use cutting tools to fabricate metal frameworks that are used to construct walls and concrete bases.
While demand from construction machinery manufacturing has remained positive on average during
the five years to 2013, much of this stems from new emission requirements for heavy equipment. As
the government continues to lower emissions standards, manufacturers are seeking out new and more
efficient products that can help them meet goals.
The mining, oil and gas sector uses a range of metalworking tools to fabricate metal drill bits and
structures for mine-specific jobs. Like mining, the oil and gas sector uses metal cutting tools and
accessories to fabricate drill bits and other tools for drilling and exploration activities. As downward
pressure in mining offsets upward trends in oil and gas, this subsegment's share of industry revenue is
estimated to remain relatively flat.
Other
The other market segments that affect the industry include aerospace, agriculture, large automotive
body shops and any manufacturing industry that fabricates metal as part of its overall activity.
Aerospace has exhibited an increase in demand for cutting tools during the past five years, particularly
in overseas markets. For this segment, industry tools are used to make engine parts and other
components for planes. Also, this market includes receipts of repair work and custom work performed
on a contract basis. This segment is expected to increase as a share of industry revenue during the five
years to 2013, because of high export demand and increased requirements for various technical
specifications.
3.4. Cutting Tool Industry Performance23
Makers of cutting tools and related accessories produce goods that downstream industries use to
make other metal parts, machines and original equipment. Cutting tools and accessories represent a
fundamental need for almost every manufacturing industry that relies on metal as a key input. Despite
the universal need for cutting tools in downstream manufacturing operations, revenue has declined at
an annualized rate of 1.1% during the five years to 2013.
Primary demand falls
The Machine Shop Services industry represents the primary market for cutting tools and machine tool
accessories. Also known as tool and die shops, these shops specialize in fabricating metal parts for use
in downstream manufacturing and assembly operations. To fabricate parts, machinists use milling
machines, drill presses and other industrial-scale tools to cut, shape and form raw metal inputs into
high-precision parts. Cutting tools and accessories, especially those used in conjunction with milling
machines, represent crucial inputs for machinists to produce goods. Cutting tools often have a limited
life span because industrial knives, bits and bores operate under extreme conditions, increasing wear
and tear. Since dull cutting tools will result in compromised products that fail to meet tolerance
specifications, makers of cutting tools rely on new and replacement product demand from machine
shops for about one-third of industry revenue.
In 2009, demand from machine shops fell by double digits. Revenue for makers of cutting tools and
accessories also fell 15.7% that year as machinists scaled back production. With production stalling at
the machinist level, demand for new and replacement cutting tools and accessories also declined.
After 2009, the industry's only year of revenue loss, demand from machine shops continued to
increase, fueled by the reviving performance of heavy-machinery manufacturers. Although traditional
major clients, such as construction equipment and mining machinery manufacturers decreased their
orders significantly after the financial crisis, a recovery in the defense and aerospace markets helped
23 Cutting Tool & Machine Tool Accessory Manufacturing – Current Performance, September 2013, IBISWorld
Industry Analysis
A.L.M.T. (Thailand) Co., Ltd. - Transfer pricing report
PwC 21
industry revenue continue to grow. Sectors like defense and military aviation increased demand for
industry products, and so increased government spending helped the industry.
Secondary demand exhibits declines
After machinists, manufacturers of automobile engines and parts represent a secondary source of
demand. Makers of heavy-duty equipment, such as construction, mining and oil and gas machinery,
demand industrial cutting tools and accessories for their in-house fabrication activities. Similar to
machine shops, replacement-cutting tools represent an ongoing purchase cost because of each tool's
short life span (due to wear and tear). Private investment in metalworking machinery represents the
annual expenditure that businesses make on metalworking machines, which has fallen at an
annualized rate of 0.2% during the five years to 2013.
