Globalization brings sizable growth, primarily in Asia

In 1990, the year after Plastics News published our first issue, there were 33,000 injection molding machines sold worldwide.

Fast forward to 2013, and the global market was 86,500 molding machines, or a jump of 250 percent.

Some of that big increase reflects more use of plastics — think how much more PET is used in soda and water bottles now vs. then, or how much more plastic is in our cars now vs. the late 1980s.

But by some key measures, the biggest reason for the industry's great leap forward can be traced to the rise of manufacturing in Asia — initially China and other Asian spots becoming world factories, and now the growth of a consumer class in the “BRICS” emerging markets.

Here's the key fact: of the 53,000 additional molding machines sold annually around the world now vs. a quarter century ago, about 90 percent of them (or 48,000 injection presses), are sold in the emerging markets of Asia.

As part of our 25th anniversary issue, Plastics News wanted to take a look at what globalization has meant for the industry.

China drives growth.

The simplest answer, as those figures suggest, is that it's meant growth. Worldwide, the plastics industry is three times larger than it was 25 years ago. In 2012, the world used 288 million metric tons of resin, compared with 100 million metric tons in 1989.

That's a lot faster than global population growth, which was up “only” 40 percent in the last 25 years, from 5.2 billion people to 7.2 billion.

But just saying globalization equals growth only tells half the story. Peel back the numbers and they document the huge shift of manufacturing to Asia.

China absorbed the lion's share. Its annual consumption of injection molding machines rose from 4,000 a year in 1990 to 42,000 in 2013, half the global total.

The rest of Asia (including Japan, India and Southeast Asia) rose from a market of 11,500 machines a year to 21,500 in the same period.

These figures for injection molding machine consumption come from Austria's Engel Holding GmbH, the world's largest maker of molding machines, measured by revenue. Plastics News is focusing on the figures because injection presses are the largest segment of the plastics equipment market.

For some of the small and medium-sized plastics processing factories in the United States, the emergence of Asia has been very disruptive, said Mike Walter, president of the Manufacturers Association for Plastics Processors, an Indianapolis-based trade association that represents many SME plastics processors.

“Initially globalization meant the erosion of our customer base,” said Walter, who is also president of injection molder MET Plastics Inc. in Elk Grove Village, Ill. “That instilled a lot of fear and panic in the industry.

“Speaking as a smaller manufacturer with a single facility in the United States, we saw our customer base move offshore,” he said.

But that view is changing somewhat, he said, as costs rise sharply in China and other Asian economies, and the companies that have survived in the United States have been forced to hone their competitive skills and invest more in automation and technology.

Walter's small molding and tooling factory outside Chicago, for example, has seen sales per employee rise more than 20 percent since 2008, as the company has seen sales grow in the last five years as the number of employees has dropped 20 percent.

“Domestic manufacturing in the U.S. is now a more attractive opportunity,” he said.

Europe, Americas market stable

While Asia's IMM markets have shot up like a rocket, Engel's statistics show more modest increases in the Europe and the Americas in the last quarter century. Europe fared better of the two, growing from 9,500 injection machines a year to 11,500 between 1990 and 2013, while the Americas (both North and South) grew less, from 7,500 to 8,500.

For companies with the ability to scale up globally, there have been opportunities. Engel, for example, said it's been able to capture a larger share of Asia's much larger markets.

In 2004, Engel said it had a little less than 5 percent of the Asian market, but after putting factories in South Korea and China, the company estimates it will have a 10 percent market share in Asia this year. That means that companies not on the radar screen 25 years ago are big customers now, said Christoph Steger, Engel's chief sales officer.

South Korea's Samsung, for example, has been one of Engel's largest customers globally in recent years, as that company has become one of the world's biggest consumer product brands.

“The customer base on the one side gets more globalized than it was 25 years ago,” he said.

But Steger believes that the mid-sized plastics processing companies in mature markets like the United States will remain important, as they innovate.

“On the other side, we still have these typical small and middle-sized companies in Europe and the United States, they will not expand their business into other continents,” Steger said. “They are the hidden champions in their niche, in their regions.”

For Engel, it means they must pay attention to both segments of the global market, Steger said: “We cannot just focus on the global multinationals because then we would also be addicted to them.”

And it can be a little misleading just to compare number of machines sold from region to region. Many of the machines sold in Europe are several times more expensive and offer more features than the typical machine bought in China, Steger said.

Still, even within the Americas and Europe, Engel projects a sort of mini-globalization, with newer markets in Russia, Turkey and Brazil overtaking some of the old champions. In Europe a decade ago, for example, the biggest market for molding machines was Germany, followed by Italy and France, Engel said.

But by last year, Italy and France had fallen out, and were replaced by Turkey and Russia as the second and third-biggest European IMM markets.

Germany kept its top position, and Engel projects it's likely to remain the biggest European injection machine market through at least 2020, with Russia and Turkey switching the second and third places.

In the Americas, similar changes are expected: by 2020, Engel projects Brazil to be the biggest market for molding machines, surpassing the United States, even though, as Engel notes, Brazil's had a difficult time since 2012.

Emerging market firms, of course, have their own global pressures.

Chinese IMM maker Guangdong Yizumi Precision Machinery Co. Ltd. bought the assets of bankrupt American plastics equipment firm HPM in 2011 as part of its push into world markets.

Yizumi CEO Richard Yan told Plastics News last year he believes HPM's decision to focus on its domestic market, and not go global aggressively enough, was one of the mistakes that forced the 135-year-old HPM into bankruptcy.

It's not a mistake Yizumi wants to make, he said: “We need to be global otherwise we risk the same problem.”

The next 25 years

One thing that's clear is that through all the changes of the last 25 years — think China joining the World Trade Organization; the Berlin Wall crumbling; the rise of multinational companies and various economic crises — the plastics industry's global story has been one of growth.

It's also been one of challenges.

Global competitive pressures are at the root of the “new industrial revolution” of human-like robots, 3-D printing and more complex supply chains, according to the U.S.-based Manufacturers Alliance for Productivity and Innovation, in an October study.

“Analysts believe that the current disruptive epoch of technological advancement has brought U.S. manufacturing to the cusp of a new chapter,” MAPI said, although it acknowledged “some worrying about employment implications” of the new technology.

A 2014 study from the Brookings Institution said that the future of U.S. manufacturing will depend on its ability to adopt those new technologies, although the study also noted another worrying trend from the last 25 years.

It said that outside of the computer and electronics segment of U.S. manufacturing, the other 90 percent of American manufacturing saw only 0.6 percent annual growth from 1987 to 2011 (and negative 0.4 percent from 2000 to 2011).

With computers and electronics added back in, U.S. manufacturing averaged 2.6 percent growth between 1987 and 2011, the study said.

In the trenches of selling capital equipment like molding machines, Engel's Steger said he thought the biggest impact of global competition is that manufacturers have an increasing laser-like focus on wanting more and paying less for it.

“Service, more service and more performance” are the priorities, Steger said. “And the price discussion gets harder.”