As outsourcings of engineered and finished products are around the corner, the future seems to be lucrative for the low-cost forging players. The global forging industryone of the oldest industriesis rapidly transitioning into a new phase by adopting several structural changes that are happening in the industry. The automobile industry is the key driver for forging industry and contributes to 65% of its revenues. Hence, the forging industrys fortunes are undoubtedly dependent on the automobile industry.
With
the advent of offshore manufacturing across the industry value
chain, the forging industry is now facing the toughest challenge
in its entire historyto combat the mounting competitive pressure.
Rising input costs, capacity glut and heightened competition
has forced the carmakers Daimler Chrysler, GM and Ford to
cut costs. These price cuts have been passed on to the component
manufacturers, thereby forcing them to reduce their margins.
Hence, component manufacturers are left with only few options,
i.e., either shift to low-cost locations or shut down their
plants. As a result, some of these plants were up for sale
at low valuations. Also, many forging plants have become acquisition
targets for low-cost players in India and China.
The
forging industry, being labor and capital-intensive, requires
cheap labor and huge capacities in order to survive. Though
labor cost plays a dominant role for the industry's survival,
other factors such as rise in raw material costs, steel, oil,
and low-cost competition from new developing economies have
often altered the industry competitive posture. Steven Szakaly,
Chief Economist, Center for Automotive Research, says, "Western
forging companies are seeking protection from home governments
in the form of tariffs or trade quotas as a short-term remedy.
In the long-run, these western firms are moving up the value
chain to producing higher value goods or products that are
more complex". |
