Chinese market is hungry for PLCs

Edited by the Engineeringtalk editorial team Jul 1, 2004

The China market for PLCs is expected to grow at a compounded annual growth rate of 14.1% over the next five years in spite of a decline in prices.

For the first time in recent economic history, there is a country where manufacturing industries are growing fast, which is of a substantial size, and which has the capacity to invest from rising export revenues.

China, with this environment, has exceeded 20% per year growth in some automation segments.

The China market for PLCs is expected to grow at a compounded annual growth rate (CAGR) of 14.1% over the next five years in spite of a decline in prices.

The market was about $370 million in 2003 and is forecasted to nearly double in 2008, according to a new ARC Advisory Group study.

Although a local presence, commitment to service, technologically superior solutions, and low pricing are among the key ingredients necessary for success in this overheated marketplace, PLC users in China are extremely selective about the products and suppliers they favour.

"Suppliers' success clearly depends on the location of their facilities, the industries they focus on, the product mix they offer, and the technical and cultural competency of the sales and support channels they establish", according to Senior Analyst Himanshu Shah, co-author of ARC's "Programmable logic controller outlook for China".

A number of factors working together are driving the growth of the China PLC market.

Power flowing in from the Three Gorges and Yellow River power generation projects will remove constraints for further growth of power hungry manufacturing industries.

The outsourcing trend by multinational companies who are setting up their production bases in China helps fuel the use of automation, while the upgrading of older, now privatised state owned enterprises (SOEs) will demand more automation to compete in export markets.

The surge in engineering education and the adoption of the latest technologies by local Chinese companies aiming to export will support PLC adoption at a broader level, while the booming Chinese machine tool market will continue to demand more PLCs.

Contrary to expectations that a new, growing market that attracts more suppliers should have many winners, monopolisation of the PLC market is increasing.

Market shares of smaller suppliers decreased even as their revenues increased.

Smaller suppliers find it difficult to quickly put trained employees in place, which questions their capability and capacity to address a market that is expanding rapidly across China.

This market study identifies various factors inhibiting market growth.

For example, there is a chance that the Chinese RMB will appreciate under the existing pressures from the USA and Japan.

This, together with inflation, could slow the pace of growth, but most predictions are that the Chinese economy will continue to grow to become the world's largest by 2050 or sooner.

ARC's PLC outlook for China provides strategic information including market size and its potential, leading suppliers, key factors that contribute to the market growth, market dynamics, and strategic issues which suppliers will face.