The Bank of Japan’s key inflation gauge slumped to zero for a third time this year, as tumbling energy prices counter Governor Haruhiko Kuroda’s effort to reflate the world’s third-biggest economy. Bloomberg's Shery Ahn reports on "First Up."
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The devaluation of the yuan may have a tougher impact on global companies than previously imagined, as China's drive to produce and consume higher-quality goods intensifies.
The shockwaves of the People's Bank of China's devaluation of its currency are still resonating around the world's markets, but in the medium to long-term, it's manufacturers who may hurt the most. Western companies from Apple to Burberry will face a tough time finding out whether they can rely on their cachet in China even when their goods becoming more expensive. China's wealth has grown by leaps and bounds since the gradual opening up of its economy began in the 1980s. Its gross domestic product per capita in 2014 was $12,608.87, when adjusted for purchasing power, more than double what it had been just a decade before. The Chinese leadership's current five-year economic plan (2011 to 2015) is specifically aimed at moving the economy's fast-paced growth away from the low-cost manufacturing it had become famous for, towards consumption. Tactics included greater investment in research and development, higher-end manufacturing, and services targeted at the country's burgeoning middle class. In May, the Made in China 2025 plan has been billed by Premier Li Keqiang as an attempt to "redouble our efforts to upgrade China from a manufacturer of quantity to one of quality." He pledged in May to "seek innovation-driven development, apply smart technology, strengthen foundations, pursue green development" – all of which is aimed at avoiding the "middle income trap", where a country gets stuck at a certain level of economic development. Worryingly for those countries which have done well out of exporting to China in recent years, the plan includes sourcing 70 percent of key components within China's borders by 2025. China has so far achieved what analysts at Credit Suisse called in a research note published this week a "dramatic ascent of the value add curve" citing as an example that China has "more than doubled its share of the domestic robotics market." So while you might once have been shocked to see designer clothing with a "Made in China" label, you can now spot them everywhere from Diane von Furstenberg to Prada. However, as they have climbed this curve, Chinese companies seem to have maintained similar margins – whereas in the West, margins typically expand as you move up the value chain. To put it bluntly, Chinese manufacturers seem to be able to produce goods relatively cheaply even when their goods are more expensive. "As we see increasing value add from China, it becomes more difficult for Western companies to play the "quality" card," the Credit Suisse analysts wrote. Intelligent factories that link up every part of the production chain with next generation wireless automation could mark a sea change in manufacturing. The first industrial revolution began in the 18th century when the power of the steam engine was harnessed and manufacturing first became mechanised. The second revolution came about when mass production techniques were deployed in the early 20th century. And the third (the one we’re in now) came over the next few decades as electronic systems and computer technologies helped to further automate production lines. So what’s next? According to some industry experts from the likes of Siemens and Bosch, a new period of manufacturing technology dubbed “Industry 4.0” will be upon us within the next couple of decades. At its core are cyber-physical systems made up of software, sensors, processors and communication technologies, according to Brian Holliday, divisional director of Siemens Industry Automation. ‘These are systems that have both a computational element and a physical interaction with the real world,’ he said. ‘What it essentially means is there will be increasing levels of intelligence in devices that are used in industrial environments like factories.’ Many of the individual technologies that lay the foundation for Industry 4.0 have emerged over the last 10 to 15 years, he added. These pre-existing technologies will be embedded into materials, parts and the machines that work on them so they can communicate with one another in real time and exchange commands as products make their way down the production line. ‘We’re moving on to being able to communicate wirelessly with a broader range of devices in an industrial environment,’ said Holliday. ‘That means, for example, not just the internet of things, as we would understand it in the consumer environment, but intelligent industrial devices communicating with each other in a way that is dramatically beyond what is available today.’ Up until now there hasn’t been a way of linking the isolated elements of production chains, according to Dr Werner Struth, who sits on Bosch’s management board and oversees production system development among other things. ‘Now, data network technology such as RFID [radio-frequency identification] chips – mini transponders – offer the opportunity to gather more data and to map entire production units, stretching all the way from the supplier to the customer,’ he said. In other words, each product has its own digital information embedded into it that it can share with machines via radio signals as it moves along the production line. Bosch has already started testing the feasibility of RFID technology in production lines at its Homburg plant, in Germany, where the company manufactures diesel injectors. ‘The entire in-house logistics process is controlled using RFID chips,’ said Struth. ‘These even make it into the crates delivered to the customer, where they keep an exact tab on the contents of the boxes. Once the customer has emptied a crate, this prompts an electronic request asking us to manufacture another shipment.’ It is easier for manufacturers to produce customised products when each product has its own digital tag, according to Holliday, who added that there has been a rise in customer expectations in the automotive sector when it comes to customising a vehicle. ‘This is placing demand on the production environment, which means we are now looking at factories that are not just mass producing but are able to customise and mass produce. So customised mass production,’ said Holliday. This idea ties in with the opportunities that 3D printing is creating for more customisable manufacturing. But while some have said that additive manufacturing itself represents a new industrial revolution, Industry 4.0 is a more encompassing concept. ‘If you’ve got an intelligent factory that has removed the data discontinuities between what the ERP (enterprise resource planning) system has clearly identified as customer orders right through to production scheduling and the materials needed, then the ability to produce customised goods on a mass scale is improved,’ said Holliday. The term “Industry 4.0” was first coined by a group of scientists and business/industry executives that advises the German government on how to develop its technology strategy. And the German government recently pledged €200m to help industry associations, research institutes, and companies create an implementation strategy for Industry 4.0. Germany’s National Academy of Science and Engineering even argues that this new technological revolution could lead to a 30 per cent increase in industrial productivity. ‘At this point in time, nobody is in a position to prove – or disprove – this claim,’ said Struth. ‘The 30 per cent figure is more of a symbol that there is room for significant improvement in productivity.’ The exact efficiency savings will vary depending on the particular area of application, he added. ‘To increase the efficiency of complex, large-scale series production by 30 per cent is undoubtedly a challenge, but small-scale series production might see even greater advances in productivity.‘ But Germany isn’t the only country looking towards the next generation of manufacturing processes. In April, UK science minister David Willetts selected robotics and autonomous systems as one of the “eight great technologies” that the government believes the UK will excel in and deserve particular support. He awarded the research field £15m in a bid to increase the strength and productivity of research.
