European drives makers face period of change

Edited by the Engineeringtalk editorial team May 15, 2006

Western European electric drives manufacturers are both benefiting from, and being restricted by, an increasingly globalised economy.

Western European electric drives manufacturers are both benefiting from, and being restricted by, an increasingly globalised economy.

The movement of production to regions offering potential competitive/cost advantages is giving multinational electric drives manufacturers cost advantages, which are beginning to be reflected in electric drive prices.

However, this movement of manufacturing is also having an increasing impact on the customer bases of drives manufacturers, which will limit opportunities in the longer term.

Frost and Sullivan finds that the Western European electric drives market generated revenues of over $2.5 billion in 2005 and estimates this to exceed $3.0 billion by 2012.

The expected increase in energy prices, from their current high levels will result in intensified customer focus on achieving improved plant efficiency and performance.

In addition, there will be more in-depth reviews of energy policies and the use of energy-efficient devices.

This will prove advantageous for electric drives manufacturers.

"Drives manufacturers continue to hope that the influence of surging energy prices and a greater awareness of the environmental impact of energy consumption will drive companies to review their electricity demands, resulting in growth in the electric drives market in western Europe", says Frost and Sullivan Programme Manager Richard Tamworth.

However, the impact of this trend should not be overstated.

Energy efficiency incentives are localised throughout Europe, and even in better incentivised areas, such as the UK, manufacturers are not necessarily supporting the political rhetoric with action in limiting energy consumption.

"Instead, it can be argued that a stronger incentive for manufacturers comes from needing to manage costs in the face of growing global competition, leading to accelerating demand from particularly threatened industries", explains Tamworth.

"The electric drives market will be positively influenced by the intensifying pressure on the manufacturing sector to streamline its production processes in order to reduce costs, maintain efficiency and ensure profitability".

In addition, the on-going shift of production facilities to low-cost regions as well as the dwindling level of new, heavy manufacturing investment in western Europe will continue to have widespread implications on the electric drives market in the region.

"As many multinational corporations move their manufacturing operations or redirect their new investments to low-cost regions, electric drives manufacturers are likely to find their markets increasingly condensed into the limited number of high growth, high-tech manufacturers remaining in western Europe", notes Tamworth.

"With Europe's manufacturers competing on the basis of their expertise, growth will increasingly be focused on high-tech companies, often with particularly demanding requirements from their equipment and its suppliers".

The issues facing the drives market, including perceived commoditisation, increasingly acute skills shortages in key regions, the developing use of pre-assembly of components and the growing complexity of the manufacturing environment will continue to dominate the thinking of Europe's manufacturers.

Alongside these customer issues, drives manufacturers must find delicate balances in internal, strategic decision-making: for example, the most cost-efficient training required for sales forces, the changing role of "systems" supply versus "component" supply in motion control and the direction of R and D, all of which are directly impacting manufacturers' competitiveness.

With competition in the drives market increasing, the requirement for more accurate market positioning and for longer-term strategic thinking by individual drives manufacturers is becoming increasingly important.

Significant opportunities for profit remain, although identifying these opportunities without full market information is becoming more difficult.