Trends in global production and trade

This report examines key trends in global production and trade in the Machine Tool industry. Our focus is on the competitiveness emerging economies ('low-cost' countries, LCCs) as global source countries.

As to the composition of Machine Tools, we distinguish between 'high' and 'low-tech' product categories.

The study is based on an analysis of cross-border trade flows. Flows of cross-border trade reflect the views of investors and traders on the ability of source countries to supply international markets.

Between 2002 and 2006, world exports of Machine Tools grew at an average annual rate of 17.4 percent.

With exports from emerging economies growing at a higher rate (21.8 percent), their share of world exports increased from 20.2 percent in 2002 to 23.4 percent in 2006.

Chart 1B shows the importance and dynamics of LCCs as locations of production by product technology level:

► In terms of world export share, LCCs are, as expected, more important as source countries in low-tech than in high-tech product categories.

► Also, LCCs have gained more ground over time in low-tech (6.0 percentage points) than in high-tech categories (3.5).

According to Chart 1C, Asia is the dominant low-cost source region for Machine Tools. Moreover, Asia's share of world low-cost exports has increased over time, mainly at the expense of European LCCs.

The geographical reach of a product's supply chain reflects the tradeoff of users between (a) accessing the most competitive source of supply worldwide, and (b) the benefits of proximity to end-product markets.

In this study, we measure the reach of supply chains by examining the extent  to which imports from LCCs cross regional borders (as reflected in the relative size of intra and extra-regional import flows).

Chart 2A brings out the importance attached by users of Machine Tools to LCC sourcing within their home regions. However, global sourcing tends to gain in importance over time, especially in low-tech categories.

Reflecting the competitiveness of Asia as a low-cost source region, users of Machinery Tools in the Americas and Europe rely to a greater extent than those in Asia on global sources of low-cost supply (Chart 2B).

Chart 3A lists the ten leading low-cost source countries for Machine Tools. With a world export share of 10.7 percent in 2006, Taiwan is the leading source country, followed by South Korea (4.7), China (3.2), the Czech Republic (1.4), and Thailand (0.8).

Since 2002, the share of the Top-5 source countries in world low-cost exports has increased by 4.4 percentage points to 89.5 percent in 2006. This points to a tendency of concentration in favour of today's leading source countries in the export of Machine Tools from emerging economies.

Between 2002 and 2006, Taiwan's share of world low-cost exports declined by no less than 6.2 percentage points to 45.7 percent in 2006.

Reflecting its large share of world low-cost exports, Taiwan holds more or less equally strong positions in all product categories. Over time, however, Taiwan has lost some ground in low-tech categories.

Between 2002 and 2006, South Korea's share of world low-cost exports rose by 7.8 percentage points to 20.3 percent in 2006.

Relative to other LCCs, South Korea's advantage lies in the high-tech end. Over time, South Korea has strengthened its position in low-tech product categories.

Between 2002 and 2006, China's share of world low-cost exports increased by 4.3 percentage points to 13.9 percent in 2006.

Relative to other LCCs, China has a disadvantage in the high-tech end. Over time, China has strengthened its relative position in high-tech categories.

Since 2002, the Czech Republic's share of world low-cost exports declined by 2.0 percentage points to about six percent in 2004, where it has remained stable since then.

Relative to other LCCs, the Czech Republic's advantage lies in the high-tech end. Since 2001, the country has lost some ground in high-tech categories, while strengthening its position in low-tech ones.

Between 2002 and 2005, Thailand's share of world low-cost exports rose by one percentage point to about to about four percent; since 2005, it has declined.

Relative to other LCCs, Thailand has an advantage in the high-tech end. Over time, Thailand has strengthened its position in low-tech categories, while losing some ground in high-tech ones.

Emerging economies are today the origin of about 23 percent of world Machine Tool exports.

Supply chains in exports from these countries are, to a large extent, organised along regional lines.

Based on our assessment of low-cost export flows between 2002 and 2006, we expect the following trends to shape global production and trade in Machine Tools in the short to medium term:

► The (growing) dominance of Asian low-cost source countries, based on the dynamics of Machine Tool powerhouese such as China and South Korea.

► An increasing technological sophistication of the Machine Tools exported by low-cost countries.

Emerging economies (LCCs) are defined to include the 35 leading exporters of manufactures with a GNI-per-capita below USD 15 000.

'High-Tech' products: Machining centres; laser-cutting and electro-discharging machines; and all other product varieties equipped with numerical control.

Export growth is calculated as the compound annual rate of growth between 2002 and 2006.

Specialisation is calculated as an index (–1.00 to +1.00), measuring the weight of a given product segment in a country's exports. A positiv index value implies a competitive advantage over other LCCs in this product segment.

Updated: January 2008