Global Pumps Market
As the cornerstone of all industrial applications, pumps continue to sustain their importance in a mature market characterized by steady growth and slow technology change. Key competitive factors within the global pumps market include price, delivery period, brand reputation, and service. Despite spanning several vertical applications, opportunity strikes this century old industry. When considering the entire range of end-user applications, the multibillion dollar global pumps market experienced a 2.8 percent growth in 2006. Key end-user industries consist of water, wastewater, manufacturing, chemical, oil and gas, power, pulp and paper, food and beverage, mining, marine and other industries. Of the strong industry applications, water, wastewater, power, and oil and gas are expected to show tremendous growth rates during 2007-2013.
Current Trends
In 2006 the pumps market witnessed some big transactions, and the consolidation trend is expected to continue at a rapid rate until 2013.
The pumps market is highly fragmented, with the top 20 percent of the manufacturers having more than 80 percent of the market share. The consolidation trend in the pumps market is a well known phenomenon, wherein the top manufacturers partner with medium and small manufacturers with the goal of enhancing their technology, product portfolio, service and support, technical expertise, talent pool, and, most importantly, market penetration.
A number of factors have enabled this trend, such as a conducive investment climate, management talent, technology, globalization, market penetration, broadened product portfolios and a low-cost manufacturing base in emerging economies. The strong urge of pump manufacturers to be globally competitive and follow their customers, who are global themselves, has also encouraged the consolidation trend in the market. Another contributing factor has been their ability to avoid cultural differences post-acquisition, which is key to ensuring the harmony and smooth operation of two businesses.
The Risk Factor - Key Challenges
- The problem of cultural differences. Two organizations are brought together for the purpose of achieving synergies, but in an ideal situation, no two organizations are alike in their culture. Based on the company's origin, leadership and past history, differences in culture between two organizations may manifest in many ways.
- The challenge of retaining intellectual property. Oftentimes, when two organizations merge, it has a significant impact on their people, who may be neglected during the process. There is always a concern about losing key executives, managers and technical experts post mergers and acquisitions (M&A).
- The need to develop a clear communication plan throughout the process. The objective is to gather as much information as possible about the values, belief systems, norms, and organizational behavior of the company to be acquired or merged with. Communication is critical and enables managers to get to the data they need and ultimately produce the information required to make better decisions.
- The challenge of implementing appropriate integration strategies. Organizations need to be able to gather, analyze, and report on information that may be coming from a variety of disparate and complex systems. The need to maintain the integrity of data and transactions in financial, customer, and other operational systems is crucial. There is also a need to improve reporting systems to provide information at a broader and more consolidated level.
Despite the above challenges, the trend of M&A in the pumps market is expected to continue in response to the globalization of the economy and heightened competitive pressures. Many manufacturers turn to mergers and acquisitions for faster growth and aggressive expansion as an alternative or complement to internal organic growth. Figure 1-1 highlights some of the key M&A in the pumps market (World), 2006.
Table 1. Pumps Market: Key Mergers and Acquisitions (World), 2006.
Mortal Combat - Competition
The competition in the pumps market has risen to unimaginable heights due to its fragmented nature and difficulty differentiating existing products.
Recently, the pumps market has been undergoing consolidation. In particular, the water and wastewater industry saw a lot of activity in 2006 (as evidenced in Figure 1-1). Larger market participants are aggressive in acquiring niche manufacturers in order to tap the growing demand in the market and also to gain advantage over their competitors by providing innovative solutions in line with customer needs.
Technology within the pumps market has not witnessed any significant change in the last few years. As a result, the production process in most industry applications is the same, and this makes the market highly price-competitive. It is difficult for new market participants to enter and participate in this market due to the market dynamics, such as a wide range of products, price sensitivity, huge capital requirements and global response. In general, competitive issues involve prompt service and delivery, brand image, and price-to-performance ratio.
Conclusion
The globalization of the pumps market has made mergers and acquisitions the best way to increase and expand customer base. Pump manufacturers engage in a merger or acquisition to create value, and that value creation results from synergy, cost cutting, operation expansions and competitive repositioning strategies that increase revenues.
M&A come in all shapes and sizes. In order to execute the M&A process successfully, manufacturers need to consider the critical challenges and develop a clear line of communication. Manufacturers must have methods and means to extract large amounts of information as well as transform and integrate them to achieve operational efficiency.
The overall pumps market is in the maturity stage and is dependent upon the emerging economies of countries such as India, China, Brazil and Eastern Europe. M&A activity is expected to present a host of exciting opportunities for manufacturers to widen their scope of applications across all geographies.
Pumps & Systems, May 2007