The automotive industry is the main culprit behind declines in secondary demand from original
equipment manufacturers. Demand from auto engine and parts manufacturing weakened in the latter
part of the past five years, during which time double-digit drops occurred in 2008 and 2009. That
industry's poor performance stems largely from the bankruptcy of two of the Big Three automakers
and the industry's failure to embrace smaller, more fuel-efficient cars at a faster rate than overseas
competitors.
Downstream innovation also represents an area in which private investment in metalworking
machinery has the potential to help or hinder industry growth. Downstream manufacturers often turn
to makers of cutting tools in search of application-specific solutions to production issues. Typically,
clients seek cutting tools that can produce more items at a faster rate, while reducing replacement
cycles. The potential for companies to invest in these solutions shrank in line with reduced credit
during the recession, lessening demand for contract work from makers of cutting tools.
3.5. Thailand’s Industry Performance
In Thailand, most cutting tools orders are injected into automotive industries and electronic
industries (i.e. hard disk drive), thus, these industries’ performances highly impact cutting tools
market situation.
Automotive Industry Performance
For the second half of the year 2012, production of automobiles accelerated, owing mainly to domestic
sales which benefited from pent-up demand and the government’s tax rebate scheme for first-time car
buyers, as well as due to temporary imports of parts and rapid reconstruction of factories for business
recovery from the flood in 2011. As a result, in 2012, automobile production reached a historical high
at 2.4 million cars, rising by 66.8 percent compared to the year 2011. In 2013, automakers stepped up
production at the beginning of the year to keep up with backlog order that resulted from government’s
tax rebate scheme for first-time car buyers since end-2012. Nevertheless, in the second half of that
year, automobile production gradually declined, as an increase in overseas orders failed to offset
decline in domestic orders, after most cars under the first-car scheme had been delivered. Thus,
automobile production totaled 2.46 million cars for the year, increasing slightly from the previous
year. Since automobile production recorded an expansion for the year 2013, other related industries –
including cutting tool also performed well.
Electronic Industry Performance
In 2012, hard disk drive (“HDD”) industry, one of the electronic industries that require a huge number
of cutting tools in its production, was significantly affected markedly by the global economic downturn.
This caused some companies to reduce the number of work days which in turn caused overall
electronics production to fall below its pre-flood level. During the last quarter of 2012, there were
signs of a recovery owing to better prospects of external demand.
Industry Analysis
A.L.M.T. (Thailand) Co., Ltd. - Transfer pricing report
PwC 22
During 2013, Hard disk drive production was affected by the change in consumers’ preference toward
high-technology equipment and new generation products such as Solid State Drive (“SSD”). The
production process of SSD is different from the traditional HDD production. The process requires
only simple cutting tools, such as drilling tools. Thus, the sales of more sophisticated cutting tools
would expect to drop as the use of SSD surges.
Nonetheless, Thailand is growing, moving from its old day’s dependency on low cost competitive labor.
The growing knowledge and expansion of Thai manufacturing, along with infrastructure upgrade
plans of the country have driven the demand for machinery and metalworking. Also, only a small
number of companies in Thailand's industrial sector orders are imported. Most firms in Thailand
would prefer local sources to meet demand, so an excellent investment opportunity could be created
Thai machinery and metalworking industries, hence impacts the base tools industry. 24
3.6. Key Success Factors
Quality
In the industry where the products cannot be differentiated, quality is another factor that buyers give
an equal weight, comparing to price, and take into account when make a buying decision. A product’s
quality is often defined as functionality, reliability and durability. These are qualitative attributes that
a buyer looks for in a product. A company that offers a new product at a cheaper price but is unable to
do what it is supposed to do and performs unpredictably will definitely go out of business. Thus,
manufacturers should make certain that quality control has been put in place throughout the
manufacturing supply chain to ensure that the goods are produced accordingly to the design and
functioning the way it should.
Research and development
Research and development function is critical and strategically important for the companies. The
ability to quickly develop and bring about the new and improved product
use cutting tools to fabricate metal frameworks that are used to construct walls and concrete bases.
