Time for China’s OEMs to automate

It is not my pleasure to talk about the economic crisis, especially referring to those Chinese OEM enterprises facing what some experts have called an “exporting Waterloo.” There are currently about 73,000 OEM companies in the mechanical equipment manufacturing industry in China, which employ 13.

03/01/2009


It is not my pleasure to talk about the economic crisis, especially referring to those Chinese OEM enterprises facing what some experts have called an “exporting Waterloo.”

There are currently about 73,000 OEM companies in the mechanical equipment manufacturing industry in China, which employ 13.9 million people, and the production output ranks fourth in the world. The output value of the OEM industry covers 7.8% of total GDP of China, and had been experiencing a 20% increase each year, until recently.

In 2008, however, due to the sharp decline of equipment exports resulting from the worldwide economic downturn, the appreciation of China’s RMB yuan, cost pressures from raw materials, labor, and manufacturing efficiencies, OEMs found themselves in an even more difficult situation than other manufacturers. It is reported by the China Machinery Industry Federation that the exporting value of OEMs in the first three quarters in 2008 grew by 31.91% from the same period in 2007. While that is quite a high number, it reflects a more than 8% decrease, as that same year-over-year growth rate for 2007 was 40.55%.

For automation vendors regarding OEMs as main customers, his decrease shows that the industry’s difficulties began near the end of 2007. Since that time, it is reported that contract values for about 90% of automation suppliers have decreased between 10% and 30%, compared with the prior year. Although there are some disputes about the market perspective for 2009, in my opinion, the frustrated economy won’t have a good turn until the third quarter.

Despite all this grim news, however, this could be an especially good time for the expansion of automation in the China OEM industries.

The main reason I say this is that the slowdown provides the conditions that make it easier for China OEMs to upgrade technically and adjust strategically. In years of vigorous exporting, all OEM equipment needed to be available all the time and even work beyond capacity to fulfill oversea contracts. The same could be said for the technicians and engineers in the OEM facilities. But now, owners of OEM enterprises have the opportunity to think about maintaining and upgrading their equipment to prepare for future competition. Control engineers also have time to review, discuss, and study new control techniques. For OEMs, now is the time to take hold of the potential opportunities and seek ways to meet specific customer demands.

The past several years of good economic times led OEMs to develop a habit of investing in new projects and expanding production when they had enough cash. But in the process, they often ignored automation upgrades of their legacy facilities. Now, OEMs should be considering using their limited money to maintain, upgrade, and optimize existing assets.

If China’s OEMs can wisely adopt suitable automation techniques, those techniques may provide those OEMs a big and pleasant surprise via the improved ability to better serve a broader world market of customers in the rebound expected to occur later this year.

2007*

2008*

Exports

40.55%

31.91%

Imports

18.51%

21.42%

* Percentages on this chart compare the first three quarters of each year.

Source: China Machinery Industry Federation.


Author Information

Kenny Fu is the editor of Control Engineering China. He can be reached at kennyfu@rbichina.com.cn




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