Meanwhile, Robert Harrison, professor of automation systems at Warwick Manufacturing Group (WMG) told The Engineer that the core themes that make up Industry 4.0 have been emerging in research and development facilities across the UK. For example, WMG has been producing 3D visualisations of production machines for Ford’s engine assembly machines ahead of their physical build at a factory in Dagenham in east London. ‘It is happening here but the German’s have some well written documents and funding strategies for it. I guess the research councils and other bodies here are looking at aspects of that,’ said Harrison. ‘I think introducing an Industry 4.0 initiative in the UK would pull together a number of different areas under the theme of integrating systems and address industry’s future needs in a cohesive way.’ The next generation of manufacturing isn’t without its challenges. ‘Industry 4.0 requires a certain level of openness from all market players, that is to say standardization, in particular when it comes to exchanging data,’ said Struth. There is also a call for solutions that can be integrated into the existing manufacturing base in a smart and cost-effective way. ‘Industry 4.0 is a 20-year journey,’ said Holliday. ‘It’s not something that’s going to come about in two or five year’s time … But the work that goes in now to create the platforms, the protocols and the connections between the smart devices that will enable the digitally designed factory environments, that is envisaged by programs like Industry 4.0.’
When it comes to making decisions on investments or purchasing, the two leading industrial fairs, PRODEX and SWISSTECH, are clearly the main information, communication and business platforms. More exhibitors, more exhibition space, an attractive fringe programme with specialist forums, lunchtime talks and various panel discussions provided added value for the numerous trade visitors.
Satisfied PRODEX exhibitors At PRODEX, 326 exhibitors presented their innovations, trends and prototypes to 29,352 trade visitors on a site covering around 18,600 square metres. Interesting conversations with decision-makers were held at the exhibitors’ stands, leading to expectations of follow-up business. Hubert Fleisch, Managing Director of AMADA Swiss GmbH, said: “We were there with our stand for the first time, and are really pleased. We will be back in two years’ time.” Giuseppe Barile, Managing Director of DMG MORI SEIKI Schweiz AG, was also hugely impressed with PRODEX 2014: “The calibre of the trade visitors we met was higher this year compared with 2012.”
The PRODEX Award is given to companies that have developed an exemplary innovation or decisively improved their product, production process or service. Swiss manufacturers came out on top! First place was shared by Mikron Tool SA Agno and last year’s winner Fritz Studer AG. GF Machining Solutions came second, and third place went to Röhm Spanntechnik AG.
SWISSTECH well attended
SWISSTECH proved once again why it is Europe’s main trade fair for the subcontracting industries, with 554 exhibitors presenting themselves to 23,532 trade visitors from the world of purchasing, procurement, manufacturing and production on a site covering around 10,600 square metres. Roland Frick, Deputy Chairman of SWISSMECHANIC, remarked: “Our exhibiting members were impressed with this year’s SWISSTECH.” Brigitt Zwing, Head of Marketing at Kubo Tech AG, was equally pleased: “We are delighted with this year’s SWISSTECH. We held good, practical and interesting conversations.” And Thomas Plüss, Head of Marketing at Schmolz + Bickenbach Stahlcenter AG, was also “... very happy with this year’s SWISSTECH. We welcomed lots of visitors at our stand.” Another sign of the high regard for SWISSTECH and the attractiveness of the Swiss market is the abundance of international exhibitors. A remarkable 110 exhibitors from a host of different countries were present on eight international stands. Forum and special exhibitions prove popular The forum programme during the four-day events was impressive and accordingly well attended. The topic of professional 3D printing was given due prominence, being addressed each morning in various presentations. In terms of materials, the focus alternated between metals and plastics. Ralf Schindel, Managing Director of Prodartis AG, said: “The visitors showed great interest in 3D printing. We were able to cultivate and even significantly expand our network.” At the Science Park, the focus was on product development. Universities and institutes presented their expertise in design and construction, and were also delighted with the active interest shown by visitors. Committed to young professionals In keeping with tradition, the first day of this year’s trade fair was young professionals’ day. Training for young people was once again a key theme. Numerous groups of apprentices and students from vocational schools and universities of applied sciences enjoyed free entry. In addition, the final round of qualifying for the chance to participate in “WorldSkills São Paulo 2015”, the vocational world championships, was contested at the SWISSMEM stand. The medal-winners of the “SwissSkills” competition in the high-tech professions of qualified electrician and qualified designer plus the gold- and silver-medal-winning team of qualified automation engineers gave their very best. The qualifiers are now putting the finishing touches to their preparations for the world championships.
