An introduction to Mechanical Engineering: Study on the Competitiveness of the EU Mechanical Engineering Industry Within the Framework Contract of Sectoral Competitiveness Studies – ENTR/06/054 Final Report Client: Directorate-General Enterprise & Industry Dr. Hans-Günther Vieweg Munich, 01 February 2012 Project leader: Hans-Günther Vieweg, Ifo Institute Team: Ifo Institute: Jörg Claussen Christian Essling Michael Reinhard Cambridge Econometrics: Eva Alexandri Graham Hay Ian Robins Danish Technological Institute: Tine Andersen Karsten Frøhlich Hougaard Table of contents 1 An introduction to Mechanical Engineering 1 1.1 Structure of the report and the team 1 1.2 Understanding the project and its objectives 2 1.3 Specifics of Mechanical Engineering 4 2 EU Mechanical Engineering 19 2.1 Profile of the EU Mechanical Engineering 19 2.1.1 Description of the sector 19 2.1.2 Mechanical Engineering compared to total manufacturing 27 2.2 Mechanical engineering in selected Member States 31 2.2.1 France 31 2.2.2 Germany 35 2.2.3 Italy 38 2.2.4 Spain 41 2.2.5 United Kingdom 45 2.2.6 Poland 47 2.2.7 Czech Republic 50 2.2.8 Slovakia 53 2.3 Subsectors of Mechanical Engineering 55 2.3.1 Engines and turbines 55 2.3.2 Pumps and compressors 60 2.3.3 Taps and valves 65 2.3.4 Bearings, gears and drives 68 2.3.5 Lifting, handling and storage equipment 74 2.3.6 Non-domestic cooling and ventilation equipment 83 2.3.7 Agricultural and forestry machinery 87 2.3.8 Machinery for mining, quarrying and construction 93 2.3.9 Machine Tools for metal working 98 2.3.10 Machinery for textile, apparel and leather production 105 2.4 Specific topics for the assessment of the performance of EU ME 109 2.4.1 Supply side analysis of EU Mechanical Engineering 109 2.4.2 EU ME – regional distribution and division of labour 112 2.4.3 Non-European players activities in the EU 118 3 Major competitors and sales markets 120 3.1 Major competitors 120 3.1.1 United States 120 3.1.2 Japan 128 3.1.3 China 136 3.2 Major sales markets 149 3.2.1 Russia 149 3.2.2 Turkey 151 3.2.1 Middle East and North Africa (MENA) 154 3.2.2 India 156 3.2.3 South Korea 160 3.2.4 Taiwan 163 3.2.5 Indonesia 166 3.2.6 Australia 168 3.2.7 Canada 170 3.2.8 Mexico 172 3.2.9 Brazil 175 4 Assessment of competitive position of the EU Mechanical Engineering 178 4.1 Recent trends in the EU Mechanical Engineering’s structure 178 4.1.1 Mechanical engineering – a regionally anchored industry 178 4.1.2 Regional specifics within the EU 179 4.1.3 Globalization – a driver for structural change 179 4.1.4 Structural changes 181 4.1.5 Changing upstream environment – challenges to ME firms 182 4.1.6 Changing sales market environment needs adjustments 182 4.2 Price competitiveness and profitability 183 4.3 Trade analysis 189 4.4 Changes in the EU ME value chain 196 4.4.1 New organizational strategies – opportunities and threats for smaller firms 196 4.4.2 Broaden the regional reach and co-operation 197 4.4.3 Regional patterns 198 4.5 Impact of changes in the product programme of the EU ME and competitiveness of supply 199 4.6 Performance of the EU ME in technological competition 201 4.6.1 ME as innovation enabler 201 4.6.2 Resources to R&D – a methodological view 201 4.6.3 Trends in corporate R&D expenditure 202 4.6.4 Trends in corporate patent activities 204 4.6.5 Assessment of the technological competitiveness 207 4.7 Concluding evaluation of the EU ME’s competitiveness 208 5 Framework conditions 212 5.1 Market regulation 212 5.1.1 New Approach and New Legislative Framework 212 5.1.2 Market surveillance 213 5.1.3 National provisions hampering free trade in the Single Market 214 5.1.4 Multiple requirements for manufacturers of intermediary products 215 5.1.5 Internal combustion engines and mobile machinery 215 5.1.6 Energy related regulation 216 5.1.7 Self-regulation 217 5.1.8 Reliable regulatory environment 217 5.1.9 Smaller firms 218 5.1.10 International standards 218 5.2 Knowledge: R&D, innovation, and product development 219 5.3 Labour force and skills 229 5.3.1 Overall development in employment 230 5.3.2 Country trends in employment 231 5.3.3 National importance of ME as an employer 233 5.3.4 Sub-sector developments 235 5.3.5 Occupational