Industrial & Capital Goods

The industrial & capital goods sector is very large and in any given year is growing at least five percentage points higher than GDP. This is a very diverse sector, and GCiS has been specifically involved in industrial automation, air and fluid handling, powertrain-related products, hand tools and machine tools, industrial fasteners and enclosures, vibration abatement, safety equipment and sensors… to name a few.

Needless to say, each of these markets is growing at a different speed and has very different characteristics. One common trend that our analysts have noticed since they began looking at China in the 1980s is the way that domestic companies come to competitively evolve in a market when they become technologically capable. Many capital goods markets are at one of stages of evolution, as shown below.

The first stage is characterized by a few dominant foreign firms or firms who have pioneered the technology and are selling at highest price points. As the ability to make the product becomes more widespread, more companies enter the market, the customer base is expands and suppliers in the market are increase their capacity - pushing sales into the middle-end of the market. This is the second stage. The third stage occurs shortly after, as the technology becomes more accessible, domestic companies enter the market en-masse, offering low grade, low cost alternatives to the low end of the market. As the technology matures, domestic companies are able to make sales to the high-end of the market, which by this time has become fragmented. This is stage four and, as is the case in many capital and intermediate goods markets in China, precedes a spate of merger activity when it becomes unprofitable.