Our view on the market
Consolidation and offshoring are two trends that have shaped the general industrial sector in recent years as businesses make the most of opportunities provided by globalisation and more efficient manufacturing bases. These trends are particularly pronounced in certain regions, with consolidation being significantly less advanced in Europe than in the US. A continued drive towards European consolidation appears likely with France and Germany as the main countries driving deal activity.
On a global level, the debate continues as to whether Asia represents an opportunity or a challenge. The transfer of production to lower cost countries is nothing new and as the skills base in these areas continues to develop, this trend will further accelerate. Finding the right partner abroad or setting up new production facilities can seem complex, but if done properly the rewards are substantial.
Likewise as these economies continue to develop and grow they represent exciting market opportunities for traditional Western based general industrial businesses. The demand for raw materials, new products and technical expertise from China and India in particular, is phenomenal. Penetrating these markets is a challenge, but the potential upsides are enormous.
The three value plays we consider important in this sector are:
- Access to new and emerging markets:
Asia and Eastern Europe are key territories for low-cost manufacturing and opening up new sales channels, allowing companies access to both reduced costs and local markets. Through our local network of contacts in Asia, we helped Swedish construction lift manufacturer Alimak Hek with establishing production in China to take advantage of the booming domestic and regional markets and lower manufacturing costs. This allowed the companyfs turnover to be evenly distributed across Europe, the US and Asia. - Buy and build strategy:
In addition to re-locating production, sourcing acquisitions is a vital tool in supporting manufacturing growth, allowing for significant economies of scale. We recently supported NORMA Group, a global industrial components supplier on dissolving its Chinese joint venture and selecting a new production site, and on the recent acquisition of US-based Breeze Industrial Products Corporation. - Operational improvements:
Whilst offshoring has obvious and tangible benefits, a constant review of current operations gives scope for major operational improvements both at home and abroad. For example, we will work with management at recently acquired DEUTZ Power Systems to strengthen research and production facilities at their Mannheim base, whilst also setting strategic goals, including active plans to expand sales to strongly growing markets in Asia.