Mighty-Seven Research Report

Mighty-Seven Research Report

Section Two: Power and Pneumatic Tools

Products and Markets

2.1 Power Tools

Power tools can be classified into the following categories: electric, pneumatic, engine-driven, and other. Electric tools, the dominant group, can be further broken down by specific products (drills, saws, other, and parts and accessories) and by power source (plug-in and cordless).

2.1.1 Electric power tools.

This is the dominant category, accounting for 73 percent of all power tool shipments in both 1999 and 2004, with the share projected to rise slightly to 74 percent in 2009. These products are widely used in all types of construction as well as many other industrial and commercial activities. Both professionals and do-it-yourselfers favour cordless models over plug-in types for their mobility and ease of use. Major producers are Black & Decker, Bosch, and Makita; they compete aggressively on features, accessories, and price.
Electric drill demand will be spurred by rising construction spending in developing countries. Gains in the professional and consumer market will also result from the wider use of attachments--drills can be fitted with accessories for sanding, grinding, polishing, etc. Electric power saws are available in various formats: chain, circular, saber, and reciprocating.

Smaller firms tend to specialize in chain saws for households; large companies offer the whole range to professionals. Other electric tools include screwdrivers (plug-in and cordless), planers, routers, hammers, and wrenches. Impact wrenches are widely used in the motor vehicle repair sector. Finally, many parts and accessories are sold separately for attachments to other tools--drill bits and chucks, saw blades, sand belts, etc.

2.1.2 Engine-driven and other.

This category accounted for only ten percent of all power tool shipments globally in 2004, a share that is likely to decline by 2009. A variety of drills, chain and circular saws can be driven by a gas engine. Other products in this product family include power-activated equipment such as nail-guns, staplers, and other fastening tools. Carpenters, others in construction, and assembly-line workers favor such products, since they can be used with a wider variety of materials, such as cement, concrete, and metal drywall

2.1.3 Pneumatic tools.

This category accounted for 17 percent of all global power tool shipments in 2004, a share that will not increase in the coming years. Gains will lag those of electric tools, since households seldom purchase them (occasional rentals do occur).

Pneumatic tools, which must be connected to air hoses, are favored by professionals for their speed, cleanliness, and durability; these tools also offer greater torque control. The durability factor prolongs the replacement cycle, affecting sales. High vibration, noise levels, and necessary maintenance are other factors that also impinge negatively on pneumatic tool shipments.
2.2

Table 2.1 Global Demand for Power Tools

1999 / 2004 / 2009
$ bn / 19 / 22.8 / 29.2
% growth / 3.7 / 5.0

This reflects accelerating growth in developing regions, with the most promising opportunities occurring in Latin America, Africa/Mid-East, and Asia-Pacific.

Electric tools (plug-in and cordless) dominate world demand, comprising three-fourth of shipments in 2004. Commercial users accounted for 70 percent and households for 30 percent of total sales, a ratio that should prevail during the coming years.

North America accounted for 40 percent of total demand but for only 30 percent of production, as U.S. firms shifted operations to countries with lower wages.
2.3

When looking at power tool markets and suppliers on a global basis, a distinction has been drawn in the past between industrialized nations and developing countries. The former comprise the large, mature, and highly cyclical markets of North America, Western Europe, and Japan, with most of them showing relatively slow growth. The companies in these regions are technically proficient producers whose industry leaders are multinational firms with substantive market share.

The national markets of Asia-Pacific, Africa/Mid-East, and Latin America are smaller and less developed but offer significant growth potential. The suppliers are often local and small and function in a fragmented sector. Of late, however, they actively began to export and to form strategic alliances.
2.4 Supply and Demand Situation by Location
Reviewing the global supply-demand situation for power tools along regional and national lines, there are distinct differences as well as commonalities. Countries differ in their ability to support indigenous manufacturing capacity and in their respective power tool requirements.

2.4.1

On the supply side, because basic power tool design and manufacturing technologies are well established and barriers to entry are not too steep, it is possible for many countries to satisfy internally many of their requirements.

Table 2.2 World Power Tool Production / Consumption by Region

Region / Production % / Consumption %
Asia – Pacific / 36.7 / 21.9
North America / 29.7 / 40.1
Western Europe / 27.1 / 27.5
Other / 6.5 / 10.5

2.4.2

The Asia-Pacific, Latin America, and Africa/Mid-East regions offer the best growth prospects and low wage labor forces and the major multinational firms from the West are shifting production to these regions.

