Production of industrial motor controls shifting to emerging markets

Both 2010 and 2011 set record growth levels in the industrial motor controls market, with shipments in 2011 increasing 22.3%.

John Kendall, Market Analyst, IMS Research (IHS Inc.)

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Both 2010 and 2011 set record growth levels in the industrial motor controls market, with shipments in 2011 increasing 22.3%. These levels can partly be attributed to recovery following a 13% contraction in 2009 in reaction to the global recession, but as 25 million motor controls were shipped in 2011, ultimately surpassing pre-recession levels, strong market demand has returned and is predicted to increase over the next five years.   

The importance of locating production closer to consumption is a rising trend due to a number of factors, resulting in the production of motor controls closest to the fastest growing markets in terms of consumption. As China is the fastest growing regional market for motor controls, many manufacturers have shifted a portion of their production load to the country. Another contributing factor to the abundance of production expansion in China is directly related to the restrictive tax policies and import duties suppliers face. The Asia Pacific region, excluding Japan, is expected to produce 49% of units in 2015, up from 41% in 2010.

Emerging markets in Europe, Middle East and Africa (EMEA) and in the Americas are also benefiting from a shift in production as motor control suppliers work to localize production capabilities.  Many suppliers are establishing manufacturing facilities in Brazil and Mexico in order to benefit from lower cost production, while meeting nearby demand in the US. Although currently few suppliers produce products in Brazil, due to the economic growth and in particular the high growth of motor controls in the country, many suppliers are expanding production facilities in the region. Traditionally Brazil has been a difficult market for motor control suppliers to sell into due to the restrictive import duties of 14% on all factory automation products and minimum production requirements for projects. Any project financed by the Brazilian Development Bank, the leading financier for expansion of industry and infrastructure, is also subject to local content requirements; suppliers would be required to produce 60-80% of motor controls in Brazil. However, as the growth in the country provides large opportunities to the market, many manufacturers have recently opened manufacturing locations in the country.

Eastern Europe, and in particular, Poland and Romania, have benefited from the localization trend as suppliers continue to set up new facilities in reaction to European demand for motor controls. The EMEA market for motor controls was the largest regional market until Asia Pacific surpassed the region in 2010. With motor control demand continuing to increase across Europe and in large markets such as Germany and Italy, additional manufacturing solutions are necessary for many suppliers. The cost of labor in Eastern Europe and the close proximity to some of the largest machine producing countries is attractive to many suppliers for manufacturing of motor controls.

Moving forward as some of these emerging economies become more developed and labor costs in the countries rise, shifts towards other regions are inevitable as suppliers look to take advantage of the benefits an emerging market offers.  Production movement from Poland to other Eastern European nations has already begun, and, in China, some suppliers are locating facilities in more remote areas of Western China or near Mongolia. Southeast Asia and India are expected to see a rise in manufacturing facilities over the next decade as well, as suppliers try to maintain local presence while at the same time keeping labor costs down.