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- Mechatronics @ Work: Insight & Technology Solutions
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| September 26, 2012
The Playing Field with China Levels in 2015
The production cost advantage that China currently holds will be gone in late 2015, and the need for continual improvement should fuel the automation industry for years to come. In general, this is the time to think about loading up the pipeline in order to ride out most of the late-2013/2014 downturn.
China is slowing down, Europe is struggling, and the August U.S. jobs report appeared dismal to many. The political rhetoric and wild claims made by both parties are not helping the situation.
Do not be talked into taking a recessionary stance with your business. It is time to start planning on what you will do when the mild recession comes in late 2013 and in 2014. But, implementing your strategies too early will put you out of position for the opportunities stretching forward through the next several quarters.
The selling and delivery time cycle will obviously vary from company to company, but in general, this is the time to think about loading up the pipeline in order to ride out most of the late-2013/2014 downturn.
You may want to consider thinning your margin on jobs scheduled for delivery in the second quarter of 2013 or later. Many firms will need to work with clients to push out delivery times as a trade-off to lower price considerations, and keep your workforce intact and ready for the economy’s upswing in 2015. The solid, still profitable cash flow will put your firm in a superior position compared to competitors who will scramble for unprofitable work in the midst of the downturn.
The U.S. Leading Indicator is a trustworthy indicator of future economic activity and the latest available data points to more economic expansion through the rest of 2012 and into 2013.
Productivity improvements in the United States have been key to our economic expansion over the long haul and they remain important today. The charts shown examine the 5-year and 10-year annual percent change in labor productivity between the industrial nations. Note how the United States has easily outperformed other industrialized nations. This improvement is key to our long-term growth and health. It is this productivity improvement, which will fuel near-sourcing movements in many industries across the country.
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A recent ITR Economics study shows that the production cost advantage that China currently holds will be gone in late 2015. This cost advantage is apparently already gone for those manufacturers who have brought, or are bringing, production back to the U.S. (e.g. GE, Whirlpool, Thomasville furniture). The need for continual improvement should fuel the automation industry for years to come.
Regarding trends in specific industries, selling into the defense industry is an uncertain proposition given that Defense Capital Goods New Orders (on an annual basis) are down 23.7 percent year-over-year and the overall declining trend is expected to continue through 2013. Manufacturers selling into the non-capital goods segment are also experiencing troubles as Total National Defense Expenditures continue the decline that began in late 2010.
Electrical Equipment New Orders are 4.1 percent ahead of the year-ago level (annual figures). We are projecting that the rate of rise will soon increase and that the quarterly New Orders figures will stay above year-ago levels through the first half of 2013.
The annual spending on Computer & Electronics New Orders has been in recovery for six months. New Orders for the past 12 months totaled $266.0 billion, down a thin 2.4 percent from this time last year. Internal factors and leading indicator input portend above year-ago New Order activity later this year and into 2013.
Selling into North American Light Vehicle Production is a winning proposition. Production is at the highest level since March 2008 (annual basis). However, the current 18.6 percent annual growth rate is not sustainable and we are projecting that growth rate will diminish from now through the first three quarters of 2013.
Keep pursuing quality in your products and efficiencies in your processes. Extract the most out of your business to increase profits and create competitive advantages to outperform competitors and grow your company.
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