structure and qualifications 236 5.3.6 Evidence at the national level 238 5.3.7 Evidence at sub-sector level 240 5.3.8 Current skill needs and skill shortages in the EU for different types of work 241 5.3.9 Availability of skilled staff 243 5.3.10 Future occupational profiles 246 5.3.11 Skills needed as a result of strategic developments in the sector 247 5.3.12 Human resources policy with regard to flexibility of employment 249 5.3.13 Conclusion 250 5.4 Corporate finances 251 5.4.1 Changes in financial markets and enterprise funding 251 5.4.2 Interest of financial investors in mechanical engineering 252 5.5 Openness of international markets 254 5.5.1 Overview 254 5.5.2 United States 255 5.5.3 Japan 255 5.5.4 China 256 5.5.5 Russia 257 5.5.6 Turkey 258 5.5.7 Middle East 258 5.5.8 India 258 5.5.9 Central and South America 259 5.6 Structural change and geographic cohesion 259 6 Strategic outlook 262 6.1 Medium-term outlook 262 6.1.1 Impact of the global economic crisis on ME 262 6.1.2 Quarterly trends in Mechanical Engineering in 2010 and 2011 263 6.1.3 Mechanical Engineering in 2011 compared to 2008 264 6.1.4 Mechanical Engineering compared to Manufacturing 265 6.2 Investigation in selected future oriented markets 266 6.2.1 Middle East and North Africa (MENA) 266 6.2.2 The demand potential of less exploited renewable energies 269 6.2.3 Long-term prospects for services 272 6.2.4 Conclusions 273 6.3 Long-term outlook 274 6.3.1 Economic growth potential 275 6.3.2 Productivity development 279 6.3.3 Employment implications 281 6.3.4 Conclusions 282 6.4 Recommendations 283 6.4.1 Organisation and industry structure 283 6.4.2 Market regulation 284 6.4.3 Financial markets 286 6.4.4 Labour market 286 6.4.5 Innovation environment 287 6.4.6 Access to third markets 289 7 References 290 List of tables Table 1.1: Key figures for EU-27 in Mechanical Engineering 6 Table 1.2: Distribution of enterprises by size category and average employment 8 Table 1.3: Distribution of employment by size category 8 Table 1.4: Regional distribution of Mechanical Engineering in the EU 2008 9 Table 1.5: Research efforts measured by business expenditure on R&D in mechanical engineering (ISIC Rev.2) in € million 17 Table 1.6: Research efforts measured by R&D intensity 2007 - 2009 18 Table 2.1: Key indicators on the performance of total manufacturing and Mechanical Engineering by the size of enterprises 2008 20 Table 2.2: Energy savings – ex-post and expected – in Germany induced by ME 27 Table 2.3: Key-figures for French Mechanical Engineering 32 Table 2.4: Key-figures for the German Mechanical Engineering 36 Table 2.5: Key-figures for Italian Mechanical Engineering 39 Table 2.6: Key-figures for Spanish Mechanical Engineering 42 Table 2.7: Key-figures for British Mechanical Engineering 45 Table 2.8: Key-figures for Polish Mechanical Engineering 48 Table 2.9: Key-figures for Czech Mechanical Engineering 51 Table 2.10: Key-figures for Slovakian Mechanical Engineering 54 Table 2.11: Key figures for the manufacture of engines and turbines – C2811 57 Table 2.12: Key figures for the manufacture of pumps and compressors C2813 62 Table 2.13: Key figures for the manufacture of taps and valves C2814 66 Table 2.14: Key figures for the manufacture of bearings, gears and drives C2815 69 Table 2.15: Key figures for the manufacture of lifting and handling equipment C2822 77 Table 2.16: Key figures for the manufacture of non-domestic cooling and ventilation equipment C2825 84 Table 2.17: Key figures for the manufacture of agricultural and forestry machinery C283 88 Table 2.18: Key figures for the manufacture of machinery for, mining, quarrying and construction C2892 94 Table 2.19: Key figures for the manufacture of machine tools C2841 100 Table 2.20: Key figures for machinery for textile, apparel and leather production C2894 106 Table 3.1: Output and efficiency of the US mechanical engineering 122 Table 3.2: Trade performance of the US mechanical engineering 124 Table 3.3: Output and efficiency of the Japanese mechanical engineering 130 Table 3.4: Trade performance of the Japanese mechanical engineering 132 Table 3.5: Selected Chinese European affiliations 138 Table 3.6: Output and efficiency of