CBI Trendmapping for Pipes and Process Equipment

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1 CBI Trendmapping for Pipes and Process Equipment Insights and foresights on key European market dynamics The European pipes and process equipment market recovered slowly but gradually from the economic crisis that hit Europe. Although the trend of everincreasing imports from Developing Countries (DCs) is smoothing, the market still offers a range of opportunities to exporters from DCs. Future success is certainly feasible for DC exporters who can offer CSR compliance and good quality products at a competitive price. The easiest way to enter the EU market is to become a supplier of parts to European manufacturers, as DC producers can offer interesting cost advantages. Figure 1 reveals the main trends on the EU market. Figure 1: Overview of key trends in the European market for pipes and process equipment Source: Peer group Pipes and Process Equipment and interviews with industry experts ( )

2 Social market drivers CSR will definitely become a consideration Corporate Social Responsibility is already of prime concern to large, multinational manufacturers and distributors in Europe, such as distributor Eriks and valve manufacturer Flowserve. No matter where they originate from, companies that are audited and found to have failed CSR requirements may get a chance to address the situation. Other companies, namely those that are not paying sufficient attention to labour laws, employee rights and/or child labour issues, may be automatically denied the opportunity to enter the supply chain. Any European companies with a decent reputation will examine their suppliers CSR and HR policies. CSR is expected to become a fundamental (knock-out) issue in selection criteria for new suppliers to Europe within five years. DC exporters who have implemented a solid CSR policy can use this as a Unique Selling Point. Note that frontrunners in CSR policies are companies from Western and Northern Europe, in other parts of Europe CSR can be less an issue. CfA 1 : Show commitment with CSR; use it as a competitive edge. CfA: Develop and implement a CSR policy, provide evidence to back it up and market it. Don t wait to be asked; prepare and offer it directly. CfA: Publicise your compliance to CSR principles in your marketing material (website and literature) for differentiation reasons. Economic market drivers Stabilisation of global economy After some turbulent years, the world and EU economy appears to be getting back in relatively calm waters. Although the economy in Europe will regain growth in the years to come, it will be slower than the rates seen during the pre-crisis period. The effects of this lower economic growth prospects for Europe on international trade (read: imports) are difficult to predict. On one hand, it could lead to lower growth or stabilisation of imports from DCs, for example because industrial production capacities in Europe will be used more efficiently and reduces the need for more imports from outside Europe. On the other hand, the demand for competitively priced products from DCs could get stronger and therefore lead to more imports from DCs. The development of EU imports from DCs in the past decade can be seen from Figures 2 and 3. 1 Consideration for Action for Developing Country exporters.

3 Figure 2 a/b: EU imports of valves and parts of valves from DCs, by main product groups, Valves for hydraulic or pneumatic transmissions Valves, check Valves, safety or relief EU imports from DCs Valves, pressure reducing ,200 1,000 Parts of valves EU imports from DCs Source: Trademap (2014)

4 Figure 3: EU imports of pumps from DCs, by main product groups, Parts of pumps Centrifug al pumps Pumps, other Reciproca ting positive displacem ent pumps Source: Trademap (2014) CFA: In each future scenario mentioned, there are better opportunities for DC producers who are able to supply advanced products. DC exporters should not compete on price (as they lose price competition from Chinese competitors) but on product quality and characteristics. Risk prevention is becoming more important In recent years risk prevention has become more and more important. To some extent it is caused by increasing focus on liability issues and on emission reduction. In practice, it can be seen from: o More EU origin casting, machining and assembly requirements from EU customers. o More and more quality assurance and non-destructive testing required. o Requirements, legislation etc. in some market segments, e.g. food and pharmaceutical industry, have got stricter in recent years. o Stricter requirements of EU customers. For example, several large companies, e.g. Shell, has implemented a preferred suppliers database in recent years. o Extra quality controls by EU end customers (entry controls). All these developments make it increasingly difficult to meet the EU market access requirements. At the same time, this is an opportunity for companies that already comply with or are endeavouring to comply with the relevant requirements. In addition, it is easier to supply parts rather than finished products to EU buyers. CfA: Stay abreast of EU market requirements. Refer to CBI s EU Buyers Requirements for a quick overview. In addition, CBI Buyer s Black Box offers more information on which topics are decisive for buyers when searching for (new) suppliers. CfA: Make use of (European) quality auditors and follow their advice strictly; be eager to learn and to improve. Examples of reputed auditors are DNV and TUV. CfA: Offer transparency; be honest about your capabilities. A live web cam application on your website showing your production activity might help as well.

