Bringing hi-tech to China - Good positioning for the German machine tool industry

Demand for machine tools in the largest industrialised and emerging countries will double by 2015. Internationalisation and technology leadership are the primary conditions for the success of the German industry.

The global machine tool industry is booming. Thanks above all to strong demand from emerging countries, the market volume for Western Europe, the USA and the BRIC countries is projected to reach Euro68 billion (US$98.63 billion) in 2015, more than double the 2010 figure. Such is the report of a joint study by the VDW (German Machine Tool Builders' Association) and the audit and advisory firm PwC, presented at the EMO Hannover 2011 opening press conference.

More than half of the forecast growth is expected to be in the Chinese market. Demand for increasing volumes of high-end machine tools is also steadily rising in the emerging economies. In China for example, the market volume of this segment is projected to rise from Euro3.6 billion (US$4.85 billion) in 2010 to more than Euro10 billion (US$4.28 billion) in 2015.

German machine tool manufacturers will benefit nicely from this growth. In the high-tech segment alone, sales revenues of around Euro1 billion (US$ 1.34 billion) today are expected to rise to Euro 2.6 billion (US$3.5 billion) in 2015. The German machine tool sector registered sales of Euro1.5 billion (US$2.02 billion) in China in 2010. This country thus qualifies as the second-largest market for the industry, after Germany itself [Euro2.1 billion (US$2.82)].

"German machine tool manufacturers are already technology leaders today, and have correspondingly good competitive standing. To maintain it, however, internationalisation must be further pursued. Exporting products alone will not fully utilise the growth opportunities in emerging countries," noted Martin Kapp, Chairman of the VDW.

The companies participating in the study recognised this. Fully one-third of respondents cited business internationalisation as the most important challenge of the coming years. Trailing significantly are innovation and technology issues (16 percent), costs (13 percent) and lack of qualified workers (11 percent). These results are based on in-depth interviews, expert discussions and workshops involving 30 well-known machine tool manufacturers, primarily from the high-tech segment.

Between internationalisation and "Made in Germany"
Value is mainly created by the German machine tool industry within Germany. Decisive factors include the high quality requirements and well-developed network of excellent suppliers. In the medium term, however, ways must be found to increase presence in the BRIC countries (Brazil, Russia, India, China), in order to be closer to the clients in expanding markets, as well as benefit from potential cost savings.

"No single internationalisation strategy can meet the needs of every company in the sector. Expanding factories and development locations abroad is very capital-intensive. In addition, particularly in the start-up phase, extensive management capacity is required to oversee quality standards, guarantee expertise and understand legal regulations. For smaller companies it can therefore be preferable to profile themselves as niche suppliers and focus strongly on exporting "Made in Germany" technology," recommended Dr. Ralph Niederdrenk, Partner in the PwC strategy group focused on mechanical and automotive engineering.

However, internationalisation offers larger companies the opportunity to enter the mid-tech segment alongside their high-tech production and participate more strongly in the growth in these countries. Certain products can be locally developed and manufactured cost-effectively in the emerging countries.

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