the Chinese mechanical engineering 140 Table 3.7: Trade performance of the Chinese mechanical engineering 142 Table 3.8: Russian trade with mechanical engineering products 150 Table 3.9: Trade performance of the Turkish mechanical engineering 153 Table 3.10: Trade performance of the Middle East and North Africa in mechanical engineering 156 Table 3.11: Trade performance of the Indian mechanical engineering 159 Table 3.12: Trade performance of the South Korean mechanical engineering 162 Table 3.13: Trade performance of the Taiwanese mechanical engineering 165 Table 3.14: Trade performance of the Indonesian mechanical engineering 167 Table 3.15: Trade performance of the Australian mechanical engineering 169 Table 3.16: Trade performance of the Canadian mechanical engineering 172 Table 3.17: Trade performance of the Mexican mechanical engineering 174 Table 3.18: Trade performance of the Brazilian mechanical engineering 177 Table 4.1: Key figures on the economic performance of major competing economies in mechanical engineering 184 Table 4.2: Key figures for global trade with mechanical engineering products 190 Table 4.3: Key indicators for the EU-27 foreign trade 191 Table 4.4: Global and bilateral EU trade with mechanical engineering products of major competing nations 192 Table 4.5: Penetration of major competing economies in the EU-27 market for mechanical engineering products 194 Table 4.6: EU machinery trade with important sales markets 195 Table 4.7: R&D expenditure in Mechanical Engineering 2006 203 Table 4.8: R&D intensity of large Mechanical Engineering enterprises 204 Table 4.9: Transnational Patent Applications in Mechanical Engineering 2006- 2008 by selected countries 206 Table 5.1 Ex-post and projected annual rates of change in employment in machinery manufacturing in the US. 236 Table 5.2: Short term demand and supply as perceived by associations 241 Table 5.3: Skills required to a larger extent over the next 3-5 years in different jobs in ME companies 242 Table 6.1: Trends in key indicators for Mechanical Engineering, 2008-2011H1 (indices, 2005=100) 262 Table 6.2: Quarterly trends in key indicators for Mechanical Engineering in the EU, 2010Q1-2011Q2 (indices, 2005 = 100) 263 Table 6.3: Quarterly levels in key indicators for Mechanical Engineering in the EU, 2008 cf 2011 (indices, 2005 = 100) 264 Table 6.4: Perspective for MENA countries 269 Table 6.5: Development of mechanical engineering output by selected countries 278 Table 6.6: Projected relative size of mechanical engineering sectors (baseline prediction) 278 Table 6.7: Projected relative size of mechanical engineering sectors (trade scenario) 279 Table 6.8: Projected growth rates in mechanical engineering 279 Table 7.1 Labour productivity of major competing economies in Mechanical Engineering, 2006 305 List of figures Figure 1.1: Investment in Mechanical Engineering products by industry - Share of total investment in machinery and equipment 12 Figure 1.2: Procurement of Mechanical Engineering’s final products by client industries for investment purposes - Share of total procurement in Germany 13 Figure 1.3: Mechanical Engineering’s latest business cycle in the EU-27 15 Figure 2.1: Compensation of input factors labour and capital 21 Figure 2.2: Regional distribution of Mechanical Engineering production in the EU-27 22 Figure 2.3: Distribution of output by major subsectors of Mechanical Engineering 24 Figure 2.4: Gross value added of total manufacturing and Mechanical Engineering 28 Figure 2.5: Labour productivity of total manufacturing and Mechanical Engineering 28 Figure 2.6: Employment of total manufacturing and Mechanical Engineering 29 Figure 2.7: Wages of total manufacturing and Mechanical Engineering 30 Figure 2.8: Unit labour costs of total manufacturing and Mechanical Engineering 30 Figure 2.9: Structure of the French Mechanical Engineering production 33 Figure 2.10: Structure of German Mechanical Engineering production 37 Figure 2.11: Structure of the Italian Mechanical Engineering production 40 Figure 2.12: Structure of Spanish Mechanical Engineering production 44 Figure 2.13: Structure of the British Mechanical Engineering production 47 Figure 2.14: Structure of the