Frost: Indonesian Welding Market Depends on End-User Industries' Demand

February 14, 2008 // Published as a news service by IHS

Future market expansion will depend on continued demand from various end-user industries, and welding manufacturers need to pursue an effective strategy in order to maintain their market share amidst fierce price competition.

Recent analysis from Frost & Sullivan of the Indonesian welding equipment and consumables market found earned revenues of $82.7 million in 2006, with estimates to reach $202.6 million in 2013.

"Revenues are set to rise due to steady orders from the shipbuilding, power and heavy machinery industries," said Frost & Sullivan research analyst Archana Chauhan.

"Domestic manufacturers are trying to expand by procuring new projects from construction and the oil and gas sectors, even while significant changes in the Indonesian automotive industry augur well for stable, long-term growth."

Domestic manufacturers are also trying to maintain long-standing relationships with their customers by providing cost-effective, high quality solutions customized to suit client requirements.

Analysts said this has enabled market participants to successfully procure contracts from these well-established end-users. Manufacturers are also concentrating on the product lines that are anticipated to experience increasing demand from end-user industries.

Overall market revenues are expected to register only limited growth due to the maturity of most products, the low levels of technological advancement and low adoption rates of automatic equipment. Analysts said the maturity of resistance and gas welding markets and reluctance to adopt newer technologies, such as lasers, will also hinder market expansion.

"Despite the considerable rise in end-user demand, the market is still shrinking due to the growing maturity of products and due to the penetration of foreign participants," said Chauhan.

Most end-user industries continue to use primitive technology and are apprehensive about replacing manual welding techniques with mechanized equivalents. The lack of sufficient capital to invest in such technologies is the key reason. Analysts said this situation will persist in the short term, thereby affecting market growth. Over the long term, however, the market is set to stabilize.

Analysts said domestic market participants are vulnerable to both external and internal threats. Escalating competition from low-cost manufacturers in China poses a formidable external threat. Internally, companies face the issue of rising raw material prices and political instability.

"To ensure the long-term viability of their welding equipment, manufacturers need to make customers aware of the higher quality and standards of their offerings," said Chauhan. "Moreover, manufacturers have to make forays into untapped end-user industries, thereby counteracting the lack of potential revenue from declining end-user sectors."

Cost-cutting and effective sales strategies will be critical for the survival of domestic market participants, analysts said. Necessary training and support will also be needed to prepare end-users to adapt to new technology offerings, including semi-automatic and automatic equipment.

"With standardization and product differentiation, domestic manufacturers will enjoy a competitive edge over their Chinese counterparts," said Chauhan. "Efficient use of resources and a focus on domestically available materials will help to overcome rising raw material costs."

Source: Frost & Sullivan.