While demand from construction machinery manufacturing has remained positive on average during
the five years to 2013, much of this stems from new emission requirements for heavy equipment. As
the government continues to lower emissions standards, manufacturers are seeking out new and more
efficient products that can help them meet goals.
The mining, oil and gas sector uses a range of metalworking tools to fabricate metal drill bits and
structures for mine-specific jobs. Like mining, the oil and gas sector uses metal cutting tools and
accessories to fabricate drill bits and other tools for drilling and exploration activities. As downward
pressure in mining offsets upward trends in oil and gas, this subsegment's share of industry revenue is
estimated to remain relatively flat.
Other
The other market segments that affect the industry include aerospace, agriculture, large automotive
body shops and any manufacturing industry that fabricates metal as part of its overall activity.
Aerospace has exhibited an increase in demand for cutting tools during the past five years, particularly
in overseas markets. For this segment, industry tools are used to make engine parts and other
components for planes. Also, this market includes receipts of repair work and custom work performed
on a contract basis. This segment is expected to increase as a share of industry revenue during the five
years to 2013, because of high export demand and increased requirements for various technical
specifications.
3.4. Cutting Tool Industry Performance23
Makers of cutting tools and related accessories produce goods that downstream industries use to
make other metal parts, machines and original equipment. Cutting tools and accessories represent a
fundamental need for almost every manufacturing industry that relies on metal as a key input. Despite
the universal need for cutting tools in downstream manufacturing operations, revenue has declined at
an annualized rate of 1.1% during the five years to 2013.
Primary demand falls
The Machine Shop Services industry represents the primary market for cutting tools and machine tool
accessories. Also known as tool and die shops, these shops specialize in fabricating metal parts for use
in downstream manufacturing and assembly operations. To fabricate parts, machinists use milling
machines, drill presses and other industrial-scale tools to cut, shape and form raw metal inputs into
high-precision parts. Cutting tools and accessories, especially those used in conjunction with milling
machines, represent crucial inputs for machinists to produce goods. Cutting tools often have a limited
life span because industrial knives, bits and bores operate under extreme conditions, increasing wear
and tear. Since dull cutting tools will result in compromised products that fail to meet tolerance
specifications, makers of cutting tools rely on new and replacement product demand from machine
shops for about one-third of industry revenue.
In 2009, demand from machine shops fell by double digits. Revenue for makers of cutting tools and
accessories also fell 15.7% that year as machinists scaled back production. With production stalling at
the machinist level, demand for new and replacement cutting tools and accessories also declined.
After 2009, the industry's only year of revenue loss, demand from machine shops continued to
increase, fueled by the reviving performance of heavy-machinery manufacturers. Although traditional
major clients, such as construction equipment and mining machinery manufacturers decreased their
orders significantly after the financial crisis, a recovery in the defense and aerospace markets helped
23 Cutting Tool & Machine Tool Accessory Manufacturing – Current Performance, September 2013, IBISWorld
Industry Analysis
A.L.M.T. (Thailand) Co., Ltd. - Transfer pricing report
PwC 21
industry revenue continue to grow. Sectors like defense and military aviation increased demand for
industry products, and so increased government spending helped the industry.
Secondary demand exhibits declines
After machinists, manufacturers of automobile engines and parts represent a secondary source of
demand. Makers of heavy-duty equipment, such as construction, mining and oil and gas machinery,
demand industrial cutting tools and accessories for their in-house fabrication activities. Similar to
machine shops, replacement-cutting tools represent an ongoing purchase cost because of each tool's
short life span (due to wear and tear). Private investment in metalworking machinery represents the
annual expenditure that businesses make on metalworking machines, which has fallen at an
annualized rate of 0.2% during the five years to 2013.
