he said.
 
Barriers to growth in India include high tariffs that make it expensive to import machinery, Henkel said. That's a message he’ll take to state and national governments in India in coming weeks in the hope of having those tariffs lowered.
 
"We can be a catalyst to give [the government] reason and purpose to really accelerate this," Henkel said. "With Trane helping us on the stationary warehouse side, we'll be able to fill in the gaps to make that chain effective."
 
Henkel said he expects the Trane acquisition to close around May 31, give or take a month. The company is funding the acquisition from cash it generated through recent divestiture and Henkel does not expect the credit crunch to be an issue.
 
More from the Reuters Manufacturing Summit:
 
Grainger COO: February sales slow; meeting with Feds likely
 
ITW CEO: Sales from acquisitions could top $1.2 billion this year
 
Lincoln Electric CEO hints at more ’08 acquisitions