The largest national industries are those of the US, China, Japan and Germany. China,which more than quadrupled shipments from 1996 to 2006, has recently eclipsed the US, Germany and Japan tobecome the world leader.

Gains in China have benefitted both from rising domestic demand and from export opportunities to the developed nations, in particular the US. Chinese products benefit from their lower cost compared to products manufactured in developed regions.

2.5 Influences on Demand

Four main factors influence the demand for pneumatic tools:

• Trends in GFI (Gross Fixed Investment)
• Trends in Personal Income
• Degree of Urbanisation
• Total Number of Motor Vehicles in a Country

2.5.1

Trends in gross fixed investment (GFI) affect the demand for tools, especially from commercial and craft workers.Global GFI is rising at 4.9 percent annually during the 2004-2009 period; the rates for Western Europe, the United States, and Japan are projected at 2.4, 4.4 and 2.3 percent, respectively, compared to China at 7.1 percent.

There is a roughly predictable elasticity of per capita power tool demand with respect to per capita GFI of about 1.6.

2.5.2

Personal income trends directly affect tool purchases by households. Gross domestic product per capita growth is restrained in the Western hemisphere (where levels are already high), while the Asia-Pacific region should register a rather robust 4.2 percent annual rise during 2004-2009, despite slow growth in the Japanese economy.
2.5.3.

The level of urbanization in a country or region is a fundamental driver. This is particularly true in developing nations, with urban populations boasting significantly higher income than the rural. Also, cities offer better access to electric power supplies and tool services in these nations. World population living in urban areas is expected to pass the 50 percent mark by 2009.

2.5.4

The total number of motor vehicles in use in a given country. Globally, in 2004, this figure stood at about 837 million vehicles; by 2009, it is projected at 953 million. Such a vast "motor vehicle park" represents a major aftermarket--repair work--and hence market opportunities for sales of power tools. Once again, levels are high in Western nations; but growth rates are more robust in industrializing nations.
2.6 Pneumatic Tools - Market Features

The four major regions for the Power Tools market are North America, Western Europe, Asia-Pacific, and all other.

In 2004, the four regions accounted for 40.1, 27.5, 21.9, and 10.5 percent of global demand, respectively, and this is expected to shift only slightly to 39, 26, 23, and 11 percent, respectively, by 2009.

This stability is due to the fact that new construction and maintenance/repair of old infrastructure are "natural partners" or offsets. In the developed nations, the former grows more slowly, while the latter is needed due to aging stock; in the developing nations, the reverse is true. Asia-Pacific, Eastern Europe, Latin America and Africa/Mid-East must build up their industrial and residential structures, ranging from large projects to small houses.

2.6.1
North America. This is the largest regional market in the world and will remain so in the coming years. Given the mature markets in both the United States and Canada, many of the gains in power tool demand will be attributable to maintenance, repair, and improvement of existing structures, both public and private, both commercial and residential. Manufacturers of power tools are using innovation features to appeal to the commercial/industrial market and ease-of-use features to the household market.

Relatively high levels of single-family construction in Canada and the United States should be easing back.

In Mexico, however, both residential and non-residential construction should accelerate. Water supply, sewage, and other infrastructure facilities are on the drawing board and will be built.

2.6.2
Western Europe. This region is the second largest market for power tools after North America. It is a mature market that experienced a rather uneven pattern of economic performance in the past ten years. Power tools are accepted widely in the various national markets--a function of the evolved commercial structures and prosperous consumer sectors. Demand was stronger during 1994-1999, with gains slowing in the 1999-2004 period. Growth during 2004-2009 is projected at 4.1 percent per annum, below that for other regions.

The largest market is Germany, accounting for 23 percent of the regional total, followed by France and the United Kingdom at 16 percent each, and Italy with 13.5 percent.

Germany is the largest producer in the region and fourth on a worldwide basis after the United States, China, and Japan. It has leveraged its world-class reputation for engineering technology in many manufacturing sectors, including power tools.

2.6.3
Asia-Pacific. This region encompasses many countries at varying stages of economic development; in terms of per capita income and market maturity, the range is from Australia and Japan to South Korea and Taiwan and then on to Bangladesh and Pakistan.