The automotive industry is the main culprit behind declines in secondary demand from original
equipment manufacturers. Demand from auto engine and parts manufacturing weakened in the latter
part of the past five years, during which time double-digit drops occurred in 2008 and 2009. That
industry's poor performance stems largely from the bankruptcy of two of the Big Three automakers
and the industry's failure to embrace smaller, more fuel-efficient cars at a faster rate than overseas
competitors.
Downstream innovation also represents an area in which private investment in metalworking
machinery has the potential to help or hinder industry growth. Downstream manufacturers often turn
to makers of cutting tools in search of application-specific solutions to production issues. Typically,
clients seek cutting tools that can produce more items at a faster rate, while reducing replacement
cycles. The potential for companies to invest in these solutions shrank in line with reduced credit
during the recession, lessening demand for contract work from makers of cutting tools.
3.5. Thailand’s Industry Performance
In Thailand, most cutting tools orders are injected into automotive industries and electronic
industries (i.e. hard disk drive), thus, these industries’ performances highly impact cutting tools
market situation.
Automotive Industry Performance
For the second half of the year 2012, production of automobiles accelerated, owing mainly to domestic
sales which benefited from pent-up demand and the government’s tax rebate scheme for first-time car
buyers, as well as due to temporary imports of parts and rapid reconstruction of factories for business
recovery from the flood in 2011. As a result, in 2012, automobile production reached a historical high
at 2.4 million cars, rising by 66.8 percent compared to the year 2011. In 2013, automakers stepped up
production at the beginning of the year to keep up with backlog order that resulted from government’s
tax rebate scheme for first-time car buyers since end-2012. Nevertheless, in the second half of that
year, automobile production gradually declined, as an increase in overseas orders failed to offset
decline in domestic orders, after most cars under the first-car scheme had been delivered. Thus,
automobile production totaled 2.46 million cars for the year, increasing slightly from the previous
year. Since automobile production recorded an expansion for the year 2013, other related industries –
including cutting tool also performed well.
Electronic Industry Performance
In 2012, hard disk drive (“HDD”) industry, one of the electronic industries that require a huge number
of cutting tools in its production, was significantly affected markedly by the global economic downturn.
This caused some companies to reduce the number of work days which in turn caused overall
electronics production to fall below its pre-flood level. During the last quarter of 2012, there were
signs of a recovery owing to better prospects of external demand.
Industry Analysis
A.L.M.T. (Thailand) Co., Ltd. - Transfer pricing report
PwC 22
During 2013, Hard disk drive production was affected by the change in consumers’ preference toward
high-technology equipment and new generation products such as Solid State Drive (“SSD”). The
production process of SSD is different from the traditional HDD production. The process requires
only simple cutting tools, such as drilling tools. Thus, the sales of more sophisticated cutting tools
would expect to drop as the use of SSD surges.
Nonetheless, Thailand is growing, moving from its old day’s dependency on low cost competitive labor.
The growing knowledge and expansion of Thai manufacturing, along with infrastructure upgrade
plans of the country have driven the demand for machinery and metalworking. Also, only a small
number of companies in Thailand's industrial sector orders are imported. Most firms in Thailand
would prefer local sources to meet demand, so an excellent investment opportunity could be created
Thai machinery and metalworking industries, hence impacts the base tools industry. 24
3.6. Key Success Factors
Quality
In the industry where the products cannot be differentiated, quality is another factor that buyers give
an equal weight, comparing to price, and take into account when make a buying decision. A product’s
quality is often defined as functionality, reliability and durability. These are qualitative attributes that
a buyer looks for in a product. A company that offers a new product at a cheaper price but is unable to
do what it is supposed to do and performs unpredictably will definitely go out of business. Thus,
manufacturers should make certain that quality control has been put in place throughout the
manufacturing supply chain to ensure that the goods are produced accordingly to the design and
functioning the way it should.
Research and development
Research and development function is critical and strategically important for the companies. The
ability to quickly develop and bring about the new and improved product
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