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India offers even better prospects than China

An IMS Research product story
Edited by the Engineeringtalk editorial team May 19, 2004

The Chinese drives market has quickly grown to become a $463 million market in 2003, according to a drives study by IMS Research.

There is no question that the AC and DC drives market in China is hot.

Drive suppliers there are reporting 20, 30 and even 40% annual growth rates.

As a result, the Chinese drives market has quickly grown to become a $463 million market in 2003, according to a drives study by IMS Research.

The growth has largely been driven by the influx of foreign investment sweeping into the country in the form of new and renovated manufacturing facilities.

According to analyst Steve Odom of IMS Research: "With much of the foreign investment coming from Europe and North America, European and North American drive suppliers have been able to leverage their local relationships and grow considerable businesses in China".

"Five out of the top 11 drives suppliers in Asia Pacific are of European or North American origin, namely because of their success in China".

With little to spark the AC and DC motor drives market in the large, mature markets of Japan, North America, and Europe, China is expected to offer drives suppliers the best opportunity to capture incremental revenue growth.

There are some potential challenges ahead, however.

There is a potential for a devaluation of the Chinese Yuan that could slow the booming Chinese export market.

A crippled banking system, large amounts of public debt, and escalating property values are likely to slow public spending on large infrastructure projects, all of which helped drive the market for large drives in China.

India promises to pose a bigger competitive challenge to China as a manufacturing relocation destination.

The Indian Government recently lifted the foreign ownership cap to 75% and committed additional budget to infrastructure spending.

The successful migration of the information technology and back-office operations of many high-profile large multinational corporations would also seem to provide a good precedent for manufacturing companies to follow.

As a result, IMS Research forecasts the revenue value of the Indian drives market to grow at a compound annual growth rate of 13.3% over the next four years.

Most large drives suppliers are already placing increased focus and resources in China, making for fierce competition.

This competition coupled with exchange rate pressures, logistical challenges, and market preference for lower-margin, low functionality drives, makes for a very challenging operating environment.

Despite these challenges, or perhaps because of them, drives suppliers that execute sound strategies stand to gain significant upside and global market share.

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