Economic conditions pump up fortunes of Chinese industrial pump manufacturers
A vibrant economy, strong growth in related industries, a series of upcoming mega events including the Olympics and accession to WTO are set to position the $3.12 billion Chinese industrial pumps market on a path of solid growth, according to the latest report from Frost & Sullivan...
LONDON, Aug. 31, 2005 (PRNewswire) -- A vibrant economy, strong growth in related industries, a series of upcoming mega events including the Olympics and accession to WTO are set to position the $3.12 billion Chinese industrial pumps market on a path of solid growth.
The recent launch of several large-scale Government-backed projects is set to spur demand for pumps. These projects will span sectors as diverse as power generation, petrochemical, environment protection and, the shipping industry.
At the same time, a flourishing economy- at the end of 2004, China was ranked the sixth largest economy in the world- is set to create a conducive macro-economic environment for the expansion of the industrial pumps market.
"A booming economy has resulted in increased consumer and business confidence, which in turn has led to an increase in industrial investment plans," says Danny Hu, Beijing-based research analyst with Frost & Sullivan. "User confidence remains high and fully positive across the whole nation, boosting the prospects of the industrial pumps market."
China's accession to WTO in 2002 will benefit the industrial pumps market in terms of infusion of foreign technologies and management expertise. It is set to result in improvements in locally produced equipment, better management skills and wider export sales channels. Upcoming events such as the 2008 Olympic Games and 2010 Shanghai International Expo are also set to have a positive effect on market expansion.
As end users start focusing on product quality, there has been a growing emphasis on enhanced efficiency, performance, durability and reliability. Manufacturers have been able to achieve cost-effective production for such improved offerings, with customers willing to pay premium prices for these products.
Sustained by these trends, the overall industrial pumps market will grow at a compound annual growth rate of 17.9% from 2004 to 2011, surging to $9.86 billion in 2011. For manufacturers, key end-user targets will be petrochemical and chemical processing followed by water and wastewater treatment and power generation.
With an estimated 91.2% of revenue share in 2004, the turbomachinery industrial pumps segment dominates the overall market. Supported by its wide application range, its market share will remain steady over the long term even as the positive displacement pumps and special pumps segments will register below average growth rates coupled with declining revenue shares.
Price will remain a key competitive factor but is likely to be a double-edged sword. "Pricing is the most common competition weapon for Chinese pump manufacturers, especially for small and medium-sized private pump makers," says Hu. "Reduced or flat prices in the context of increasing raw material costs might boost output and sales revenues for some participants, but bring down their economic yields significantly, resulting in losses for some manufacturers," he adds.
Price pressures are poised to shape the market in other ways. For instance, domestic end- users tend to be mostly rural agricultural workers for whom price is the principal purchase determinant. Consequently, the preference is for lower priced, lower performing products with profit margins being squeezed.
Therefore, many large manufacturers are likely to turn to the international market where their ability to offer low-priced products due to China's relatively cheaper labor and manufacturing costs will work to their advantage.
For multinationals, high-end markets offer exciting growth potential. With their limited technology and capital, local companies tend to cater to the middle- and low-end markets with the needs of the high-end segment served by imports. The annual average growth rates for imported pumps are projected to be nearly 28.0% from 2005-2011, revealing a key growth opportunity.
At present, over 4,000 companies compete in a highly fragmented market. As competition intensifies, the market will become less fragmented. Many small domestic manufacturers are likely to either merge, be acquired or pushed out of the market.
"With greater consolidation, leading competitors will need to look to market niches for further growth, while smaller competitors may also view strategic alliances to enhance their competitiveness," advises Hu.
Frost & Sullivan (www.frost.com), a global growth consulting company, has been partnering with clients to support the development of innovative strategies for more than 40 years. The company's industry expertise integrates growth consulting, growth partnership services and corporate management training to identify and develop opportunities. Frost & Sullivan serves an extensive clientele that includes Global 1000 companies, emerging companies, and the investment community, by providing comprehensive industry coverage that reflects a unique global perspective and combines ongoing analysis of markets, technologies, econometrics, and demographics.