Birmingham Used to Be Bigger than Shenzen
I am the 4th generation in my family to be involved with making things out of metal. A hundred years ago, the town I come from, Birmingham, made about as much of the world’s manufactured goods as China does today. Times change though, and now most of the factories are empty or demolished. What’s this got to do with your company?
Then it Died
The engineering companies in Birmingham had a good thing and they didn’t change. They kept making the same things for the same customers and never noticed that in other countries other companies could make the same things better. The quality, sad to say, was not always great either.
Asian Engineer Companies Face the Same Fate
Today engineering companies in SE Asia are in a difficult position. On the one hand European, American and Japanese companies take the top end of the market. At the other, there are hordes of Chinese engineering companies happy to bid lower and deliver faster if people will take a risk on their quality.
They Need to Win an Arms Race
They will get better just as they have in a dozen other industries. So engineers are in an arms race. How fast can you take business off the Europeans and Americans? Is it faster than the Chinese are taking business off you?
Steel Mills Face the Same Problem
We’ve seen this same pattern in the steel industry. Most European mills specialise now – whether in specialty steels, in serving a particular market, or like Dillinger in the heaviness of its plate. That’s because the market for simple steel grades such as S235 is too competitive.
Innovation is the Key
So the mills innovate new products – HIC, TMCP, etc., that allow engineering companies to do more with less, or they invest in new process technology – reducing the cost of quality. While all this is happening, Korean companies are trying and climbing up quickly because of all the Chinese steel mills are chasing them.
Why Does China Make So Much Steel?
As a side note – do you know why China produces so much steel? It’s because the power stations had fixed input prices: fixed output prices and no way to cover the cost of their capital. So with lots of available power (and coal) they started making steel to cover their costs.
Here’s the Economist’s take on some of the problems that industry faces in Singapore
So what to do?
First – find a protected local market where you can bid, but cheaper competitors can’t. That’s good for the short term – but at some point you’ll stop being protected and then you will die. Like the British companies in the 1970’s.
Sell Cheap Cheap Cheap
You can compete on cost – but this means reducing tight margins significantly and winning a lot more business. How long can you stay the cheapest?
Make it Better
Product innovation is difficult given that a lot of requirements are set by a third party – but one way to do this is to systematically improve technical ability – so that you climb the value chain. That means a larger investment in training, R&D and capital expenditure but it also offers better margins.
Finally there is competing on quality – to me this means far more than meeting your customer’s specifications. That’s required. It’s looking at things like lifetime cost and lifetime value of your installed base of equipment. What is the mean time between failures? How long is the maintenance cycle?
But Have the Numbers to Prove It
Improving product quality means potentially huge benefits to the process companies you sell to – and if you can quantify those benefits (in hard numbers) that provides additional margin and protects you against competition.
What’s your company doing to stay ahead of the competition?
How can we help?
We work at the high end of carbon steel requirements – so if the job requires very high or very thick specification material we can supply from stock. That covers the material supply. When it comes to the processing we can also help – either through profiling, or if you’re ordering from the mill, by doing wonderful things with thick plates. Have a look at the technical details.
And yes you can buy a car in a cup from us, but remember that the import duty is higher for the car!