Chinese wage inflation opens market for linear motion products

With wages increasing in China, Chinese factories are turning more to automation to keep costs down and increase productivity

09/06/2011


A report from IMS Research notes that automation in Chinese factories is expected to increase dramatically in the next two years to stem a sharp increase in wages. This will mean an increase in opportunities for manufacturers of linear motion products and linear and torque motors. The report notes that Chinese hourly compensation doubled between 2003 and 2008 to $1.36 an hour, and jumped again by 2010 to $1.98 an hour. That has spurred job growth in the Chinese markets as workers seek the higher wages, but it also drives a need for greater automation products in the market.

James Dawson, research analyst in power transmission and low voltage products for IMS Research, discussed with CFE Media the impact of the wage inflation and the need for greater automation, as well as the opportunity that creates for global manufacturers in the linear motion market:

CFE: On the larger issue of China and automation: If robotics use in China is going to increase 30-fold in China in two years, and then triple again by 2013, that means a huge opportunity for that industry for everyone. How can and should global manufacturers take advantage of this opportunity?

Dawson: Industrial automation in China is undoubtedly growing fast; there are long standing indicators of double digit growth, such as machine tool consumption. We have been investigating industrial automation product markets such as linear motion, linear & torque motors for many years, and monitored substantial growth in the region. Manufacturers of linear motion products already have significant sales operations in the region, and some have manufacturing capabilities. Some manufacturers have a network of distributors who are able to finish and carry out final assembly. It is important to have product support and production facilities close to such a large potential market. Manufacturers need to be aware of the important machinery markets and sectors offering high potential growth and sustained long term revenues so they have the correct product offering.

CFE: What are the barriers to taking advantage of this opportunity?

Dawson: Demand for linear motion components (ball screws and linear guides) from China is very strong and the most significant limiting factor appears to be the ability of manufacturers to meet demand. I have heard of lead times of up to 18 months for some components. In terms of political trade barriers, I am not aware of any which affect the market for linear motion products in China. Taiwan is a big manufacturer of linear motion and torque motor products, trade links between China and Taiwan seem to be growing.

CFE: The article seems to indicate that robotics use will rise to stem the wage inflation in China. Won’t increased use of robotics require more skilled workers to manage the robotics process?

Dawson: Wage inflation and the scarcity of labor are driving manufacturers to increase productivity. Investing in industrial automation machinery will make factories more productive. Installing industrial automation may well ease demand for unskilled and semi-skilled assembly workers but increase demand for highly skilled engineers. From what I have seen competent engineers are in demand in all industrialised countries, and not just China. Persuade your kids to get an engineering degree and they will always be in work.

CFE: Between increases in Chinese wages and capital investment costs and the cheap U.S. dollar, it seems there is a great opportunity here for American manufacturers in robotics, linear motion and linear and torque motors. How are these products regarded in China and other international markets?

Dawson: Many linear motion and direct drive motor products or brands manufactured in Europe and US are viewed as premium quality products. For instance, some machine builders in Taiwan and China offer machinery with the option of components manufactured locally or for a price premium components manufactured in US or Europe. By fitting linear motion components or direct drive motors manufactured in US or Europe, Chinese machine builders can enhance perceived quality of a machine and therefore make it more marketable.

The relative low value of the dollar will undoubtedly make US products more competitive against Japanese competitors and more affordable to Chinese buyers. But, as I mentioned manufacturers of linear motion products are opening production close to and in the China, thereby negating some exchange rate issues with low production and transport/distribution costs.

CFE: How will the sharp increase in robotics use in China affect the global market for these products? It would seem that demand everywhere would be on the rise.

Dawson: My knowledge of the robotics market is limited, I tend to focus on the linear motion and linear and torque motors markets. However, the 2012 outlook for the industrial machinery market in Europe and the U.S. doesn’t look so rosy. Demand from China may well help to make good some shortfall. China offers high growth in the short term and sustained revenues in the long term; I would imagine all the big linear motion and direct drive motor companies have developed strategies for the China market.