Following are excerpts from that conversation.
Automation World: What are the major trends related to manufacturing in China?
Summerville: You’ve read in the paper that many companies are focused on China and trying to take advantage of opportunities there. A lot of it is a supply chain issue where the manufacturers’ customers—other manufacturers who are higher in the supply chain—are moving to China. So many manufacturers are just trying to keep up by setting up facilities in China to supply these customers.
That’s something that is very evident. But maybe what you’re not hearing as much about is the fact that the local, indigenous companies in China are also upgrading their manufacturing facilities to be able to compete on a global basis. The Chinese government wants to ensure that it’s not just foreign direct investment and foreign companies that are leveraging China’s capabilities to become world-class manufacturers. They want to develop world-class manufacturers themselves.
AW: How would you characterize Chinese manufacturers’ progress in that regard?
Summerville: The progress has been eye-popping. I’ve been in the region for seven or eight years, and we’re seeing Chinese companies now that are putting in predictive maintenance technology, that are putting in MES (manufacturing execution system) technology, and that are using technology to measure the overall effectiveness of equipment. Three or four years ago, they were just putting in automation to do the basic running of the machines and plants, but now they’re layering in these things to really increase the productivity of the plants. So the progress has been substantial over the last several years.
AW: What are the trends in terms of the industries that Rockwell serves with controls and automation products? What segments are growing the fastest?
Summerville: Four or five years ago, our big industries were the steel industry, and what we would call infrastructure industries, such as water/wastewater and electric power. We saw growth in primary metals industries that feed the use of steel in buildings, bridges and roads, because China was building a lot of infrastructure. And they still are, quite frankly. But they’ve publicly announced that they’re going to cut back on their infrastructure spending for 2005.
What we’re seeing now is that with the rising middle class in China, we’re getting real growth in what I would call the consumer industries, such as automotive, food and beverage, pharmaceuticals, home and beauty, appliances and televisions. We’re starting to see higher growth rates in those particular industries. There’s an overall migration in China. It’s kind of like when the United States went from being a manufacturing-based economy to a services-based economy. The same kind of transition is occurring in China, going from infrastructure to consumer-based industries, and that transition is really starting to pick up steam.
AW: At the corporate level, Rockwell Automation’s five-year financial objectives include a compound annual growth rate of 6 percent. What are your growth projections for China?
Summerville: We’ve publicly stated that our growth expectations are in excess of 30 percent per year in China over the next four to five years.
AW: Is it fair to assume that a big chunk of that growth in China will come from the consumer industries?
Summerville: Yes, we’re looking at higher growth rates in industries such as automotive, food and beverage and pharmaceuticals—significantly higher growth than in the infrastructure industries. We’re seeing the metals industry actually slow down a little bit in China, and if the government does cut back on its infrastructure spending, I think you’re going to see a rationalization of companies in the steel industry.
That’s one thing that China is going through right now. In the old days, each province in China was like a separate country. They all had their own steel companies, they all had their own power plants and so on. But now they’re going through a rationalization, and you’re going to see much more emphasis by the Chinese government on shutting down the inefficient, smaller companies, particularly in industries such as steel, cement and some of the other infrastructure-based providers.