In perspective: benefiting from globalisation
Historically, western Europe (particularly Germany), the US and Japan have been the largest markets for productivity instrumentation. However, more recently emerging markets in Asia Pacific, Central Europe and Mexico have become increasingly important. In 1999, the US represented 50% of sales for Spectris, but in the first half of 2002 this had fallen to just 33%. Conversely, sales to Asia Pacific countries were 12% in 1999 but this had grown to 19% in the first half of 2002, with China accounting for 5% of total sales. Economic growth in these countries, the removal of international trade barriers and the migration of global manufacturing to lower cost regions are the main factors behind the increasing significance of these markets. In this article we take a closer look at how Spectris is benefiting from globalisation in the instrumentation industry.
The past decade has seen a significant movement of product manufacturing away from the increasingly costly regions of North America and Western Europe to take advantage of lower labour and production costs in the emerging manufacturing economies. A key factor in this diversification has been the adoption by formerly strictly regulated countries of domestic policies which have enabled people to take advantage of global markets. Lacklustre economic growth combined with soft product prices in the US and Europe is forcing manufacturers with slim profit margins to relocate their manufacturing to low-cost bases such as China, Hungary and Mexico.
China: in through the "open door"
Furthermore, the economies of these countries themselves are growing. China is the third largest country in the world, home to more than 1.3 billion people. Since the 1970s, it has experienced rapid economic growth. GDP is forecast to rise by more than 40% by 2006, with economic growth of between 7 and 8% per year projected for 2003-041. Much of this growth will come from stronger household consumption, with increasing demand for the more sophisticated goods and services already available in the west such as cars and mobile phones. In response, in addition to the expansion of local businesses, many western companies have established production facilities in these regions to address the increased demand for their products from this robust domestic growth. China's manufacturing sector now ranks as fourth in the world after the US, Japan and Germany and exports surged by 21% in 2002 to $322 billion2, making China the largest exporter of goods to the US. There is thus an increasing need for productivity instrumentation from both local companies who need to become more modern and efficient and multinational companies who seek to replicate in China the facilities they have in the west.
Following China's "Open Door" policy to attract foreign investment and subsequent trade reforms, foreign investments began to come from an increasing number of countries as well as multinational corporations. A growing amount of these funds have been invested in large capital- and technology-intensive industries or infrastructure projects. Around 400 of the Global 500 companies have already invested in China and foreign investment has risen from $3.5 billion in 1990 to $46.8 billion in 20012. With its admission to the World Trade Organisation in 2001, and China's agreement to open its markets to competition, foreign corporations see even greater potential for investment.
China is attracting investment by foreign companies not only because of its low labour costs (on average workers earn around $100 per month) but also because it can produce all the component parts needed in a wide range of products. Using foreign know-how the country is building capacity in increasingly sophisticated production facilities, including for semiconductors, machine tools, petrochemicals and cars. Many industries are experiencing rapid growth, the passenger car market, for example, expanded by 50% in 20023.
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Spectris has responded to this rapidly growing market by enhancing its presence in the region and has established an effective direct sales presence with offices in Shenyang, Shanghai, Guangzhou, Beijing and Hong Kong, in addition to HBM's manufacturing facility in Suzhou where load cells are produced for the weighing industry. | |
In a low-cost, high volume operation, customers are seeking to improve efficiency and product quality in order to reduce costs and achieve competitive advantage. Spectris products, with their low capital investment and rapid payback are key to enabling the manufacturing industry in China to meet or exceed international standards of design and manufacture. For example, NDC Infrared Engineering supplies instrumentation to the papermaking, packaging and converting industries. These predominantly local companies are installing state-of-the-art facilities and use NDC's instrumentation to measure film thickness, coat weight, moisture and consistency. NDC is the number one supplier of infrared measurement systems and sensors into the China market - since 1994 over 260 systems have been sold into the industrial products market, over 150 systems into the paper industry and over 1000 sensors into various markets.
In the cement industry, PANalytical's X-ray materials analysis equipment is used by China's largest and fastest-growing cement company for analysis of raw materials and finished products as well as quality control. This customer expects to double output over the next two years. In the food industry, product integrity is a pre-requisite and Loma supplies metal detector conveyors to a bakery which makes bread rolls for one of the major fast food outlets. Spectris products are not just used in industry: as China seeks to increase the number of qualified engineers, products such as PANalytical's X-ray diffractometers and HBM's transducers are being supplied to a number of universities for materials research. These are just some examples of the many applications Spectris has in the region.
The Mexican advantage
Mexico, too, has seen large amounts of investment in new production facilities, particularly for supply to the US market to its north. In 2000, an estimated $14 billion of electronic materials and equipment was produced in the region4 and the country is also home to a large automotive industry. New production facilities require new equipment and test and measurement instrumentation to monitor production and reduce costs and Spectris has placed particular emphasis on growing sales to customers in Mexico. Although Mexican wages have increased, the country has a major advantage for US buyers in that it is much closer than China or Eastern Europe and products do not spend a month in transit to their destination.
NDC Infrared Engineering has a number of multinational customers in Mexico, predominantly in the converting industry, measuring moisture and coat weight. PANalytical supplies XRF instrumentation for materials characterisation to one of the largest cement companies in the world for quality control of their production process at their fourteen Mexican plants and both XRF and XRD instruments for their central laboratory. Brüel & Kjær Sound & Vibration supplies instrumentation to customers in the petroleum industry to monitor machinery and environmental noise and HBM supplies a major vehicle manufacturer with transducers for displacement and torque measurement.
Eastern Europe: a changing climate
Since 1990 and the fall of communism, many manufacturers have collapsed in the new environment of free market competition, lack of investment and poor product quality. But a number, particularly in what is now known as central Europe (formerly the countries of Eastern Europe), have found themselves the target of western European companies attracted by the low cost of skilled labour and proximity to their own markets. Malvern Instruments supplies a number of formerly state-owned pharmaceutical, cement and confectionery companies which have either been purchased outright by, or entered into joint ventures with, western companies, with the result that they wish to standardise on Malvern's proven technology which they use in the west. BTG supplies coating and creping blades to the major papermakers in Hungary, Poland, Slovakia and Romania together with instrumentation to measure consistency, brightness and kappa numbers. Brüel & Kjær Sound & Vibration supplies several of the major automotive manufacturers with systems to measure vehicle noise and vibration in test laboratories as well as gearbox testing and HBM supplies measurement instrumentation to a number of vehicle manufacturers in Poland, Hungary and the Czech Republic.
With the prospect of becoming full members of the European Union within the next five years, the Czech Republic, Estonia, Hungary, Poland and Slovenia are focused on balanced budgets, stable economies and liberal markets. The business culture has changed, too, as Malvern Instruments found when three years ago they established a "user club" in Poland, giving customers the opportunity to meet and discuss their requirements not only with Malvern staff but also with each other. This event, something which under the communist regime was very difficult, has been a resounding success.
Meeting the global challenge
The shift from local to global, largely as a result of manufacturers seeking to lower costs, has led to new production facilities being established in developing manufacturing economies such as China, Mexico and Central Europe, with China emerging as the "factory to the world". In the global competition to make high quality, low cost products which are standardised around the world, test and measurement equipment plays a vital role as western companies, who have recognised the benefits of accurate test and measurement instrumentation, seek to replicate their systems wherever their facilities are located. With production capacity expanding, particularly in China, significant opportunities exist for Spectris to help its customers to meet the global challenge, wherever they are based.
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