The last word goes to Iris Sorgalla, Show Director of PRODEX and SWISSTECH, who was also delighted: “Both trade fairs are an essential platform for presenting products and innovations to the entire MEM industry. This was confirmed once again in 2014 by exhibitors and visitors alike.”
The next PRODEX and SWISSTECH will be held from 15 to 18 November 2016 in Basel.
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Economic situation and outlook After two years of contraction and flat trend, the European economy showed again a positive economic growth in 2014. The improving economic climate has an impact on the European machine tool industry’s results. The European machine tool production increased from 22.7 billion euro in 2013 to 22.9 billion euro in 2014. We estimate that the cautiously positive mood will continue this year and the European machine tool production will increase of another 3%. The CECIMO countries exported machine tools in 2014 for a value of 18.2 billion euro, which is marginally less than in 2013. This can be explained by the slowdown of economic growth in the emerging markets. On the other hand, the changes of consumption pattern in those counties and the improving growth outlook in developed markets forecast a growth in our exports this year. The increasing business confidence supports an investment recovery in the main machine tool consumer sectors. The European machine tool consumption grew 7% to 13.5 billion euro in 2014. Taking into account the positive trend in industrial capacity utilisation, European manufactures will look for possibilities to expand their production lines. Therefore we forecast that the machine tool demand will continue to grow in 2015. The European machine tool imports are mainly driven by the European machine tool consumption. After a decline in 2013, the machine tool imports to CECIMO countries increased to 8.9 billion euro in 2014. The weak euro, making imported goods relatively more expensive, will also influence those flows this year. “On one hand, we see growth slowing down in emerging markets, the risks relating to possible Greek exit from the euro zone and the effects of EU sanctions on CECIMO export sales to Russia. On the other hand, we see a solid demand in advanced countries. The weak euro will certainly have a positive effect on machine tools exports. Therefore, our expectations for 2015 are still on the positive side,” explained Dr Frank Brinken, the Chairman of CECIMO Economic Committee and a member of the Board of Directors, Starrag Holding Group. Challenges for industrial policy New industrial trends and technologies transform the manufacturing industry, and they change the rules of global competition. The digitalisation of manufacturing and the penetration of disruptive technologies into the industrial base lead to significant productivity and efficiency gains. Breakthrough production techniques, such as additive manufacturing, stretch the limits of product design and innovation whilst providing solutions to societal challenges. Moreover, the mass-customisation trend opens the way to the reindustrialisation of Europe. Against this background, Europe has to move faster than competitors to tap into opportunities in advanced manufacturing. “An ambitious European Industrial Policy should promote smart and coordinated investments, especially in the areas of research and development, education and training, SME finance, infrastructure and standardisation,” added Mr Jean Camille Uring, the President of CECIMO and Executive Board Member of Fives Group. CECIMO urges the EU policymakers to shape supportive framework conditions for the digitalisation of industry and for the development of additive manufacturing technologies to increase the competitiveness of the European industry as a whole. Harmonised standards have been one of the success stories which helped to establish and develop the EU internal market. The standards must also be relevant to European manufacturing companies who sell on global markets. The standardisation policy has a strong impact on the competitiveness of advanced manufacturing sectors like machine tools. The European machine tool industry is actively contributing to the standardisation processes on machine tool safety (via CEN TC 143) and we are pleased to see that also the topic of addictive manufacturing will be finally on the European standardisation agenda within the CEN structures. CECIMO stresses that European standardisation should reflect the state-of-the art technological developments. I It should also fully take into account industrial competitiveness by consulting with industry throughout the standardisation process. The European Commission and the the United States’ government have expressed their strong commitment to intensify the trade talks and aim for an ambitious and comprehensive agreement. CECIMO welcomes the positon of the European Commission to target technical requirements, standards and conformity assessment in the chapter specific to engineering of the TTIP. Moreover the foreseen stakeholder consultation procedures on regulatory issues will be instrumental to avoid the emergence of new barriers to trade. “The European machine tool industry is dominated by SMEs who lack resources to cope with excessive red tape in regulatory or custom procedures. The TTIP will be beneficiary for innovative SMEs who will be able to tap into market opportunities in the US, especially in the view of the ongoing re-shoring trend,” highlighted Filip Geerts, the Director General of CECIMO. While recognising the significant progress made during the trade talks, CECIMO continues to stress the importance of addressing non-tariff barriers, technical requirements and regulatory cooperation in the final agreement. |
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