Abstract
Research Overview
Original Equipment Manufacturers' (OEMs) Shift to Emerging Nations
Constricts Development of New Production Facilities in North America
The shift of original equipment manufacturers from North America to other
countries that offer lower costs has generated a decrease in manufacturing
facilities in North America. Emerging nations, or newly industrialized
countries (NIC), offer OEMs an opportunity to significantly reduce
manufacturing costs through lowered labor and material costs. This reduces OEM
demand for motion control technologies in North America.
The OEMs are seeking component sources closer to the countries where their
facilities are located. Domestic manufacturers are finding their customer base
shrinking as more companies move their manufacturing sites outside North
America. They are also finding they must compete against global manufacturers
who are able to sell at a lower price because of the strength of the U.S.
dollar.
OEM's Demand for Lower Prices and Shorter Lead Times Hinders the
Revenues
In order to stay competitive in the market, OEMs are looking at ways to reduce
their costs. One of the ways is to demand lower prices and shorter lead times.
This in turn, creates a challenge for manufacturers to meet these
requirements. By providing their products at a lower price, manufacturers
experience a decrease in their revenues. In order to meet shorter lead time
requirements, manufacturers face the challenge of leaning down the production
process and getting more efficient equipment to accomplish this. Few companies
with deep pockets have opened up plants in Asian countries like India and
China where they can produce the products with same specification at a much
lower cost and can import them to North America. This one of the methods
adopted by few companies to tackle this challenge.
Maintaining Profit Margins When the Price of Raw Materials is Increasing
The price increase of raw materials like steel, copper and aluminium, has
heavily affected the profit margins of the motion controls manufacturers,
especially the stepper motors and servo motors manufacturers, which form an
integral part of the motion controls market. The price of commodities
increased drastically in 2003 and 2004, and has seen an upward trend in 2005
also. This happened because of the global economic recovery and heavy intake
of these commodities by China. This increase in commodity price has greatly
affected the profit margin of the motor manufacturers due to the increase in
production costs.
To compensate for the increase in production costs the motor manufacturers had
to increase their product price, which made it difficult to maintain customer
satisfaction. So motor manufacturers were forced to increase their prices
slightly during the second quarter of 2004 just to survive and meet their
break-even point, with the hope that the price of steel, aluminium, and copper
would go down soon. There was another price increase of an average of 8.0 to
9.0 during the last quarter of 2004. This move was by all the motor
manufacturers, who could not wait anymore for the commodity price to go down.
With continued increases in price, the manufacturers foresee a possibility of
reduction in the sales volume.
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