5 Growing focus on costs In recent years, due to the difficult market situation in the EU, customers have increasingly been demanding cheaper products. As a result, the availability of private label products in the EU market has grown. Private labelling is particularly gaining inroads in countries without significant domestic production (e.g. the valves market in the Netherlands). This trend offers opportunities to DC exporters that can offer a viable private label product (range) to EU distributors or producers. You must be aware that from an EU buyers point of view, products and parts from DCs are only interesting if there is a price difference of (at least) 25% or even 30-40% with products manufactured in Europe. This is only the case, however, for labour-intensive products, i.e. products that need a great deal of machining. Labour costs make the difference. CfA: Benchmark your competitiveness (and landed costs) with players from China, South Korea, Taiwan, and CEE countries. Be aware that EU producers also relocate to low-cost countries. CfA: Select your most sophisticated products that require a great deal of machining. The more sophisticated the product, the higher the labour factor in the landed cost price and the greater the interest of EU buyers in sourcing in DCs. CfA: Carry out market research: find potential European private labelling partners (producers or distributors). Countries that should be avoided for private label activities are Germany and Italy. These two countries have huge production capacities available and therefore there is a large chance that private labelling production will take place domestically. CfA: Discover the opportunities for cooperation with a well-known valve company in your local market. Discover possibilities of a co-branding / dual branding concept. Environmental market drivers Energy efficiency will gain importance One could argue that the reduction of emissions and the quest for more efficient processes are not really environmentally-driven. In practice, process equipment owners tend to focus on costs rather than sustainability. This is set to change in the next decade. The energy efficiency of processes will draw further attention in the few next years, and will increasingly influence the purchasing decision for process equipment. DC producers that can offer energy efficient products should use this as a USP. CfA: Expand to include (further) engineering capacity in-house. CfA: Gain (more) knowledge of applications and energy efficiency issues. CfA: Train engineers to offer advice to customers. Use interesting case studies such as the example provided below. From practice: new valves offered unexpected and significant energy saving. Failures and leakages were common in relation to the five rubber-seated ball valves that were used in combination with the five pumps in a water treatment plant in Europe. This resulted in a great deal of downtime in order to repair the seats of the valves. Engineers from a valve manufacturer analysed the problem and proposed a new rubber-seated ball valve that would allow a reliable surge control in the pumping process. At the same time, pumping energy costs would be reduced significantly. The customer was surprised by the savings in pump energy consumption that were realised by the new valves. The new valve provided a 100% free flow area equal to the valve internal diameter, thereby reducing the valve s head loss dramatically.

6 Emission reduction will continue Erroneous emissions have been a cause for concern in Europe for some time now. Obviously, this issue has also gained attention within the pipes and process industry. Not only are there concerns for environmental reasons, but also for financial ones. It is clear that controlling emissions will seriously increase in importance in the years to come. The conditions imposed in relation to minimising emissions from industrial plants are being continuously honed. Emission control is currently also gaining significance in applications such as valves, pumps (in which mechanical seals have to be applied) and flanges. In the chemical and energy industry, emission control is most definitely a hot topic. Geographically, particularly in the EU s Western and Nordic countries, significant (and increasing) attention is being paid to emission control. Southern, Central and Eastern Europe will also have to adopt the standards that are already being applied by the rest of the region. Most European processing plants and power stations apply the TA-Luft standard. This standard not only contributes towards environmental conservation, but also significantly opens up opportunities for the DC exporter to the European market. In the larger EU markets, it is considered a must have. DC producers able to meet the requirements of emission-related standards such as TA Luft or ISO will definitely have a competitive edge. The growing attention for emission reduction has also led to a growing focus on non-destructive testing (or evaluation) capacities at the suppliers premises. Testing should prove the products to be absolutely safe and leakfree. CfA: Include low-emission products in your production range. In the valves market, for example, bellow seal valves are considered to be emission-free. CfA: Seriously consider adopting the TA Luft standards. CfA: As it is a difficult and rather technical topic to grasp, Business Support Organisations could play a facilitating role in terms of increasing knowledge among exporters. Experts and/or consultants could be invited to do a training session or seminar with your exporters. CfA: Expand to include (further) test engineering capacity in-house. This survey was compiled for CBI by Facts Figures Future in collaboration with CBI sector expert Luc Govaerts Disclaimer CBI market information tools: