Trends in global production and trade

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

As to the composition of the Machinery Parts industry, we distinguish between (a) electrical motors, and (b) power transmission parts.

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 Machinery Parts grew at an average annual rate of 15.3 percent.

With exports from emerging economies growing at a slightly higher rate (16.4 percent), their share of world exports increased from 28.0 percent in 2002 to 29.1 percent in 2006.

Chart 1B shows the importance and dynamics of LCCs as locations of global production by industry segment:

► In terms of world export share, LCCs are more important as source countries for electrical motors than power transmission parts.

► Since 2002, LCCs have increased their share of world exports in the latter segment (4.5 percentage points) while losing ground in electrical motors (2.2 percentage points).

According to Chart 1C, Asia is the leading low-cost source region for Machinery Parts. Since 2002, however, Asia's share of world low-cost exports has declined by 3.9 percentage points, mainly to the benefit 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 overall importance attached by users of Machinery Parts to LCC sourcing within their home regions. This plays, moreover, a greater role in electrical motors than in power transmission parts. At the same time, there is a trend towards an increased reach of supply chains in electrical motors.

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

Chart 3A lists the ten leading low-cost source countries for Machinery Parts. With a world export share of 10.5 percent in 2006, China is by far the leading source country, being followed by Mexico (2.6), South Korea (1.7), Thailand (1.6), and the Czech Republic (1.5).

Since 2002, the share of the Top-5 source countries in world low-cost exports declined by 4.6 percentage points to 61.5 percent in 2006. This points to a widening range of dynamic low-cost source countries for Machinery Parts.

Between 2002 and 2006, China's share of world low-cost exports has remained constant at about 36 percent.

Relative to other LCCs, China has an advantage in electrical motors. Over time, China has strengthened its position in power transmission parts.

Between 2002 and 2006, Mexico's share of world low-cost exports declined by 1.1 percentage point to 8.8 percent in 2006.

Relative to other LCCs, Mexico's competitive advantage lies in electrical motors. Over time, Mexico has strengthened its position in power transmission parts.

Between 2002 and 2006, South Korea's share of world low-cost exports declined by 0.2 percentage points to 5.9 percent in 2006.

Relative to other LCCs, South Korea has an advantage in power transmission parts. Over time, South Korea has lost ground in electrical motors.

Between 2002 and 2006, Thailand's share of world low-cost exports declined by no less than 3.6 percentage points to 5.6 percent in 2006.

Relative to other LCCs, Thailand has an advantage in electrical motors. Since 2002, Thailand has strengthened its position in power transmission parts.

Between 2002 and 2006, the Czech Republic's share of world low-cost exports increased by 0.5 percentage points to 5.1 percent in 2006.

Relative to other LCCs, the country is equally competitive in both sectors of the Machinery Parts industry. Since 2002, it has strengthened its relative position in electrical motors, while losing ground in power transmission parts.

Emerging economies are the origin of almost 30 percent of world exports of Machinery Parts.

Supply chains in LCC exports are organised mainly on a regional basis. This is especially the case for electrical motors, for which more than 70 percent of low-cost exports remain within their regions of origin.

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 Machinery Parts in the short to medium term:

► Emerging economies gain in importance as locations of production for global markets, especially in power transmission parts.

► The four leading low-cost source countries, including China, lose ground to other ones, in particular in Europe.