“The member companies of Germany’s Large Industrial Plant Manufacturer’s Group (AGAB; Frankfurt am Main; www.grossanlagenbau.vdma.org) booked orders worth €24.9 billion in 2011, an 11% increase compared to the previous year (€22.4 billion in 2010)”, announced Helmut Knauthe, AGAB spokesman and member of the Executive Board at ThyssenKrupp Uhde GmbH (Dortmund, Germany; www.uhde.eu), as the organization released its latest status report today. Following a dramatic slowdown in 2009 and a period of stabilization in 2010, business has picked up considerably in the large industrial plant manufacturing sector. “Growth was moderate for the most part in the basic commodities sector. Order intake was up by a very impressive 42% in the power station construction market," reports Knauthe.
The export market generated 73% of all orders received by the large industrial plant manufacturing industry in 2011. The order volume of €18.3 billion was 4% higher year-on-year (€17.6 billion in 2010). The latest numbers are the result of significant structural shifts. The importance of Asian markets has increased, as orders from the industrialized nations (particularly Western Europe) dropped off markedly. East and Southeast Asia, South Asia and the Middle East all played a significant role. Nearly 60% of all foreign orders were acquired in Asia. The figure was 50% ten years ago, 42% in 1981 and only 13% in 1971.
There can be no doubt about the general trend. The large industrial plant manufacturing markets are moving eastwards over the long term. “The industry has already reacted by setting up engineering, production and service infrastructure in Asia, and it is now ready for the "Asian Century" ahead", adds Knauthe.
Domestic demand in the large industrial plant manufacturing sector rose by 38% to 6.6 billion euro in 2011 (compared to €4.8 billion in 2010). The large increase was driven by strong demand in the offshore wind industry. The outlook for new construction of fossil fuel power stations remains unclear following the energy reforms in Germany. “Credible answers on issues such as how the general conditions for construction of high-efficiency gas-fired power plants can be improved or what legal framework will apply to carbon capture and storage are still lacking,” observed the AGAB spokesman. In the short to medium term, expansion of renewable energy will remain a major force driving domestic demand.
Since the last recession, competitive pressure in the international large industrial plant manufacturing business has taken on new dimensions. Companies from China and South Korea in particular have increased the level of competition for the available order volume. Therefore, supply is increasing faster than demand.
To remain competitive, AGAB members are making massive investments to expand their technology leadership. That alone however will not be sufficient to retain a strong market position worldwide. “In response to strong pressures in the global marketplace, German large industrial plant manufacturers will have to address the full spectrum of competitive parameters. Our members are working on the standard project parameters such as price, quality and processing time but they are also making a major effort to improve their marketing as well as risk and project management skills," explained Knauthe.
The large industrial plant manufacturing industry is also dependent on government policies which allow this economically important branch of industry to thrive. One important aspect is temporary employment which provides a vital level of flexibility. Companies in the industry oppose any regulation which goes beyond introduction of the minimum wage on January 1st, 2012. The industry also hopes that the German government will make every effort to ensure strict adherence to double taxation agreements in foreign countries.
There is an increasing expectation by global customers that contracts will be placed with the supplier’s local affiliates. As a result, large industrial plant manufacturers are highlighting the need for a fundamental rethink on export credit insurance. It is becoming less and less meaningful to base the definition of Germany’s economic interests only on the proportion of goods and services that companies supply directly from Germany. Knauthe argues that there is an urgent need for mandataries and the government to find a pragmatic solution for cross-border coverage.
A lack of uniform standards for export credit insurance on the global stage is creating an increasing threat as competition from non OECD countries intensifies. Working in collaboration with OECD partners and the major non-member exporting nations, the Federal Government must make a concerted effort to find a common solution.
AGAB companies slightly downsized the workforce in Germany during the reporting period. A total of just under 60,000 persons were working at the parent company’s domestics sites at the end of 2011 compared to 60,800 a year earlier.
36.4% of these persons had an educational background in engineering (compared to 35.2% in 2010). The quota is more than twice that of the overall average for the mechanical engineering industry (16.1% in 2010). The difference is so great, because the large industrial plant manufacturers employ a smaller number of industrial workers than the “traditional” machine building sector. “The core expertise of our member companies lies in the engineering and design of increasingly complex industrial projects,” explained Knauthe. “An engineering degree is often a prerequisite for employment in the industry. We expect that the proportion of engineers in the industry will continue to increase over the medium term. For young graduates, this opens up attractive career opportunities in an innovative knowledge-based industry.”
“We expect the growth in order intake to moderate compared to the previous year," said the AGAB spokesman. The most likely scenario is an order intake volume that slightly surpasses the 2011 level. In view of global uncertainties however, a moderate decline in order intake is also a possibility. Clearly, the industry does not expect a return to the levels experienced during the boom years 2007 and 2008 anytime soon.
Source: VDMA, www.vdma.org