- Economic weakness, staff shortages, high energy costs and lack of political direction force companies to reorient themselves
- Expansion takes place mainly in the USA and Asian markets, hardly any growth in Europe, turning away from Germany
- Declining turnover forecast for 2024
Costs, capital, capacity shifts - these topics are currently occupying the board members of manufacturing companies from the mechanical and plant engineering sector. While in 2022 only about half of all top executives stated that working capital is of very high or high relevance to them, this year it is more than 80 percent. However, optimising their cost structure is currently even more important to them. 86 percent rate this field of action as currently very important or important for their company. These are the results of the industry trend study "Mechanical Engineering, Plant Construction, Electrical Engineering 2023" by the management consultancy Horváth.
"Drastically increased energy and personnel costs, increasing global protectionism and interest rates - the mechanical and plant engineering industry is worried and is putting its position to the test," says Horváth partner and study director Ralf Sauter. "Relocations and reallocations of capacities and investments are in full swing - and in potential markets that offer industry-friendly framework conditions and have sufficient skilled workers," says industry expert Sauter. These include above all the USA, which offers particularly attractive production conditions with the Inflation Reduction Act - and thus fatally attracts companies from future-oriented industries, for example in the field of renewable energies. Three quarters of the plant and machinery manufacturers want to expand their activities there within the next five years, more than a third on a large scale. Less than five per cent of the companies are reducing their activities.
Growth focused primarily on the USA and Asia
Even in China, where the economy is weakening, machine manufacturers still see more potential than on the "old continent". In response to China's protectionist behaviour, many companies are de-risking and pursuing strategic "local-for-local" approaches with regional sources of supply, low labour costs and market proximity. Seven out of ten companies are planning to expand their presence there. Only one-sixth are reducing capacities. India is emerging as a trend market, which 90 percent of the machine-builders are increasingly targeting in order to take advantage of opportunities. Many hope that India will achieve a similarly rapid development of economic growth as China has had since the 1990s - and that is by no means the end of the list of Asian potential markets.
Europe loses importance, Germany shoots itself out of the race
Few arguments remain for Western Europe, where only a meagre one-fifth plan to expand - while 31 per cent want to withdraw capacity. Germany in particular is losing more and more of its importance as an industrial nation. Demographic change is hitting hard, staff is not only expensive but in some cases simply unobtainable, urgently needed political and regulatory incentives are not forthcoming, and regulation and bureaucracy are slowing down innovation and growth.
"From our conversations with board members, the mood in the industry oscillates between despair, disbelief and resignation," says Horváth partner Ralf Sauter. "If protectionism continues to increase and growth prospects and location conditions are better abroad, then entrepreneurs will have to think carefully about whether Germany still makes sense as a production location. And once the value chain has been reorganised, there is no turning back in the medium to long term. Relocations are too expensive and time-consuming for that."
Moderate outlook for 2024
Looking ahead, no easing on the cost side is expected yet, at least in the coming year, according to the view of the top executives surveyed. The average expects a single-digit decline in turnover compared to the current year. Almost all companies are recording a double-digit decline in incoming orders - and some companies are already forced to go on short-time work.
Sustainability downgraded until further notice
Many manufacturing companies are currently working to meet sustainability targets and legal requirements. However, over the course of the year, the challenge of aligning the value chain along environmental sustainability has slipped four places down the priority list to seventh place for machinery manufacturers. "ESG reporting has become established, regulatory sustainability requirements have become standardised mandatory tasks, and corporate citizenship is no longer a new concept," says Ralf Sauter. "Especially in the past two years, companies have already made great efforts to make their processes more sustainable. So it is quite understandable that the urgency of the topic is diminishing in the current cost discussion - especially since, for example, levers in the area of energy efficiency in mechanical and plant engineering are significantly lower compared to the basic materials industry." According to Sauter, however, it is also foreseeable that the topic will slip back to the top of the management agenda in the longer term, namely when the industry has reorganised itself and is forced to tackle the next level of strategic course-setting in the "green transformation".
About the study
For the industry survey "Mechanical Engineering, Plant Construction, Electrical Engineering - Trend Study 2023", a representative sample of board members from companies in the mechanical engineering, plant construction and electrical engineering sectors was interviewed. The sample includes more than 70 selected respondents with whom personal interviews were conducted. These took place as part of the large-scale international Horváth study "CxO Priorities 2023", for which a total of more than 430 top managers from 19 countries and 13 industries were interviewed. The majority of respondents come from companies with at least one billion euros in annual turnover and 1,000 employees.