Polish Mechanical Engineering production 49 Figure 2.15: Structure of the Czech Mechanical Engineering production 52 Figure 2.16: Structure of Slovakian Mechanical Engineering production 55 Figure 2.17: Gross value added in old and new Member States for Mechanical Engineering 113 Figure 2.18: Labour productivity in old and new Member States for Mechanical Engineering 114 Figure 2.19: Employment in old and new Member States for Mechanical Engineering 115 Figure 2.20: Wages in old and new Member States for Mechanical Engineering 116 Figure 2.21: Unit labour costs in old and new Member States for Mechanical Engineering 117 Figure 2.22: Sectoral division of labour in the EU-27 Mechanical Engineering 118 Figure 3.1: Evolution of Russian trade 151 Figure 3.2: Evolution of Turkish trade 152 Figure 3.3: Evolution of MENA trade 154 Figure 3.4: Evolution of Indian trade 158 Figure 3.5: Evolution of South Korean trade 161 Figure 3.6: Evolution of the Taiwanese trade 163 Figure 3.7: Evolution of Indonesian trade 166 Figure 3.8: Evolution of Australian trade 168 Figure 3.9: Evolution of Canadian trade 171 Figure 3.10: Evolution of Mexican trade 173 Figure 3.11: Evolution in Brazilian trade 176 Figure 4.1: The evolution of key indicators for mechanical engineering of the major competing economies 185 Figure 4.2: Changes of price competitiveness with regard exchange rate variation 187 Figure 5.1: Total employment in Mechanical Engineering in EU27, thousands 230 Figure 5.2: Employment trends in Mechanical Engineering and total manufacturing, EU27. Index figures, 2000 = 100 231 Figure 5.3: Average annual employment growth in Mechanical Engineering in European countries1997-2007 and 2008-2010, % 231 Figure 5.4: Share of total European employment in manufacture of machinery, 4th quarter of 2010, EU27. 232 Figure 5.5: Development of employment in Mechanical Engineering, Countries with the largest share of European Employment in Mechanical Engineering. Index, 1997 = 100 233 Figure 5.6: Employment in manufacturing of machinery as a share of total employment in EU Member States. 4th quarter 2010 234 Figure 5.7: Production value of mechanical engineering as a share of GDP and employment in ME as a share of total employment. 2008. 235 Figure 5.8: Aggregate replacement demand and labour demand (all sectors) per occupation. In Europe 237 Figure 5.9: Qualification levels of employed in manufacturing of machinery in Denmark 2009 239 Figure 5.10: Development of the share of engineers in employment in Mechanical Engineering in Germany 1982-2010 239 Figure 5.11: The development in the total number of engineering graduates in 14 EU member states by field of study (ISC 52 and ISC 54 accumulated) 244 Figure 5.12: Relative shares of graduates in 14 EU Member States in the two fields of study ISC52 and ISC 54, 2000-2008 244 Figure 5.13: Engineering graduates (ISC 52 and 54) as a share of employment in Mechanical Engineering 2000-2007 245 Figure 5.14: Attractiveness of engineering industries and ME for private equity investors 253 Figure 6.1: Kinds of services supplied by German fixed asset manufacturers - Share of total service sales in % 273 Figure 6.2: Forecasted GDP development 275 Figure 6.3: Share of manufacturing sector as % of GDP 276 Figure 6.4: Share of mechanical engineering as % of total manufacturing 277 Figure 6.5: EU27 productivity development for manufacturing and mechanical engineering 280 Figure 6.6: Forecast of EU27 productivity development until 2020 281 Figure 6.7: Relative development of employment in manufacturing and mechanical engineering 281 Figure 7.1: Gross value added for the European Union and major competitors 304 Figure 7.2: Labour productivity for the European Union and major competitors 305 [...]