The two most populous nations in the region, China and India, differ widely in their current economic stance, especially in regard to manufacturing; the former has embraced it, but the latter is still wedded to agriculture (about 25 percent of gross domestic product, but 60 percent of the labor force).
Demand for power tools in the region was about $5 billion in 2004, with the annual growth rate to 2009 expected to be 6.4 percent. It is interesting to contrast China and Japan: their respective shares of the regional total were 18 and 34 percent in 2004; but China is closing the gap with annual growth of 9.4 percent versus Japan's 3.7 percent.

Rapid industrialization is the key factor for China, maturity of markets for Japan. Both nations have several major domestic producers. Strong consumer demand for power tools in China has been handled by domestic retail chains such as Orient Home, and its success has already attracted an offer from Home Depot (United States) for half ownership.

Japan has fallen from second to third place as a producer of power tools, but still has a strong export drive from its numerous domestic and foreign enterprises (Hitachi, Makita, Ryobi, Black & Decker, Bosch, Electrolux).

2.6.4
Other regions. This geographic grouping embraces three distinct areas: Latin America, Eastern Europe, and Africa/Mid-East. The three regions share common characteristics: lower per capita incomes, resource-based agriculture, and resource-derived manufacturing.

But some countries--notably Argentina, Brazil, and Chile as well as several East European nations--have instituted major economic and political reforms, leading to economic progress and stability. In contrast, some other countries--notably those in Africa, the Balkans, and Middle East--have experienced warfare and political instability.

2.6.1 Opportunities

The most promising opportunities are in Latin America, Africa/Mideast and the Asia/Pacific region, where growing populations and rising construction activity will boost demand.

China will record among the strongest increases, with demand rising nearly ten percent annually through 2011.

India will also post strong gains, as the nation’s fixed investment continues to rise.

The Africa/ Mideast region will benefit from improved fixed investment spending.

In contrast to developing regions, gains for tools in industrialized countries ill be substantially slower. The maturity of the building infrastructure in many of these countries limits the opportunities in new construction.

2.7 Forecasts

2.7.1 Global

Worldwide, Freedonia projects pneumatic tool demand globally in the 2004 to 2014 period to grow from US$3.8 billion to US$5.8 billion.

Total power tools, including pneumatic ones, will grow from US$22.8 billion in 2004 to US$36.7 billion in 2014.

2.7.2 USA

The Freedonia Group projects the US pneumatic tool market demand to nearly double over a 10-year period, from US$1.3 billion in 2004 to US$2 billion in 2014.Shipments will grow from US$1 billion to US$1.6 billion at the same time.

Demand growth through 2009 is expected to increase 4.7% annually. The pneumatic tool market is less than a fifth of plug-in and cordless power tool demand, according to US-based Freedonia Group surveys.

2.7.2 Asia

In China, the Freedonia Group expected total power tool demand at US$885 million in 2004, making it the second largest in Asia after Japan. Rapid industrialisation drove a tripling of demand from 1994 to 2004, as capital spending increased.

Increasing construction activity for tools is also a factor and larger than that for cordless electrics.

Demand is still lower than for global levels, but is growing fast. Freedonia reports 2004 power tool shipments for value by Chinese producers at US$3.7 billion, much of it for export.

Total pneumatic and power tool demand in China is projected to grow at 9.4% annually through 2009, reaching US$1.3 billion in that year.

Freedonia projects pneumatic tool demand in China to grow from US$135 million to US$300 million in the ten years to 2014.

Summary

• The market for Pneumatic Tools is a sub-set of the broader Power Tools market and is influenced by the same general factors;

-Trends in Gross Fixed Investment (GFI)

-Changes in Personal Disposable Income

-Degree of Urbanisation in a region

-Volumes of motor cars

• Demand for Power tools has grown over the last 10 years and is forecast to grow at an annual rate of 4 – 5% per year until 2017. Estimated market volume by 2014 is $36.7 billion per year

• Pneumatic Tools account for a 17% share of this total market and this share is unlikely to grow in the near future. Estimated volume in 2014 is $5.8 billion.

• The areas with the greatest potential for growth are identified as;

- Asia –Pacific

- Latin America

- Africa

- Middle East

• Features of Pneumatic Tools market that underlie customer demand are:

-speed,

-cleanliness,

-durability

-greater torque control.

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