... for the European Union and major competitors Figure 7.4: Wages for the European Union and major competitors Figure 7.5: Unit labour costs for the European Union and major competitors 306 306 307 1 An introduction to Mechanical Engineering 1.1 Structure of the report and the team The study on the competitiveness of the EU mechanical engineering was carried out by the Ifo Institute (Ifo), Cambridge Econometrics... in the evolution of the EU Mechanical Engineering sector and its most important competitors With the help of long-term time series, a profound analysis in the performance of the EU Mechanical Engineering sector could be undertaken The evaluation of the price competitiveness and the performance in international markets have revealed divergent results A loss in price competitiveness on the one hand contrasts... in the era of globalization, since the introduction of cutting-edge technologies and the optimization of processes is much easier The Terms of Reference (ToR) call for a new study to assess changes in the competitiveness of ME The study comprises an investigation of the strengths and weaknesses of the industry and an investigation of framework conditions to identify opportunities and threats The study. .. characteristic 5 6 7 The EnginEurope Report does not specify the structure of the industry and speaks of the dominance of SMEs only However, it is of importance to understand that - caused by the complexity of products and the importance of engineering the internationally competitive backbone of the EU ME with regard to innovation and access to the global markets is strongly dependent on companies of a certain... qualitative evaluation of the EU ME’s performance Chapter 5 investigates the framework conditions of relevance for the EU Mechanical Engineering sector It is dedicated to identify beneficial and obstructive factors for the long-term development of the EU Mechanical Engineering sector Chapter 6 provides a long-term outlook for the EU Mechanical Engineering sector It takes into account aspects that can become... NL, and DG Enterprise and Industry The Study on the Competitiveness of the EU Mechanical Engineering Industry (ME) is led by the Munich based Ifo Institute Cambridge Econometrics and the Dansk Technological Institute are members of the team responsible for the execution of this project Mechanical engineering (henceforth ME) is one of the most competitive European manufacturing industries Over the past... Sector Competitiveness – Mechanical Engineering 2 EU Mechanical Engineering Chapter 2 contains a detailed analysis of ME in the EU- 27 Time series are based on NACE Rev 2, 28 ME The content of this chapter is derived from official statistics, literature analysis and expert interviews 2.1 2.1.1 Profile of the EU Mechanical Engineering Description of the sector Size structure and performance ME is an industry. .. collected by desktop and fieldwork research The analysis and aggregation of this information has been done for the evaluation of the EU ME’s strengths and weaknesses, and the design of recommendations that is carried out in the following chapters Chapter 3 presents an evaluation of the EU Mechanical Engineering sector against its most important competing economies and an investigation in its performance in... – Mechanical Engineering 13 A final point to be stressed concerns the organisation of value-chains The large OEMs of the automotive and aircraft industries are about to restructure the organisation and try to introduce risk-sharing models This means they are shifting responsibilities to their subcontractors In particular, smaller companies face major challenges to manage this kind of re-organisation,... threats The study on ME is aimed at contributing to the initiatives of the European Commission to strengthen the competitiveness of the EU The ToR mention the Communication of 3rd March 2010 on objectives to be reached by 2020 as a guideline for policy options 1 Additionally the “Communication on a New Industrial Policy” - published in October 2010 - provides further information on policy measures . opportunities and threats. The study on ME is aimed at contributing to the initiatives of the European Commission to strengthen the competitiveness of the EU. The ToR mention the Communication of 3 rd . An introduction to Mechanical Engineering: Study on the Competitiveness of the EU Mechanical Engineering Industry Within the Framework Contract of Sectoral Competitiveness. new study to assess changes in the competitiveness of ME. The study comprises an investigation of the strengths and weaknesses of the industry and an investigation of framework conditions to